I agree with you here. Everyone in my family I tell about this says, “Wouldn’t you rather rent out a beach house or a town home. Or look further outside the city.” And I try to explain to them what you are saying.

Lots of people get caught up on what kind of place THEY would want to live in. This doesn’t make the best investment property.

We were looking at another property that had 3 units which would/needed to fetch $900 per month. The amenities were much nicer. The problem is that if you can afford $900 per month, you might as well get a house and a mortgage. The only viable renter in that market is people in transition and college students. And the local area is cracking down on the college house since they cause a ruckus.

The only reason I’d say I would need an upper income renter is that the space lends it to one. (Big open space. Huge kitchen. Double loft. Sky light. — It was built by a local lawyer in the 1960s and was probably off the hook at the time.)

This is good because our living space is going to be nicer than some other places we were looking at. However, if/when we move I do believe that it will be much harder to rent than a lower income apartment.

Being a landlord is a numbers game. In terms of diversification its my cash cow and you are my growth…

And in 1992 he told me to look at the Internet and this thing called the “Web.” He said it will be hot… I am not making this up. In 1992 he told me this and I was completely skeptical because at that point all I knew of the Internet was Archie, Gopher, FTP, etc…

If you keep that in mind that’s ok.

>on paper it looks to be break even with us in there and +$800/mo with a renter where we are

This is the key. Of those people who I have run into that have less units to rent to make things work they need to live in one of the units. And if they do it actually almost carries itself. That in itself is actually pretty good because if your own company is doing slower no problems.

Look at what you posted it might actually be a good opportunity.

One other thing… As good as it sounds to attract upper income renters you don’t actually want to. In 1992 when I started my own company right out of university my main investor was a real estate guy. He had two or three towers (about 300 units) in Toronto of middle income folks. I asked him why not go upmarket? His response was that upper income folks are harder to find meaning more time on the market not generating rent. And more importantly upper income people are pains in the butt! They want everything perfect and if one tile is out of place they will hound you till the cows come home. More maintenance costs. It’s cheaper to sell to upper income folks.

All in all I have found that these kind of situations if managed properly can actually be quite a nest egg… Though you do need to manage your costs.

@yeehaa, I had the same thoughts. And our apartment lease isn’t up until July, so we can kind of do that. We started looking now and are always keeping in mind that we could probably find something better priced by Summer. So we’re being tough in negotiations.

@christian thanks for sharing your experiences. I’ll keep ALL of that in mind. There is a lot going for this place that should make it less of a maintenance hassle.

- Built in 1960s
- Half of the lot is a parking lot that is rented out to a local credit union and a few residents. (i.e. rent without utilities/repairs/etc)
- The renter upstairs has been there for 4 years and plans to stay for a while.
- The current owner will rent the office in the front for at least one year. After that, we hope to fill it with Stranger Studios employees. And if we don’t have local employees in a year, try to rent it.

I don’t want to be too wishy washy about it though. It will be tough. I was worried about some places we looked at with 4-6 units, and thought like you “I might as well do 8+”. We plan on looking for more properties after a year or so, so we might get there. But for now, 3 units is a bit more manageable if not extremely profitable. (on paper it looks to be break even with us in there and +$800/mo with a renter where we are)

I’m also worried about being able to rent our space if we leave early. The back apartment in this place is really awesome. After we renovate it a little bit, it will want to fetch $800-$1100 in a area where the average 2BR rent is $550-700. I’m worried that we’ll be able to find a higher class renter.

The property is near the “lawyer’s lane” where there are some nice old homes filled with … well lawyers. The court house and some businesses are nearby that we might be able to find someone who wants to be close to work. But yeah, it might be tough. It’s a unique spot, which makes it tough. But then it’s one of the only super nice apartments in the area, which could make it easier.

Also helping is the price (we’re looking at a mortgage on about $200k, which we can handle fairly easily) and the fact that Reading is doing a lot of improvement to the downtown. We’re meeting with the City Managing Director tomorrow to see what kind of breaks or special deals we can get. We’ll see.

The one thing we always worry about with our own company is if the demand is going to stay there forever. I really doubt that we won’t be able to find work over the next few years, but who knows. Someone will create the instant website button that actually works perfect for everyone. (we’re diversifying our income in case this happens, but right now the web dev is our bread and butter)

Reading isn’t bursting with design or computer engineering jobs, and the ones they do have probably don’t pay too well. Commuting to Philadelphia is a possibility. And I have some ins with consulting companies, which could let me stay in Reading and travel weekly. We’ll see.

At $200-$300k, the downside is manageable IMO. Kim and I are very risk averse in our business and life.

Thanks again for the feedback.

My wife and I are professionals like yourself. Though the problem is that maybe you need to get a job (you never know), or you need certain access (like a major airport). Yes the price of housing near the city is more, but if the city is of any value you can at least get rid of it. The ability to liquidate is actually a good thing. Unless you have a market like now then you will take it on the chin too much.

Be VERY VERY wary of “renting it out” if you need to move. I have seen it from a few people (friends, and mother) and it is more hassle than benefit. To making renting worth it it seems you need about 8 units. Below that number the financials don’t add up (maintenance, income, etc).

Remember that as a landlord you need to keep books, manage taxes, fix things, etc. Those little things add up quite quickly. If you are going to make a go at being a landlord then having 8 units or so seems to be the number where the costs become less of a burden.

My advice would be if you are going to consider Reading then consider it as a place you will live in for the next decade. That means if you can’t make it a go with your company you need to do plan B IN READING! I honestly speak here from experience and having gone through this twice! The idea that you can just pick and leave with a property is more pipe dream than reality.

And I would advise to put as much money into your property right now and while your company is working. Then when you have problems you will not have the stress to need to pursue plan B. If you can hang onto your property in Reading for say 15 years you will most definitely then make a profit and be able to move.

My wife and I have gone through the financial numbers many times. What kills most people is the rent/mortgage. Get that under control and your life is good. Don’t have that under control you go into debt and your life is hell.