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?
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I would love to own rental property sometime in the future. My current goal is to get through college without any debt!
What an interesting goal! It's amazing how different real estate prices are from location to location - my friend (in DC) has basically the same type of property you're talking about, and it cost her and her fiance more than $400,000!
Good luck achieving your goal! I'm sure you'll do it if it is what you really want. Put up a picture somewhere to remind yourself to save for it!
Our biggest goal has been to get out of debt. We started with $110k ($85k in student loans and $25k in credit card/personal loans) and have paid off about $55,000 over the last 5 years. It's a slow process but it's definitely one of the goals we'd like to accomplish. After that it's on to the rental properties!