First time investing in real-estate, looks decent?
"Congratulations, you are in great shape financially at a very young age.  Great income, nice equity in a home, and mostly debt free.   It seems like you are looking at taking out a loan of 400K, and to do so you will have to put your own home at risk as you do not have the 80K cash for a down payment.  Correct?  It also looks like after 2.1K per year without regard to taxes, maintenance, bad tenants, or vacancies.  As such this will likely be a negative cash flow situation.  I would say you should plan on a 912/month cost.  Are you okay with that?  While your income can probably cover this, no problem, is that your objective to have this property have a negative return for the next 10-15 years or so? For me, this is a no.  Way too much risk for a negative cash flow. It is hard to talk to the upside as you did not give any profit predictions and I am unsure of the market.   Why would you risk jeopardizing your great financial situation with a ""hail mary"" attempt to make money?  Slow down, you will get there.  Save for a few years so there is no need to tap your home's equity to make a down payment.  It would really bother me to owe 600K on a 121K salary (75K+20K+26K)." "This might be a good idea, depending on your personality and inclinations. Key points: How close is the building to you? Do not buy any building that is more than 20 minutes travel from where you are. Do you have any real hard experience with doing construction, building maintenance and repair? Do you have tools? Example: do you have a reciprocating saw? do you know what a reciprocating saw is? If your answer to both those questions is ""no"", think twice about acquiring a property that involves renovation. Renovation costs can be crushing, especially for someone who is not an experienced carpenter and electrician. Take your estimates of costs and quadruple them. Can you still afford it? Do you want to be a landlord? Being a landlord is a job. You will be called in the middle of the night by tenants who want their toilet to get fixed and stuff like that. Is that what you want to spend your time doing, driving 20 minutes to change lightbulbs and fix toilets?"
Something that you omitted in your question is whether this prospective purchase is a single family residence (SFR) or some other type of real property.  If this is an investment purchase as you say it is, then the only real way to tell it is worth what you are willing to pay is based on the income it produces. Once you complete an income and expense analysis you can get a CAP rate to compare it to other like properties in the area.  This is the best way to value income/investment real estate.  If you don't know what a CAP rate is and how to calculate it, then you might be over your head a bit. Another important aspect to consider is the reason to pay all cash for this property.  The main reason to invest in real estate is to use the banks money as leverage.  Again, you should understand these kinds of basic real estate concepts before you dive into purchasing investment property. "Are there other options I haven't thought of? Mutual funds, stocks, bonds. To buy and sell these you don't need a lawyer, a real-estate broker and a banker. Much more flexible than owning real estate. Edit: Re Option 3: With no knowledge of investing the first thing you should do is read a few books. The second thing you should do is invest in mutual funds (and/or ETFs) that track an index, such as the FTSE graph that was posted. Index funds are the safest way to invest for those with no experience. With the substantial amount that you are considering investing it would also be wise to do it gradually. Look up ""dollar cost averaging.""" Look. Here's a graph of the S&P 500. It's up 1200% since the start of the 70's, our late recession notwithstanding. You're not going to get that kind of return on bonds or commodities or savings accounts. (Maybe real estate stands a chance, if your real estate wasn't in, say, Detroit. It's not as easy to diversify real estate...) People in their 20's who have plenty of time before they need to spend their retirement money invest in the stock market exactly because they're long-term and can withstand these dips just by waiting them out, and earn a ton of money. People approaching their 60's transition their portfolio to bonds so that a market crash won't wipe them out. "Having lived in a couple of coutries my perspective on this is ""Do apartments gain value or lose value in your area over time?"" I've lived in areas where the age of the building vs the inflation of home values has meant apartments steadily lose value and in other areas where they keep up with or beat inflation for most of the life of the building.  Have your real estate agent take a look at the market and see how much a similar apartment in an older building goes for.  