Looking for advice on rental property
I think the first step is to be thankful that your relationship with this person has not degenerated into lawsuits and bickering.  That would greatly affect your cash flow and valuations!  It also seems that this person is open to a variety of solutions.  This truly is a gift. I see two options without taking a mortgage or fronting cash: The key here is if the 65% property already has a mortgage.  Does it have enough equity to provide 15% cash out, and cover the existing mortgage?  What is the interest rate?  Can you get a lower rate that will reduce the impact of a higher mortgage payment will have on your income?  Can you have your partner finance the 15%?   In the end there really isn't a way to divest this company without impacting your income. You say that one property is 65% of the value of the two properties and the other is 35%.  But how much of that do the two of you actually own?  If you have co-signed mortgages on both properties, then your equity is going to be lower.  If you sold both properties, then your take away would be just half of that equity.  And while the 35% property may be less valuable, if you bought it first, it may actually have more equity.   It's the equity that matters here, not the value of the property.  With a mortgage, the bank is more of an owner than you are until you've paid down most of the loan.   You may find that the bank won't agree to a single-owner refinance.  A co-signed mortgage is a lot easier for them to collect, as they can hold either of you responsible for the entire loan.   If you sell the 65% property, then you can pay off any mortgage on that property and use the equity payout from that to buy out your relative on the 35% property.  If you currently have no mortgage, you'd even have cash back.  This is your fewest strings option.   Let's say that you have no mortgage now.  So this mortgage would be the only mortgage on the property.  It's not so much, as 15:65 is 3:13 or 18.75% of the value of the property.  That's more of a home equity loan than a mortgage.  You should be able to get a good rate.  It might reduce your short term profit, but it should be survivable if you have other income.   If you don't have other income, then seriously consider selling the 65% property and diversifying the payout into something else.  E.g. stocks and bonds.   Perhaps your relative would be willing to float you the loan.  That would save you bank fees and closing costs.  Write up a contract and agree to take assignment of the title at payoff.  You'll need to pay a lawyer to write up the contract (paying a modest amount now to cover the various future possibilities), but that should still be cheaper.   There's a certain amount of trust required on both sides, but this gives you some separation.  And of course it takes your relative out of the day-to-day management entirely.  Perhaps the steady flow of cash would provide what they need.   If your relative is willing to remain that involved, that can work.  Note that they may not want to do this, so don't get too attached to the idea.  Be prepared for a no.  This would be a great option for you, as you pretty much get everything you have now.  They get back the time meeting with you to make decisions, but they also give up control over those decisions.  Some people would not like that tradeoff.   The one time I was involved with a professional managing a property for me, the fee was around 7% of the rent.  If that fits your area, you might reasonably charge 5%.  That gives a discount for family and not being a professional.   There's a relatively easy way to find out what fits your area.  Look around and see what companies offer multiple listings.  Call until you find a couple that will do management for you.  Get quotes for managing your properties.  Now you'll know the amounts.   The big failing though is that this may not describe the issue that your relative has.  If the real problem is that the two of you have different approaches to property management, then making you the only decision maker may be the wrong direction.  This is certainly financially feasible, but it still may not be the right solution for your relationship.   If you get a no on this, I'd recommend moving on to other solutions immediately.  This may simply be too favorable to you.
I assume having real estate in a good popular city is much more secure way of keeping money than having it in a bank account Not at all!  Many things can go wrong with rental property. Renters can be late on rent, they can cause damage to property, you can have unexpected repairs. I'm not saying that you should just let it sit, but rental property is not risk-free my any means. Are you prepared to be a landlord as a part time job (for 500/mo?).  Rental property is not passive income - it takes work to maintain.  