Author Topic: Please help me evaluate this rental I already own  (Read 3619 times)

Stachetastic

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Please help me evaluate this rental I already own
« on: April 24, 2017, 07:08:12 AM »
I have posted before about a duplex I've owned since 2006 that has been a thorn in my side (tenant issues, the upstairs unit was next to impossible to rent, etc.) We have spent the past year renovating and converting it back into a single family home. It is now a 2000 sq. ft. 3-4 bedroom home with a detached 2 car garage and a nice fenced in yard. We have another rental 2 blocks away that is similar that rents very easily and attracts good tenants. However, our other rental was purchased for much less and therefore has a much better return. We decided to put this renovated home on the market and feedback so far has been that it is over priced. However, because the market here hasn't quite rebounded, we are limited on how low to go before we have to bring money to closing. Options (if we don't get any bites) include reducing price to see if can get break-even with what we owe, or keep as rental. Here are stats:

Purchase price: 73k
Payoff: 58k
Current list price: 79,900 (group of realtors toured it and felt it will likely sell in the high 60's)

PITI: 475
Market rent: 750

We manage ourselves, so no fees for that. The property is 2 miles from our primary residence.

Another Reader

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Re: Please help me evaluate this rental I already own
« Reply #1 on: April 24, 2017, 08:16:59 AM »
If it has been on the market for a few weeks, I would reduce the price to $69,900 and see what happens.  If not, I would wait a couple of weeks before reducing the price.  The rule of thumb is if you have no showings, the list price is at least ten percent above market value.  If you have showings but no offers, you are at least five percent above market value.

It's not a horrible rental if you can get $750, though.  If you sell, what alternative investment would you purchase that would produce a higher overall net return?

sequoia

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Re: Please help me evaluate this rental I already own
« Reply #2 on: April 24, 2017, 09:21:41 AM »
Purchase price 73K, rent $750. That is pretty good in my book, but maybe I am missing something else here.

If the option is between selling it for break-even or keeping it as rental, I would just keep as rental, unless there is another option, such as buying another property and get a higher return.

I understand you had bad tenants before, but that does not means you will get bad tenants in the future. That depends on how you screen the tenants.

Is the grass really greener on the other side?

Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #3 on: April 24, 2017, 11:52:29 AM »
Thanks, both of you! I agree, keeping it as a rental is very preferential to paying to unload it. Just wanted to hear what others had to say. Now that it's a nice SFH, we think it will attract more long-term tenants who will take better care of it vs. past tenants. As I mentioned, our other SFH rental has been a breeze to rent and has always attracted great tenants. But compared to the income on the other property (purchase 40k rent 700), this one feels a lot less profitable.

We've got another showing this afternoon, so we are anxious for more feedback.

clarkfan1979

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Re: Please help me evaluate this rental I already own
« Reply #4 on: May 03, 2017, 04:33:51 PM »
Is the rental a "thorn-in-your-side" or did it provide a learning opportunity to be a better investor?

Rentals are work. If you don't consider it to be worth it, then maybe this isn't your type of gig.

Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #5 on: May 04, 2017, 06:26:29 AM »
Is the rental a "thorn-in-your-side" or did it provide a learning opportunity to be a better investor?

Rentals are work. If you don't consider it to be worth it, then maybe this isn't your type of gig.

Like I mentioned, we have another property that has been a great investment. We are easily able to deal with emergency maintenance issues etc. But this property (when it was a duplex) was a constant pain. We had a downstairs tenant pull a gun on an upstairs tenant, tenants smuggling in pit bulls and locking them in closets all day, countless evictions, domestic disputes, tenants moving out under cover of darkness, tenants stealing appliances, you name it. And both of our properties are 2 blocks apart, in a nice area of town. In our community, upstairs units are not desirable and tend to attract less than stellar tenants. We left it vacant for months at a time while we waited for decent applicants. The downstairs unit overall was much better, with the exception of the gun incident.

I whole heartedly agree that this provided a good learning opportunity, but I would hope situations like this always do. I learned I never want to own a multi family property again. And I've solved that issue. Now the issue is whether to reduce the price enough to walk away or to keep it as a single family rental.

nereo

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Re: Please help me evaluate this rental I already own
« Reply #6 on: May 04, 2017, 06:41:58 AM »
Stachestastic:  Forget your purchase price.

What matters going forward is what it will rent for vs. what you can sell it for, while factoring in whether its worth the hastle (e.g. "a thorn in my side" comment).

First off I"m wondering why you listed at $79.9k when "a group of realtors" thought it would sell in the high 60s.  It sounds like you have an inflated expectation here, perhaps because you are anchoring your decision based on what you paid for it (see first comment).

