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Am I right for an investment property?

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  • Am I right for an investment property?

    Hi all,

    I am new to this forum but it seems like a lot of great advice here so I figured I would seek this out. My major question is "Am I ready financially for an investment property"

    My wife and I are both practicing physicians approximately five years out from residency/fellowship. We live in a home currently, have some cash saved up and were interested in looking at real estate.

    Our portfolio is as follows (combined)
    Cash: 266,000
    401K/457B/401a: 790,000
    IRA: 100,000
    We have a brokerage account around 23,000 that we started about a year ago.

    My wife has significant student debt totalling around 150,000 but accuring zero percent interest. She has worked concertedly to try and pay this off before she turns 40. My debt is paid off.
    We did borrow some money from my parents for the down payment for a house which I expect to pay off in a few months. They charge us 4% interest

    We do live in a single family home currently with a mortgage.

    We were looking at a condominium that is about 1 mile away to potentially rent to medical students or residents. The price of the condo (2BR/2BA) is around 310,000 and we plan on putting down about 20% or so and then financing the rest.

    We also lived in a similar condo in the same building with the same floor plan and loved it. My wife lived there for three years and I moved there with her for one year before we switched to our current house about four years ago.

    I think our rental market in our city (Medium-sized, in the southeast) is reasonable and looking at comparable units in other buildings that are rental-only is around 2000 dollars a month.

    Do you think this makes sense? I am being told the "market is too hot" "this will be a headache" etc. We sit on a lot of cash, however and looking to try and diversify this somewhat. We expect to keep this property for a number of years (more than 10).


  • #2
    Real estate investment decisions are based on returns. You need to run a pro forma for the investment after plugging in all the variables of the deal before making a decision. There are some calculators online, including on the biggerpockets website.

    You should analyze cash on cash return, targeting 10%. You should also look at overall rate of return, which includes cash on cash, mortgage pay down, appreciation, and finally tax benefits. Many condo investments make terrible investments, some are ok, and occasionally they can be quite good. I would be wary of relying too much on appreciation for your return as that is quite speculative in many markets. And I would never choose to invest in a real estate deal without that pro forma investment analysis.


    • #3
      Pay off the student loans.


      • #4
        I would recommend a taxable account of more than 20 grand before you start buying investment properties. Others will disagree. What does your IPS say?


        • #5
          Yes. I think you ready. I just bought my first rental property a month ago and I have far less assets than you do. I think real estate is a great hedge right now for the inevitable inflation coming IMO. As the @White.Bearded.Doc said though. I'm assuming you have done a little due diligence and determined the property is viable from crunching the numbers. Rent - expenses(mortgage, vacancies, maintenance) divided by the headache = reasonable profit compared to say stock S&P 500 investment. I know you said you might rent to medical students but I assume that's code for young professionals in the areas.

          I've been looking to get into real estate last 5 years but was in residency. Everyone always said not worth the headache and market is hot. Just keep in mind, there are a ton of investment property buyers out there buying in hot markets and ready to buy the dip. If the numbers work out.... pull the trigger. If you try and wait for the market to cool off you'll wait 20 years.

          I personally think your amount of cash is insanely high. That in itself shows you have enough cushion even if you do end up by chance buying a failing property for some reason and have to cashflow a few vacancy months or fund a major repair right off the bat.