You can outsource this to a property manager, but that eats into the 500/mo that you are estimating). I want to stay flexible and have a possibility to change my location whenever I want. That's a perfectly reasonable reason not to buy a home, but what will you do with the rental when you move? It will still need maintenance, you'll still need to interact with renters, etc. I'm not saying you shouldn't do this, but I get the feeling that you are not fully aware of the risks involved in rental properties. I'd talk to a solicitor and see if you can structure the purchase in a way that breaks the property into three pieces. One would be the freehold of the whole building, one would be a long lease on the downstairs part (on which you would get a residential mortgage) and one would be a long lease on the upstairs flat (on which you would get a buy-to-let mortgage). Since there's essentially no price premium for freehold as opposed to long lease, you should be able to raise enough money from the two mortgages to fund the purchase. Your post seems to read as if you want to invest only in real estate rental properties as a start because they will be a reliable investment guaranteed to generate profits that you will be plowing back into buying even more rental properties, but you are willing to consider (possibly in later years) other forms of investment (in real estate) that will not require active  participation in the management of the rental properties. While many participants here do own rental real estate and even manage it entirely, for most people, that is only a small part of their investment portfolio, and I suspect that hardly any will recommend real estate as the only investment the way you seem to want to do. Also, you might want to look more closely at the realities of rental real estate  operations before jumping in. Things are not necessarily as rosy as they appear to you now.  Not all your units will be rented all the time, and the rental income might not always be enough to cover the mortgage payments and the property taxes and the insurance payments and the repairs and maintenance and ... Depreciation of the property is another matter that you might not have thought about. That being said, you can invest in real estate through real estate investment trusts (REITs) or through limited partnerships where you have only a passive role.  There are even mutual funds that invest in REITs or in REIT indexes. I know of no generic formula for determining if an investment property is a good investment, besides the trivial formula. Make sure your income is greater than your expenses, and hope the value of the property doesn't drop. Some people will tell you to expect the monthly rent to be a fixed percentage of the purchase price, but that is a goal not a certainty. It is also impossible to estimate the difficulty renting the property, or how long the roof will last. Taxes can't be predicted, as the value of the house increase, so do the property taxes, but you might not be able to increase the rent.  You can't even predict the quality of the tenant. Will they damage the property? Or skip out early? You will need somebody who knows the local market to estimate the local conditions, and help you determine the estimated costs and income based on the actual property involved. You could be in a bit of a bind.  I wouldn't push it any more until you read your loan papers very carefully. Going back to the lender for a refinance after you converted it to a rental (presumably without their knowledge) is risky.  I doubt they'd let you refinance anyway, as the house is underwater. If the loan is performing then I wouldn't think they'd look too hard for reasons to upset the flow of checks by calling the loan due, but if you brazenly advertise the change of property use to them they may reconsider. Read your loan papers carefully to see what they can do before you lean on them too much. As for managing the finances on that property, I'd build up a cushion to deal with the fact that your payment is going to shoot up considerably in year 8.  Also consider building up a side business to get another income stream going to compensate as well.  You have a little time before it shoots up. "Based on the information you gave, there are dozens if not hundreds of possible theories one could spin about the rental market. Sure, it's possible that there are no listings because rental units on this street are quickly snapped up. On the other hand, it's also possible that there are no listings because almost all the buildings on the street have been abandoned and, aside from this one property that someone is tying to sell you, the rest of the street is inhabited only by wild dogs and/or drug dealers. Or maybe the street is mostly owner-occupied, i.e. the properties are not being rented to anyone. Or maybe it's a commercial district. Or maybe craigslist isn't popular with people who own property on this street for whatever reason. Maybe Syracuse has a city ordinance that says property must be advertised in the newspaper and not on websites, for all I know. Or maybe you missed it because nobody in Syracuse calls it ""housing for rent"", they all call it ""apartments for rent"" or ""houses for rent"" or some local phrase. Or ... or ... or. Before I bought a property, I'd do more research than one search on one web site. Have you visited the property? I don't know how much you're preparing to invest, I have no idea what property prices are in Syracuse, but I'd guess it's at least tens of thousands of dollars. Surely worth