First Rental Purchase - What Else Should I Do/Know?

[NeonPegasus]

Hi all,

I'm looking at buying our first rental unit soon. I am interested in duplexes mainly and an interesting one just popped up in the Atlanta area (where I live). It's listed for $75k and supposedly both units are currently rented out at $650/mo. Of course, I'd verify that and check out the leases before buying but assuming the numbers are correct, this would present a good cash flow.

I was curious if I should be trying to get an agent to help me with this purchase. Is that pretty typical? While I've lived in my home for 13 years and have quite a lot of first hand experience with the joys of home ownership, I wasn't involved in the buying process (DH bought it before we were married) so I'm not too familiar with that. I'm mostly concerned that this will get snatched up quickly but at the same time, don't want to offer list price unnecessarily.

ETA - I have not gotten qualified for a mortgage yet but we have excellent credit so I don't think it'll be an issue. Also, my father-in-law may want to loan us the money himself or from the family partnership if he thinks it's a good investment. I'd love to go that route to avoid a gazillion closing costs but I don't want to rely on that 100%.

Any advice?

[jda1984]

You'll need a different loan (if you'll have a mortgage) as well as a landlord insurance policy (basically liability and structure replacement cost, maybe $10k for landlord own appliances in the units).  You'll also want to check on the licensing requirements for rental property in the area and get (or transfer) the license for the property.  There will also be some maintenance, management, vacancies, etc. so the cash flow won't be rents in-PITI out.

I'd suggest using a realtor.  It won't cost you anything (generally comes out of the seller's realtor's cut, so by not using one, you just end up giving the seller's realtor a bigger commission) and you'll have someone who (hopefully) knows the market (ask around for a rental property expert) and understands the process and can advocate for you.

[NeonPegasus]

I counted on the insurance, vacancies, mgmt fee, etc as well. I haven't heard about licensing requirements. I'll check into it but GA is pretty lax about a lot of things so I suspect that isn't a thing here. I'll definitely check though.

I contacted the selling realtor and interestingly, they offered their services to educate me, assuming I didn't have a realtor already. Seems like a pretty big conflict of interest to me. Do agents typically advertise themselves as rental experts or is it mainly a word of mouth thing?

[tracylayton]

I am a real estate broker in Texas and haven't really noticed any agents that advertise as rental experts. I would call a few agents and ask if they have experience with investors that are buying rental properties. I would definitely get your own agent. It won't cost you anything and they should be looking out for you...encouraging an inspection, negotiating repairs, pulling sales comps and rental comps, etc. On the surface, it sounds like it might be a good deal. However, I always caution investors to think about not just cash flow, but resale as well. A good agent should be able to pull the comps and make sure you don't overpay for the property. Good luck!

[FarmerPete]

I contacted the selling realtor and interestingly, they offered their services to educate me, assuming I didn't have a realtor already. Seems like a pretty big conflict of interest to me. Do agents typically advertise themselves as rental experts or is it mainly a word of mouth thing?

You bet they did.  3% of 75k is $2250 in commision for doing basically nothing.  I wouldn't take them up on it unless you were going to pass on this house and they helped you find a better house.

[lumpytrout]

If you have not been prequalified for a loan I would start with that.  In my market something like this would already be gone and would certainly be gone by the time you were qualified.  It can be a big time consuming headache to get prequalified even with good credit.  I would look into hiring a RE attorney that could handle the transaction for a flat fee instead of going through a Realtor. 

[arebelspy]

If you have not been prequalified for a loan I would start with that.  In my market something like this would already be gone and would certainly be gone by the time you were qualified.  It can be a big time consuming headache to get prequalified even with good credit.  I would look into hiring a RE attorney that could handle the transaction for a flat fee instead of going through a Realtor.

Really?  It's typically taken me less than 24 hours to get a prequal letter...

[CanuckExpat]

Just an FYI, if you are interested in buying the property, you may want to check with http://www.hungryagents.com/
You might be able to find a buying agent who will rebate you part of their share of the commission. Similarly, if you are not using an agent, you might want to check with the selling agent about discounting you part of the buying agents commission. Some of this depends on if your state law allows commission rebates.

[SpicyMcHaggus]

a 650/650 duplex here in milwaukee would be $120k+.
I seriously need to move somewhere that has props fitting the 2% rule.

[James]

Do agents typically advertise themselves as rental experts or is it mainly a word of mouth thing?

In my experience, agents are "experts" in damn near everything if you are looking at buying...

[NeonPegasus]

Thanks all. I found an agent to help me and he found a few other properties I hadn't seen but overall, the first property I found is at the top of the list. It's only half rented right now but the rent is high enough to cover all expenses for the duplex. If I get it fully rented, I'd be looking at a 46% cash on cash return. Now I just need to figure out why it hasn't been snatched up already ...

On another note, I find the ads for these properties hilarious. They all boast about their great cash flow and when I plug the numbers in my spreadsheet I come up with returns that are 2-3%. One was -3%! The seller wanted $200k for a duplex rented out at $1300/mo, total. Another duplex is boasting about the long-term tenants but they're selling the house for the same price they paid 10 years ago - $100k. The monthly rent totals $800. Guess that explains it - they kept those long term tenants by never raising the rent and now they're stuck with a money pit.