About two years ago I decided that I wanted to buy a house, and specifically a rental property. I was still in college at the time, but I didn’t want that to stop me from reaching a goal that I had set for myself. To make a long story short, my now wife and I ended up purchasing a small house relatively close to where we both went to school. I knew that we would be moving in the coming months for me to take a job in the Midwest after graduation, so I began actively marketing the house for rent so that the payments would be covered when we moved. It took some doing, but we eventually got a rental contract in place. And there we had it, our first rental property.

So now it’s about two years later and we’ve decided to sell this little house. We put it on the market for a couple of reasons, one being because I’m going back to school in the fall and won’t be working. The other reason is because of the increase in value and what we could make off the sale. So yesterday we finally received an offer on the house that we’re going to take, and the net of the sale should be a little over 20 percent of what we paid for it. It’s interesting to note that even in these troubled financial times, it’s possible to make money.

What I’ve Learned From All This

1. The first thing isn’t so much something I’ve learned, but rather something that’ been reaffirmed to me. We’re constantly hearing of declining real estate prices and how bad the market is, but these are all national numbers and averages. Real estate however, is very local, and you can’t draw conclusions about your local market from the overall national averages and trends. This is very evident in our most recent experience.

2. It’s also important not to let yourself get overextended. When analyzing a deal or purchase, I always consider what could be the worst-case scenario so that I’m prepared for it if it were to happen. In this case, the house we purchased was well within our means to afford while we were living in it. I also structured our current finances so that if we were to lose our renter and have a vacancy we would be able to carry the mortgage ourselves. The amount we save each month is at least equal to the amount we would owe in the worst case scenario. I have never worried that we wouldn’t be able to make the payments on the house.

3. The third lesson follows closely from the second. When maintaining an active investment such as a rental property it pays to have substantial liquid funds on hand in case of an emergency. Emergency funds are frequently advocated by many, but how much is widely debated. If you base the amount on a set time period of expenses to maintain, such as enough for 6 months or a year, then this will need to increase when you have an investment you need to look out for each month as well.

4. The last point I want to make is to think and plan ahead. When we bought this house, I knew that I wanted to turn it into a rental property. Going in with this perspective helps to keep the emotions from inflating the price you’re willing to pay, and it makes sure that you’re more aware of all the associated details and expenses. It’s much easier to figure out how you’d handle certain situations before getting yourself into them, rather than scrambling to find a way to handle things.

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