making the drive to Syracuse to check it out before buying." What are the most important facts to keep in mind as I consider this? IMHO, the most important consideration to keep in mind is - do you really want to be in the landlord business, and if so, how much experience do you have in this business? I have purchased three properties. I will say the #1 rule is 20% things go wrong all the time. Seriously, renters are pretty terrible. If you aren't making 20% profit on the books. So add up mortgage, insurance,  all costs. Then multiply that by 1.25. Whatever number that is is what you must get for rent just to break even. I can't stress this enough. If rental rates don't support you getting that kinda price then don't get into it. This is the break even number. "I recommend reading What's the catch in investing in real estate for rent? and making a list of expenses.  You have a known expense, the rent, and the assumption that it will rise a bit each year. If not each year, eventually the landlord will bump it, and on average, the rent should track inflation.  The buy side is the complete unknown, especially to us here. The mortgage and taxes are just the beginning. My ongoing issue in the buy/rent debate is that it's easy to buy ""too big"" or at least far bigger that what you are renting.  One extreme - a couple moves from their one bedroom apartment into their purchased 3BR home with far more space than they ever use. No need to paint the full picture of numbers, the house is a money pit, and they live for the house.  Other end - Couple already renting a nice sized home, and they buy a similar one. They rent out the two spare bedrooms for 5 years until they have kids and want their privacy back. They bought smart, for less than market price, and from day one, the mortgage was lower than the rent they paid. By year 5, having sent the extra income to pay down the mortgage, they've paid down half the loan. As the kids come along, they refi to a new 30 yr fixed at 3.5%, and the payment is tiny compared to the rest of their budget.  Simply put, the ratio of house price to rent for that same house is not a constant. When the ratio is high, it's time to rent. When it swings very low, it's worth considering a purchase. But the decision is never clear until every detail is known. The time may be perfect, and the day after you close, you lose your job, or in a good scenario, get a raise and are relocated. Just because you bought low yesterday, doesn't mean the market will pay you a good price today, it takes time for out-of-whack pricing to come back to normal.  A simple question? Maybe. But we first need a lot of details to help you understand what you are considering." When it comes to property investing, there are indeed a couple of important things to consider. Even property professionals must know some significant info in order to ensure that they will get the right property for a certain investor. Thank you for sharing this site. I definitely learned more info regarding property investments. I am sorry to say, you are asking the wrong question. If I own a rental that I bought with cash, I have zero mortgage. The guy I sell it to uses a hard money lender (charging a high rate) and finances 100%. All of this means nothing to the prospective tenant.  In general, one would look at the rent to buy ratio in the area, and decide whether homes are selling for a price that makes it profitable to buy and then rent out.  In your situation, I understand you are looking to decide on a rent based on your costs. That ship has sailed. You own already. You need to look in the area and find out what your house will rent for. And that number will tell you whether you can afford to treat it as a rental or would be better off selling.  Keep in mind - you don't list a country, but if you are in US, part of a rental property is that you 'must' depreciate it each year. This is a tax thing. You reduce your cost basis each year and that amount is a loss against income from the rental or might be used against your ordinary income. But, when you sell, your basis is lower by this amount and you will be taxed on the difference from your basis to the sale price.  Edit: After reading OP's updated question, let me answer this way. There are experts who suggest that a rental property should have a high enough rent so that 50% of rent covers expenses. This doesn't include the mortgage. e.g. $1500 rent, $750 goes to taxes, insurance, maintenance, repairs, etc. the remaining $750 can be applied to the mortgage, and what remains is cash profit.  No one can give you more than a vague idea of what to look for, because you haven't shared the numbers. What are your taxes? Insurance? Annual costs for landscaping/snow plowing? Then take every item that has a limited life, and divide the cost by its lifetime. e.g. $12,000 roof over 20 years is $600. Do this for painting, and every appliance. Then allow a 10% vacancy rate. If you cover all of this and the mortgage, it may be worth keeping. Since you have zero equity, time is on your side, the price may rise, and hopefully, the monthly payments chip away at the loan. The best analysis I know of Kiyosaki and his advice somes from a genuine property expert who gives plenty of good advice.  