Would You Buy A Rental Or Sit On The Money?

[poetmum]

We have a bit stashed away in savings. DH and I are discussing investments. I have to preface that I'm in America. Where I am, we have avoided much of the fall-out of the recession. In fact, foreclosures are virtually non-existent and housing prices actually rose 2.2% in the past year. (Unlike the rest of the country.)

There is a new retail development going up close to a very marginal area. I just noticed that I could buy two 3 bed / 1 bath homes for under 4,000. They are in terrible condition. Each one would take serious rehab work. But, they are walking distance from the new development which promises something like 2,500 service industry and retail jobs.

We've just re-financed our own home and managed to cut our mortgage payments in half. So, the extra money could go to slowly rehabilitating these properties.

One property is currently being rented for 450pm. The other is vacant. We could keep the renters and then move them to the renovated house when I was ready to do theirs.

I should also mention, the unrented house and any repairs on the other would be a tax write off. (Or a loss.)

Should we take the leap? Or should we just leave the money in savings. What would you do?

$4,000???? What would they be worth done up?

In the two years, maybe 25,000 each. Over a four year period, maybe 60,000 each. It will take 30,000 total to do both houses.

Once complete, I could get anywhere from 450 to 800pm for each house. If I call it 500pm, that would be 12,000 yearly income. (Minus of course the normal things which always come up in a house.)

but one is rented for 450pm atm, you make your money back in less than a year? Isn't that a no brainer?

Yes and no.

On one hand, DH and I really don't want to be "slum lords." We also can't seem to get hold of the long-term development plans. The area next to this is really being gentrified. Many low-income people are being pushed out. What is the equivilant of council housing is being demolished to make way for "more profitable" housing. Our idealistic goal is to make an investment for both ourselves and in our community. (Meaning - to provide suitable, clean, respectable housing at a reasonable price.)

On the other hand, it is a gamble. We could fix these houses up, only to get bought out at "fair market value" if the development succeeds. (They would take into consideration the work done to the house - and yes - we'd still make a decent profit. But, not enough to go back out and buy something we'd be able to count on as income for the next 30 years.) Not to mention the emotional factor of seeing all of our hard work demolished.