Since I was 18 years old, I’ve dreamed of owning a rental property. Sounds corny, I know, but it’s very, very true. I used to sit on the floor of my first apartment with the real estate section, a highlighter, and a beer on Saturday nights. It soothed me to imagine I could somehow make it happen on my own with no resources.
I’ve always been a dreamer. Back then, I had no clue that I would end up working my way through grad school and eventually declare bankruptcy. After that mess, I never thought in my wildest dreams I would find myself almost completely debt-free and living in a home that my husband and I owned less than four years later.
I’m in a much better financial place now, and I have the unique ability to save nearly 100% of my monthly income. However, said income varies wildly – I stay home with my kids and I work as a freelance writer. Still, my dream of owning a rental property – making it happen on my own, with my own money and no one’s help – is still emblazoned in my mind.
Mission Rental Property: Here’s the Plan
Here’s the conundrum: If you want to buy a rental and you have lots of moolah to sock away, but your credit report is marred by a past bankruptcy… what to do, what to do? The only option that I’ve been able to come up with involves a two-pronged plan:
1. Operation Credit Report Cleanup
I have no open lines of credit except my student loans, which are current. I considered adding one credit card to build up a new history of on-time payments, but I don’t know if I want to go down that road again. Instead, I’ll continue paying on my student loans and monitor my credit report like a hawk until the bankruptcy falls off.
2. Save More Than I Need
Originally, I wanted to save enough to buy the property outright. In my state, a good townhouse in a nice area for young professionals runs around $110,000. This means that saving $1000 per month toward the total cost would translate to nine years of consistent saving. Unfortunately, I’ve never been that patient.
These have been the loose guidelines for me. I recently decided that I would save $1000 per month toward the price of the townhouse, and once the bankruptcy falls off of my credit report, I’ll apply for a small 10-year home loan to finance the remainder of the cost.
Rent should cover the monthly mortgage payment with a good bit left over since the total loan proceeds will be far less than the value of the home once I make the massive down payment. Of course, I’ll pile all profits from rental income I receive after expenses and taxes into savings until I build up a nice little emergency fund for the home. I don’t want to be caught without the funds to fix a broken hot water heater or a faulty air conditioning unit.
At the time of this writing, I have $1000 saved, so I’m still in what I like to call the “pipe dream” phase. But I know deep down that I will achieve this goal before I turn 40. I have to.
Do you have any old financial goals that have stuck with you through the years? What are you doing to make them a reality?