Comparing a hypothetical sale price of $69k with monthly rent of $750, you're in fairly reasonable territory (~1.1%).  What worries me though is that you've had such problems with vacancies and poor tenants in what you describe as a nice area. Perhaps you were setting your price a bit too high and thereby only attracting renters whom other landlords would not rent to?  If that's the case, and you need to drop your rental price into the $600s to get kind, respectful tenants you may just want to walk away from this and sell. 

eta for clarity
« Last Edit: May 04, 2017, 07:45:34 AM by nereo »

Enigma

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Re: Please help me evaluate this rental I already own
« Reply #7 on: May 04, 2017, 07:31:04 AM »
That does sound like a bad investment property.  Purchased at 73k in 2006 (11 years ago) and instead of appreciating in value the property is worth less.  It may not have been worth making into a Single Family home.  There is a lot of other options open to put your money into.  Including another rental property.  I would sell if it were myself.  Cut my losses and go a different route.

Bobberth

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Re: Please help me evaluate this rental I already own
« Reply #8 on: May 04, 2017, 11:08:53 AM »
I don't know your area, but in my market SFR gets you the highest and best tenants because they are the most desirable to tenants and rent for higher amounts. 2 families are the next step down, then 4 families, and apartment buildings are generally the bottom in terms of tenant preference and therefore, tenants. Part of the problem between the two might be comparing a SFR to a 2 family-I had a vacancy in a 2 family for the first time in 4 years. I was amazed at how much lower the applicant quality there was compared to the SFRs I normally rent out. I called a friend that has several 4 families and asked how she did it. I can't imagine dealing with even lower quality applicants than these!

What I am trying to say is that your problems may go away now that you have a single family. There won't be any bickering between neighbors and someone paying/can afford $750/month is different than somebody paying/can afford $400/month (if I remember correctly you had some low per-unit rents in this place). You can't change your purchase price from $73k to $40k but you may have solved most of your management issues.

Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #9 on: May 04, 2017, 01:35:37 PM »
That does sound like a bad investment property.  Purchased at 73k in 2006 (11 years ago) and instead of appreciating in value the property is worth less.  It may not have been worth making into a Single Family home.  There is a lot of other options open to put your money into.  Including another rental property.  I would sell if it were myself.  Cut my losses and go a different route.

The market in my area has not rebounded completely yet, unfortunately. If we had left it as a duplex, we likely could not have sold it for more than 60k. There is just not much of a market for multi family properties in this area.

Stachestastic:  Forget your purchase price.

What matters going forward is what it will rent for vs. what you can sell it for, while factoring in whether its worth the hastle (e.g. "a thorn in my side" comment).

First off I"m wondering why you listed at $79.9k when "a group of realtors" thought it would sell in the high 60s.  It sounds like you have an inflated expectation here, perhaps because you are anchoring your decision based on what you paid for it (see first comment).

Comparing a hypothetical sale price of $69k with monthly rent of $750, you're in fairly reasonable territory (~1.1%).  What worries me though is that you've had such problems with vacancies and poor tenants in what you describe as a nice area. Perhaps you were setting your price a bit too high and thereby only attracting renters whom other landlords would not rent to? If that's the case, and you need to drop your rental price into the $600s to get kind, respectful tenants you may just want to walk away from this and sell. 

eta for clarity

We have not yet tried to rent as a SFH. The market rate seems to be closer to $800, but I like to shoot a bit lower and have a larger pool of tenants from which to choose.

I don't know your area, but in my market SFR gets you the highest and best tenants because they are the most desirable to tenants and rent for higher amounts. 2 families are the next step down, then 4 families, and apartment buildings are generally the bottom in terms of tenant preference and therefore, tenants. Part of the problem between the two might be comparing a SFR to a 2 family-I had a vacancy in a 2 family for the first time in 4 years. I was amazed at how much lower the applicant quality there was compared to the SFRs I normally rent out. I called a friend that has several 4 families and asked how she did it. I can't imagine dealing with even lower quality applicants than these!

What I am trying to say is that your problems may go away now that you have a single family. There won't be any bickering between neighbors and someone paying/can afford $750/month is different than somebody paying/can afford $400/month (if I remember correctly you had some low per-unit rents in this place). You can't change your purchase price from $73k to $40k but you may have solved most of your management issues.

This is exactly what we are finding in our area. SFR tend to attract higher quality tenants that stay longer. I do think converting it has solved a lot of our concerns, so we are not opposed to keeping it as a rental. Just wanted some opinions on how the math plays out.

Stachestastic:  Forget your purchase price.

What matters going forward is what it will rent for vs. what you can sell it for, while factoring in whether its worth the hastle (e.g. "a thorn in my side" comment).

First off I"m wondering why you listed at $79.9k when "a group of realtors" thought it would sell in the high 60s.  It sounds like you have an inflated expectation here, perhaps because you are anchoring your decision based on what you paid for it (see first comment).


We listed with the input of our realtor. In our area, typically the entire team of realtors within the listing office will tour the new listings for that week and provide feedback. These are the people who felt it was overpriced, and our realtor agreed. We have not yet reduced the price, because we may just take it off the market instead.

