Author Topic: Buying first rental house  (Read 3444 times)

Zamboni

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Buying first rental house
« on: October 06, 2013, 04:49:51 PM »
Hi everyone!

After lots of lurking and reading the Robinson's Landlording book recommended by arebelspy (thanks arebelspy!), I think I'm ready to buy my first rental house.  I went out with an agent and looked at several properties, but tomorrow I'm looking at the first one that I think is a real possibility.

A short list of what I'm looking for:
1) It has to be someplace that I personally would be willing to live.
2) I've decided against anyplace that has HOA dues, so townhouses/condos are out for me.
3) Low maintenance exterior (ie brick or siding) and decent roof.  Structurally sound. 
4) Small lot because I don't expect tenants to be good about yardwork and I don't enjoy it much myself, although I will likely put in some shrubs myself.
5) Rent will be at or very near 1% of total purchase price.

The house I'm looking at tomorrow is a 3 bedroom brick ranch listing for $100k.  Zillow rent estimate is $990 which is reasonable given the local market.  It's very close (<2 miles) to a local university and right across the street from an elementary school.  Today I looked at the outside and climbed up to check out the shingles, which appear to be in good shape.  Yard is small and backyard is fenced. 

Other ideas for things I should look for tomorrow?  What do you consider to be essential in your units?

Thank you for any advice you can offer!

 

Another Reader

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Re: Buying first rental house
« Reply #1 on: October 06, 2013, 05:22:53 PM »
Being right across from an elementary school will deter some people.  Traffic and noise are issues.

Zillow is not a reliable source of rental data.  You need to do more homework.  Call all the for rent signs in the area and look at rental websites, property management websites, and Craigslist.

Newer means lower maintenance costs.  Look at all the plumbing and mechanical systems.  How old is the furnace/AC unit/water heater/kitchen appliances?

The house should have at least three bedrooms and two baths to maximize the tenant pool.  The house should be well laid out

If the rent really is $990, start at less than $90k.

Have your financing in place before you write any offers.

Report back tomorrow with your findings. 

Zamboni

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Re: Buying first rental house
« Reply #2 on: October 06, 2013, 06:03:05 PM »
^Thank you for the feedback!  I hadn't thought about the school being a possible negative, so that is an excellent point.  I will be there tomorrow around the time school gets out, so that will give me a better idea about traffic.

I have lived here for awhile and helped a friend house/apt search not too long ago, so the market right around that area is pretty familiar to me.  $900 would be a pretty safe low end rent.  Very similar properties in the area are listed right now at $965 to $1050+.

On a tangentially related note, is it worth furnishing a place for rent?  I helped a friend look for a furnished one bedroom, and all of the places were small and very dilapidated and had even worse furniture but still listed for $500-600 plus.  Since I enjoy finding cheap/free solid furniture sort of as a hobby, would it be worth offering a place that way?  Thoughts on that? Can I endure the headache of having the furniture trashed?

Another Reader

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Re: Buying first rental house
« Reply #3 on: October 06, 2013, 06:46:32 PM »
In my experience, houses are rented unfurnished.  The tenants you want are substantial enough to have household goods.  The exceptions are seasonal and short term rentals.  Customs on appliances differ, most provide the range.  In the Phoenix market, refrigerators are usually included, and laundry units vary.

You should also drive around the neighborhood and see how many vacant houses there are and what is for sale and for rent.  Call on every for rent sign you see.  Get the asking rent and the days on the market.  Get to know the big property management companies in your area.  Their websites will have a lot of listings.

apennysaved

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Re: Buying first rental house
« Reply #4 on: October 06, 2013, 08:45:13 PM »
Your agent should be able to supply you with an estimate of rents in the area.

I agree with Another Reader that you need a minimum 3 bedroom/2 full bath.

As a landlord, foundations are a big issue where I live.  Try to see if you notice walking slightly uphill or downhill around the house. For roofing, check to see that you only see one layer of shingles.  I have seen poor roofing jobs where people have just put shingles on top of shingles (most noticeable at the corners of the house).  The other big thing for me is A/C, but definitely see if you can determine the age of the unit as well as the other plumbing/mechanical system Another Reader mentioned.  Can you get a Seller's Disclosure before making an offer?

I always, always recommend an inspection if you get an accepted offer. I have some stories!

Finally, try not to get wrapped up in the excitement of your first rental purchase. Stick to your numbers and don't try to force a deal.

Zamboni

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Re: Buying first rental house
« Reply #5 on: October 06, 2013, 09:26:17 PM »
Thanks, Another Reader and apennysaved!  I appreciate your thoughts on this.

I think I will take a tape measure and a notepad to jot down ages of things.  Probably I'll start a notebook specifically for this "first house" project.  If this particular house does look decent inside, then I'll be sure to make any offer contingent upon further inspections!

I ran the numbers with two different spreadsheets and they look decent based upon my admittedly extremely limited experience.  But, walking away from a deal is never something I've had a problem doing.  Walk away is practically my middle name as I look frequently but rarely buy things.

Zamboni

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Re: Buying first rental house
« Reply #6 on: October 07, 2013, 02:25:51 PM »
Update:

House had a previous offer that fell through after inspection, so there is an inspection report that has been forwarded to me.

The good:  5 year old roof which appears solid, foundation appears solid brick exterior in good shape, interior walls and hardwood floors in good shape, one bathroom has been updated and 2nd bath is not terrible (slightly dated.) Paint is fresh and walls/ceilings are solid.  No signs of roof leaks in the torrential rain.  As a result of previous inspection:  brand new water heater and seller is offering $5K allowance towards kitchen flooring and appliances.  Seller is also replacing all interior doors and will pay closing costs.  I think those proposed changes would get it move in ready and rentable.  Layout is good but would be better if a wall came down between the kitchen and living room; not sure if that is possible.  Numbers look

The bad:  kitchen basically has no appliances (they were old so the agent told her to just get them out.)  Kitchen flooring is a wreck and cabinets are dated (but could be painted.)  Concrete driveway isn't in great shape.

The ugly:  sniff test fail due to mildew smell.  Some of the baseboard in the kitchen, particularly behind where the appliances were, is rotten.  A pipe burst underneath and flooded the crawl space which rotted some of the post which supposedly have now been replaced.  Makes me concerned about the plumbing in general (house build in the 60's.)  A new vapor barrier and sump pump is installed but there's still a pretty strong mildew smell underneath the house.  I'm going to crawl underneath my house now for comparison sniffing ;-)  I have smelled this odor before during house hunting trips, so it's not unusual, just not my favorite odor.

Not sure if I'll bite.  Definitely inspection including mold contingency if I make an offer. 

Thoughts?  I'd almost rather have the price go down by $5K than have the allowance, but I'm torn on that just in case there's some nastiness under the existing kitchen floor.  I pulled some up and subfloor seems reasonable.  Probably needs a second look, though . . .

Another Reader

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Re: Buying first rental house
« Reply #7 on: October 07, 2013, 02:36:01 PM »
Sump pump = flooding problem.  Keeping the crawl space dry and free of mold may be a problem.  Depending on the layout, the wall may or may not be load bearing.  Newer houses, especially single story houses, generally do not have that issue, at least in California and Arizona.  You might be able to open it up with proper support if it is.

Interested in the crawl space report.  You are braver than I am....

Maybe pictures after all is said and done?