If it seems like apartments rapidly depreciate then it may be a good time to take a win.  If age isn't a huge factor in price then it probably doesn't make sense to get rid of a cash generator to put the money into other investments." yeah - the point is why should any foreign investor trust you with their money?  just because Bangladesh might have a hot housing market, doesn't make you a reliable or trustworthy partner.  Maybe if you were an established and reputable real estate investor this post might get traction. "People have lost money buying houses in good to great neighborhoods.  It's a pretty large red flag that you state this so clearly ""the neighborhood is pretty bad."" I'd rather buy a bad house in a great neighborhood, and spend my weekends fixing it up, turning sweat equity into real equity. A two year bet? I'd pass.  Close to the school, high demand area, and my answer might change.  (And, ""welcome, stranger"")" "I work for an international real estate consulting firm in Shanghai. After graduation I worked in their Research Department for two years before switching to Commercial Brokerage 3 months ago.  Since my background was in Economics, I had to learn a lot about how the industry worked. I found this book to be very helpful:  ""Commercial Real Estate Analysis &amp; Investments"" by David Geltner.  I will admit that it's probably more than what you want to know, but it seriously gives an in depth breakdown of the entire industry.   About one year into starting, a major Real Estate iBank commissioned our company to due diligence on an office building acquisition in Shanghai. I was the only person capable of doing it as everyone else was either busy or couldn't speak English properly. With 1 year under my belt in Research and that book, I took the entire thing on. Had to walk into that meeting by myself with all the big wigs from New York, London, Hong Kong and Shanghai questioning every single number and assumption. I fucking nailed it. While credit towards understanding the market through work is deserved, a lot of the development of that report came from constantly consulting that book. It's worth every penny if your interested in commercial real estate investment.  That being said, if you want to track deals, the best place is called Real Estate Capital Analytics. Unfortunately you have to fork over a decent amount of cash to get access. For your situation I would recommend the following:  - ""The Urban Land Institute &amp; PwC Emerging Trends in Real Estate"": I believe you need to be a member but I can always find it online for free.  - Brokerage firms: I work in one and we cover residential, commercial and retail reports on cities throughout the world (I actually wrote the ones for China for two years). You can find a wealth of information in them. If you are seriously looking at buying with capital, call up the research department and ask if they have some time to discuss the market face to face; if you don't have capital, they won't talk to you. Fortunately however, most let you download their reports for free from their website so here's the list of the major ones in the US: CBRE, Colliers, CRESA, Cushman &amp; Wakefield, Jones Lang LaSalle, etc.  - The Loop - www.loopnet.com has a wealth of information from Commercial properties on the market to previous deals.  Please let me know if I can further advise." "So either scenario has about $10K upfront costs (either realtor/selling expenses or fixing up for rental). Furthermore, I'm sure that the buyers would want you to fix all these things anyway, or reduce the price accordingly, but let's ignore this. Let's also ignore the remaining mortgage, since it looks like you can comfortably pay it off. Assuming 10% property management and 10% average vacancy (check your market), and rental price at $1000 - you end up with these numbers: I took very conservative estimates both on the rent (lower than you expect) and the maintenance expense (although on average over the years ,since you need to have some reserves, this is probably quite reasonable). You end up with 2.7% ROI, which is not a lot for a rental. The rule of thumb your wife mentioned (1% of cash equity) is indeed usually for ROI of leveraged rental purchase. However, if rental prices in your area are rising, as it sounds like they are, you may end up there quite soon anyway. The downside is that the money is locked in. If you're confident in your ability to rent and are not loosing the tax benefit of selling since it sounds like you've not appreciated, you may take out some cash through a cash-out refi. To keep cash-flow near-0, you need to cash out so that the payments would be at or less than the $3200/year (i.e.: $266/month). That would make about $50K at 30/yr fixed 5% loan. What's best is up to you to decide, of course. Check whether ""you can always sell"" holds for you. I.e.: how stable is the market, what happens if one or two large employers disappear, etc."