patrick.net

I haven't done this, but here's a thought experiment I've been running in my head that might be useful to you:

Suppose you had a friend whom you trusted perfectly to look after your best interests. Let's call him Duane. Let's say Duane similarly trusts you. You also have identical taste in homes, identical finances, and two identical homes just came up on the market for identical prices (say they're new constructions in one of these mass-produced home-hives that are so ubiquitous these days.)

Is it better for you and Duane to each buy your own homes next door to each other and live in them, or for you and Duane to buy your own homes and rent them to each other for the exact same PITI-cost?

The only difference I can see (that can't be assumed away through collusion so perfect it can only exist in a thought experiment) is that in the latter case you can both deduct depreciation and in the prior case you cannot --either way, you can deduct mortgage interest.

You don't have a Duane, but nor do you need one. I think the experiment shows that it's perfectly sane --in some senses optimal-- to rent while you're a renter. The other problems you raise are valid, particularly the long-distance landlord one, but I wouldn't worry too much about renting while playing landlord. Unless you really want to own just-because and are worried about deferring that; which would be reasonable, but would also be a value-tradeoff that random dudes on the Internet couldn't really help you wrestle with.

We did it for a while. Very similar boat you're in. Bay area - too expensive to buy. Bought elsewhere and have been renting them out. A property manager is taking care of them, so pretty hassle free so far.

I view it this way - do you invest your money in stocks, bonds, etc. while you are renting? If so, investing in RE is the same thing just a different investment. The main thing is making sure it is a good investment. Just like there are bad stocks, there are bad RE investments.

MTHOM,
thanks for your reply. Can you share more details? location, how much the property manager charges ..etc

"I can pick up a decent rental property in these areas with a hefty down (40-60%) and be cash flow positive by renting them out"

You should check out the capitalization rate and make sure this is worth it. 40-60% is a lot down, and you might be able to get better returns elsewhere. It doesn't sound like these are good rental properties if you're having to put that much down.

Other than that, it is very difficult to be a long-distance landlord. Many people would recommend using a management company, but it's also a lot harder to keep tabs on the management company when you live far away. Sacramento isn't that far away from the Bay Area, however.

In addition, you should consider whether it pushes forward your life goals. If you want to buy a house eventually, it might not make sense to use your potential down payment on an illiquid investment with poor return.

Also, maybe you should consider somewhere with better cashflow and return on investment like Oklahoma instead of Arizona.