I am an advocate of buying houses to turn into rentals. Whether they are immediately rentals or eventually become rentals later after they are lived in doesn’t matter. As an empire builder of seven houses and counting, I am not only a true believer that owning lots of houses can have positive effects on your net worth. I have illustrated this many times on my blog and how personally it has allowed us to gain $400,000 in 4 years.
I am also realistic when I tell you that someday I will become a tenant again. At this point in my life, owning homes has to be an asset. It has to be a financial gain that adds value and helps me grow my financial position. Here are five things I look for when thinking about renting or buying a home at our next duty station…
Things We Look for When Renting or Buying:
1. We Try to Put as Close to 0% Down as Possible.
Our goal is to put as little down as possible in our houses. While investments require 25% after five homes, we strive to put 5% down on our personals.
2. When We Know Owning is Cheaper Than Renting.
If we can rent a home that’s significantly under the price (mortgage) of buying a house then it doesn’t make sense to buy. This is especially true if the principle amount exceeds the savings. For example: If I can rent a home for $2,000 but my mortgage is $2,600, and the amount I am paying off my loan is $300 then I should always rent.
3. We Immediately Rent For More Than Our Mortgage
I only buy a house that I can immediately rent out for more than my mortgage. That is my exit plan. For me this has been key and will probably be the number one reason why I rent instead of buying. There will always be some areas where it does not make sense to buy financially.
4. They Must Meet Our Core Requirements.
We buy houses that I can self-manage from a distance no matter if it is five miles away or 3,000 miles away. I have a specific market demographic and area that I appeal to. If a house does not fit my 7 building blocks then I will not buy the house.
5. We Don’t Buy on Pure Speculation That Prices Will Increase.
The one thing we have not done is buy a house purely with the exit plan that the houses will increase in value. While I take pride in buying in areas that I foresee long-term growth and value; I do not buy in areas that wouldn’t clear a profit from day one.
While there are always exceptions to rules, at this time there are only two reasons I would break any og these rules. Here they are:
- Goal of a placeholder. If we knew we would want to end back up in a good area and the numbers were just slightly off, we would buy. This would happen whether or not there were only a few houses that were cheaper to rent than buy. We would make sure that we would not lose much and that we foresaw growth there. Then I would buy because it meant that we had a place to come back to for years to come.
- Retirement Home. We have debated buying in an area that will just barely make sense with the goal of the tenants paying off the home over the next 15 years. This way when we do retire from the Navy, we have a home in the area we want to live. While it may be a placeholder or the actual retirement home, the goal is that we had a place in the area we wanted to end up.
Personally, I have the goal of only renting the houses out. Your goal might be to do whatever make sense for you at the time. Check out my article on Selling or Renting, to learn which make more sense for your specific situation.
What do measures do you use to evaluate do help decide if renting or buying is a better decision?1