Real Estate Investment – Rental Property

Over the last couple of months I’ve been seriously considering adding a small rental unit to my passive income stream.  Although we have the equity to purchase a duplex or triplex we wanted to first test the waters with a smaller less expensive unit. This will allow us to see if being a landlord is for us without tying up a lot of equity.

So after a few months of searching I’ve finally found a small 2 bedroom bungalow that I think will fit the bill. It requires quite a bit of work (roof, kitchen, bathroom, landscaping) however, all these deficiencies were reflected in the price. Although I’m a white collar office dweeb I am pretty handy and have already renovated a few houses and built a few additions/garages so I am confident that I can do all the work myself. Another advantage of purchasing such a small unit is that the repairs are all much less expensive and won’t require as much of my time.

When looking at real estate I used two financial metrics to determine if the rental was a “good buy”. The first is cash flow and the second is cap rate. In my next post I’ll explain how I used both to evaluate properties.

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