Did we buy a rental property?

If you saw my post on Friday, you know that Girl Ninja and I were seriously considering going 50/50 on a rental property with my best friend from high school who married one of Girl Ninja’s best friends from high school. Today, I tell if we wrote up an offer, but not until I drag things out a little more 🙂

We viewed the property yesterday morning. It is due to list on Tuesday, so getting to see it pre-market was crucial. We completely expect it to go pending on the first day it lists for full (or above) asking price. Having the opportunity to write an offer, without having to compete with other interested parties, was a pivotal part of making the deal work.

The house appears to be in tip-top shape. It’s only a year old and the appliances, finishes, etc all still shine like they’re brand new. It was clear the owners took pride in their home. There were linoleum floors in the bathrooms and tile on the kitchen counter-tops. This bothered me because I would have preferred higher quality finishings, but at the same time, these are the perfect materials for rental wear-and-tear. The house shows really well and I could totally see a Microsoft employee (Microsoft is 20 minutes away) renting the house for his/her young family.

Okay, so now that you know we liked the place, it’s time to tell you if we wrote up an offer…

Drumroll please….

Nope. Here’s why:

If Girl Ninja and I co-bought this property, we wouldn’t be able to buy our own place for at least two years, since that is about how long banks need to verify stable rental income.

With any partnership there is risk. While I still believe that my friend and I would have been able to make this deal work, we know that everyone probably thinks the same thing. Neither of us could shake the potential issues that could arise when control is shared.

The time sensitive nature of the transaction. This was my biggest hesitation. I felt rushed. An offer had to be made last night in order to give the sellers enough time to respond before it goes to market on Tuesday. There were still a lot of questions I couldn’t yet answer, and while I believe the house is a good buy, I didn’t have enough time to really wrap my brain around all that encompasses being a landlord. Especially when that responsibility is shared with another person.

But ultimately, Girl Ninja and I did not go in on the house for one reason and one reason only. My friend decided to buy the house on his own. I’ve known this was a possibility for the last few days. He sees very little downside and a ton of upside potential. He can afford the risk and no longer has to worry about me dying divorcing, or forcing a sale. I went and viewed the house with him yesterday knowing he was probably going to be the only person writing an offer. It’s a little sad because I want our cash to be invested in something, but I know this is for the best. I’m super pumped for him and I hope his offer gets accepted.

Who knows, maybe Girl Ninja and I will rent from him once we have a kid or two 🙂

p.s. for those that care, here is the spreadsheet that lays out the numbers (click to make images larger)…

Screen shot 2013-04-14 at Apr 14, 2013, 11.45.19 PM

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20 thoughts on “Did we buy a rental property?

  1. You and ninja wife are obviously doing fine. Although another investment vehicle would be nice, as it is always fun to watch the dollar signs increase, it seems like you made the right call. It would seem the security of being able to purchase a home in the next two years would put your mind at ease compared to a little extra income.

    Enjoy the ride!

  2. I think you made the right decision. Being rushed into a decision like this is not good. It is not like you are being rushed to decide what candy bar to buy when in the checkout lane, you are being rushed into an investment property partnership.

  3. Good reasoning. This was not the last opportunity ever for you to invest. Next time, may be you will have ample time to make a different decision. Who knows?

  4. I’m very happy to read you didn’t buy the property, and I say that as a 40ish person who owns numerous rentals. I’d encourage you to consider investing in index funds via monthly investments. It’ll be a great way for you to build non-retirement (and accessible) wealth in a low cost way. Proud of you Ninja!

  5. Just curious, was Girl Ninja as excited as you were about the possibility of this rental property or was she more hesitant?

    • At first Girl Ninja didn’t really know what to think. She kinda was like “this is over my head, so I trust you to do whatever makes sense”. Emotionally she was struggling to know we wouldn’t be able to buy a house for a couple more years (even though she admitted we may not want to anyway).

      But after she walked through the house she was on board. While we were eating lunch she said “I feel like we just need to quit being so safe and take a risk.” Doesn’t seem like this is the risk we will be taking, but our perspective changes as our NW grows.

      • Yes indeed, i’m sure it will. It would be interesting to know if today she feels more disappointed or relieved. I would guess she woke up relieved, whereas you might have felt more let down. You showed real maturity in your decision making process and final choice, IMO.

  6. Just doing the exercise added to your comfort and knowledge base. And it’s more real if there’s a chance you may actually pull the trigger. In the end it will work out, your head is in the right place.

    By the way, I’m also curious about Holly’s question — was GN’s excitement level, on a scale of 1 to 10, the same as yours?

  7. Too many choices? Right now the real estate market is heating up because of llow inventory and low interest rates. You may want to search for a fixer or some other way to find better pricing. Good luck.

  8. Hi Ninja,

    It’s your friendly landlord reader.

    I looked at the numbers. Without knowing your area, but assuming the numbers are correct, this is an average deal. You were right to pass. Your friend will do fine, but there will be little room for error on his part for the next few years. With these numbers, one bad tenant or one vacancy lasting more than a couple months and his profits are gone for the year (and that is assuming he takes out the 30 year mortgage, which you should NEVER do on a rental).

    Good to know you are hanging with some landlord-types (or soon to be landlord types!)

    • Could you explain why 30 year note is so bad on rental? I get that the 15year has a lower interest rate, but that also means a significantly higher payment, and less opportunity for the rent to cover payments. You’ve got me curious 🙂

  9. If you had any sort of doubt, then it is good that you didn’t put in an offer. No need to jump the gun and do something simply because of time.

  10. I loved this post!

    Jordan and I are also considering an investment property – I wrote about it a bit today on my blog, but we are in very very early stages. I would also be uncomfortable with a rushed deal, that’s for sure!

  11. You should check out affordanything.com. Paula has some fantastic property investing tips, including some quick number rules to see whether you’re getting a good deal or not. I think you made the right decision, property investment is not something that should be rushed into on a whim. It might still be what you want to do, but take the time to get comfortable with the figures and what kind of rental you want before you start shopping 🙂

  12. It’s always interesting when you’re thinking about investing & properties. We just bought a duplex- going to live in one side & the other is rented. Solved the issue of wanting to invest & also wanting a house. While we live there, we won’t be making any money, but the rented side will pay 90% of all expenses, so it works out well. It helped that there was already a long-term tenant in one side; makes it a little easier.

  13. Awesome read! This blog has made me wear the thinking cap and ask myself – why would anyone offer a premise unless the application had some really serious problems? Well worth a thought. I stumbled on http://bit.ly/XxVrgC and found it interesting.

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