If you are really interested then check out [John T Reed on Robert T Kiyosaki](http://www.johntreed.com/Kiyosaki.html). Of course, I know nothing about real estate or owning a home. I would love to hear people's thoughts on why this would or would not be a good idea. Are there any costs I am neglecting? I want the house to be primarily an investment. Is there any reason that it would be a poor investment?  I live and work in a college town, but not your college town. You, like many students convinced to buy, are missing a great many costs. There are benefits of course. There's a healthy supply of renters, and you get to live right next to campus. But the stuff next to campus tends to be the oldest, and therefore most repair prone, property around, which is where the 'bad neighborhood' vibe comes from. Futhermore, a lot of the value of your property would be riding on government policy. Defunding unis could involve drastic cuts to their size in the near future, and student loan reform could backfire and become even less available. Even city politics comes into play: when property developers lobby city council to rezone your neighborhood for apartments, you could end up either surrounded with cheaper units or possibly eminent domain'd. I've seen both happen in my college town. If you refuse to sell you could find yourself facing an oddly high number of rental inspections, for example. So on to the general advice: Firstly, real estate in general doesn't reliably increase in value, at best it tends to track inflation. Most of the 'flipping' and such you saw over the past decade was a prolonged bubble, which is slowly and reliably tanking.   Beyond that, property taxes, insurance, PMI and repairs need to be factored in, as well as income tax from your renters. And, if you leave the home and continue to rent it out, it's not a owner-occupied property anymore, which is part of the agreement you sign and determines your interest rate. There's also risks. If one of your buddies loses their job, wrecks their car, or loses financial aid, you may find yourself having to eat the loss or evict a good friend. Or if they injure themselves (just for an example: alcohol poisoning), it could land on your homeowners insurance. Or maybe the plumbing breaks and you're out an expensive repair. Finally, there are significant costs to transacting in real estate. You can expect to pay like 5-6 percent of the price of the home to the agents, and various fees to inspections. It will be exceedingly difficult to recoup the cost of that transaction before you graduate. You'll also be anchored into managing this asset when you could be pursuing career opportunities elsewhere in the nation. Take a quick look at three houses you would consider buying and see how long they've been on the market. That's months of your life dealing with this house in a bad neighborhood. More possible considerations: Comparability with other properties.  Maybe properties that rent for $972 have more amenities than this one (parking, laundry, yard, etc) or are in better repair.  Or maybe the $972 property is a block closer to campus and thus commands 30% higher rent (that can happen).  Condition of property.  You know nothing about this until you see it.  It could be in such bad shape that you can't legally rent it until you spend a lot of money fixing it.  Or it may just be run down or outdated: still inhabitable but not as attractive to renters, leading to lower rent and/or longer vacancy periods.  Do you accept that, or spend a lot of money to renovate? Collecting the rent.  Tenants don't necessarily always pay their rent on time, or at all.  If a tenant quits paying, you incur significant expenses to evict them and then find a new tenant, and all the while, you collect no rent. There could be a tenant in place paying a much lower rent.  Rent control or a long lease may prevent you from raising it.  If you are able to raise it, and the tenant doesn't want to pay, see above. Maintenance and more maintenance.  College students could be hard on the property; one good kegger could easily cause more damage than their security deposits will cover. Being near a university doesn't guarantee you an easy time renting it.  It suggests the demand is high, but maybe the supply is even higher.  Renting to college students has additional issues.  They are less likely to have incomes large enough to satisfy you that they can pay the rent.  Are you willing to deal with cosigners?  If a student quits paying, are you willing to try to collect from their cosigning parents in another state?  And you'll probably have many tenants (roommates) living in the house.  They will come and go separately and unexpectedly, complicating your leasing arrangements.  And you may well get drawn in to disputes between them. Check out the property websites to get an idea of how much, the property in question, could yield as rent. Most give a range and you can get a good idea of it. Just one example from zoopla. Likewise you can refer mouseprice or rightmove and get yourself an idea. Property websites do a lot of data crunching to do an update, but their figure is only a guide.