You know how I keep saying Seattle real estate is in a bubble? Girl Ninja and I haven’t walked through a single house in over two months, we’ve virtually given up on the house hunting process. So we decided to do what any logical couple would do… buy a house.
Allow me to explain.
If you’ve been reading along for a while now, you’ll know that I’m a big fan of short-term investing. Saving for retirement is great, but that only puts money in my pocket for when I’m old and wrinkly. If I want to have financial freedom before my 60’s I’m going to have to start investing outside of my 401k and Roth IRA. What better way to do that than to invest in an income producing asset.
A few weeks ago, I got a text from my long time best friend. He wanted to know if I would be interested in buying an investment property with him. I told him no. We chatted more about it. I told him no again. But after a few weeks of continued dialogue, and coming to the realization that Girl Ninja and I will probably not buy a house in the next year or two (because we love renting so much), I’m warming up to the idea.
We are going to look at a house on Sunday that hasn’t yet come on the market (it’s due to be listed on Tuesday, but through a connection were able to reach out to the sellers and get a viewing before it lists). It’s an 1,850sqft, 3b/2.5bth, that will list at $359,000. The house was built in 2012 and the owners are moving to cash out on the 20% YOY return on investment they’ve made. Well, that and they want to upgrade their home.
The house is in suburbia, which means it’s cookie-cutter, across the street from a large park, and in a solid performing school district. I personally wouldn’t buy this house for Girl Ninja and I, the layout isn’t my style, but it is shaping up to be the perfect candidate to make a rental property.
Here is how things would go down if we decided to move on the property.
- My friend and I each put $55,000 in to a house fund ($110k total).
- We buy the property for full list (we expect it will go pending the same day it lists due to the market).
- We put 25% down, $90,000.
- Another $5,000 each ($10k total) towards closing costs if necessary
- And another $5,000 each ($10k total) for a maintenance/reserve fund.
- Exact models of this house in the area are renting for around $2,300/mo, but we budget for $2,100/mo.
- Our PITI payment would be $1,700/month.
- Take discretionary rent income and build house reserve fund.
- Let someone else pay off our mortgage.
Seems like a pretty good plan, eh? Obviously the scenario above seems pretty legit, but of course there are some concerns as well. Such as…
- Finding tenants that don’t suck.
- Knowing the market will cool off at some point and the house might not appreciate much above current price point for a few years.
- Partnerships, by nature, bring an element of risk.
Still, no matter what way my buddy and I run the numbers (and believe me they’ve been ran), it seems that this house is smart buy. I don’t say that lightly, my friend is an investment banker who makes a crapload more than me, and knows Excel like Lindsay Lohan knows the inside of a courtroom. I trust the dude more than I trust myself (he’s actually the guy that got me to sign up for a Roth IRA 6 years ago!).
It seems like Girl Ninja and I are in the perfect position to take something like this on. Here is the way I see things:
- We have had a ton of money sitting in a bank account for years now, earning virtually nothing.
- We have no desire to buy a personal residence in the next 12 months, possibly longer (possibly ever).
- I know that short-term investing is important to me, and at some point I have to stop talking about it, and start doing it.
- I know all investments come with risk.
- Having someone else pay off a house I partially own would be sweet.
- Girl Ninja and I could always move in to the property if needed.
- We aren’t buying for the short-term, minimum 10 year hold.
- Never have to put another penny in to the house after the initial investment.
Who knows what will actually happen after we look at the house Sunday morning, but it should be an eventful weekend nonetheless. I’ll let y’all know how things went on Monday 🙂
p.s. I’m obviously leaving out a lot of information, if I didn’t, this post would have been triple the length. If you have more questions about the property or our assumptions don’t hesitate to ask. We want to be very diligent in the process and think of all the potential benefits and concerns.