NoNonsenseLandlord

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Re: Please help me evaluate this rental I already own
« Reply #10 on: May 10, 2017, 07:38:35 AM »
There is only one reason a property will not sell.  Price. 

You are priced too high, or are under-marketing (which means you have to adjust price).

You can always increase demand by lowering price, every time.

Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #11 on: May 16, 2017, 05:25:50 AM »
Update: We took the house off the market yesterday and I posted it for rent on my facebook page yesterday evening for $750. I received over 50 fb messages, a dozen texts, and a few phone calls.  I booked showings for tonight in batches, totaling 21 showings. (I realize not nearly this many will show.) But, I think perhaps my rent is too low--didn't expect that!

nereo

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Re: Please help me evaluate this rental I already own
« Reply #12 on: May 16, 2017, 05:30:29 AM »
Update: We took the house off the market yesterday and I posted it for rent on my facebook page yesterday evening for $750. I received over 50 fb messages, a dozen texts, and a few phone calls.  I booked showings for tonight in batches, totaling 21 showings. (I realize not nearly this many will show.) But, I think perhaps my rent is too low--didn't expect that!
You have a good problem - a deluge of applicants.  Screen them well and have a solid rental agreement which protects you.
let us know how it goes...
g'luck

Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #13 on: May 17, 2017, 08:15:56 AM »
We had 15 lookers show up last night and 7 completed applications. We've got one more showing tonight. The weather has been crazy lately--last week we were wearing coats and this week it is in the 90's. We had a lot of people not interested due to lack of central AC.

Also, I really think our pictures make the place appear slightly nicer than it is. It has hardwood floors throughout, but they could definitely stand to be refinished. It also has drop ceilings in most of the rooms. We have replaced a few of the windows, but there are 30+ left that are not in great shape. Everything is freshly painted and professionally cleaned, but it is an older house with quirks. I think we got some good applicants, though. Fingers crossed!

Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #14 on: May 24, 2017, 05:32:49 AM »
Update: Every applicant has been shitty--evictions, criminal records, you name it. The good prospective tenants (that we know well enough to know their employment history, criminal record) are all passing. Getting some quotes next week on adding central air,  having floors refinished, and a little skim coating in one room upstairs.

Creating another post for advice on the floors.



nereo

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Re: Please help me evaluate this rental I already own
« Reply #15 on: May 24, 2017, 05:43:41 AM »
. Getting some quotes next week on adding central air,  having floors refinished, and a little skim coating in one room upstairs.

Creating another post for advice on the floors.

Maybe I missed it, but what is the issue with the floors?  What kind of floors are they?

Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #16 on: May 24, 2017, 06:55:30 AM »
The home currently has hard wood floors throughout the downstairs, and one bedroom upstairs. It is approximately 1000 square feet of flooring that is in bad shape. There are also lots of holes drilled in the floors from former tenants fishing cable through (like, 5+ in the middle of the living room, among others).

We do have vinyl plank flooring that we intially bought for this house, but husband is hesitant to ruin the real hardwoods with glue down flooring.  A flooring professional in our family advised that the floors are too wavy for floating flooring, so that's out. I'm not convinced the real hard wood floors are worth saving at this point, but I'd love some thoughts from others.

nereo

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Re: Please help me evaluate this rental I already own
« Reply #17 on: May 24, 2017, 07:03:19 AM »
hard to determine without seeing them in person (or at least photos). 
If the house is empty it's not too terrible to rent a floor sander and try refinishing them yourselves. It kicks up an awful mess and I wouldn't recommend it if the place is furnished (or remove the furnishings first).  It will cost you just a few hundred$ and a full weekend (plus you'll lose your fingerprints for a few days ;-)
Wear a respirator.
I've seen some floors that looked horrible that were brought back to life after sanding down.


Holes int eh floor from cables can be filled with plugs.  Find wooden dowels of the same diameter (and ideally the same wood) and plug them.

sequoia

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Re: Please help me evaluate this rental I already own
« Reply #18 on: May 24, 2017, 07:26:51 AM »
There are also lots of holes drilled in the floors from former tenants fishing cable through (like, 5+ in the middle of the living room, among others).

I can not advise you about finishing the floor, but you MUST plug holes on the floor, especially you said there are many of them. It is easy and cheap like @nereo said. If I am a potential tenant, that would be make me worried. Are ants and bugs going to crawl out of there? Are those bullet holes? (I am exaggerating but you get my point). I am not surprised potential good tenants would pass on renting the place.

I also patch any holes and pull out any nails on the wall before putting up fresh coat of paints. I think this makes a difference.
« Last Edit: May 24, 2017, 07:29:58 AM by sequoia »

sequoia

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Re: Please help me evaluate this rental I already own
« Reply #19 on: May 24, 2017, 07:38:58 AM »
We had a lot of people not interested due to lack of central AC.

Just want to share this:
We purchased an older house last year that do not have central AC. After going back and forth what to do, we decided to invest on 3 windows AC (several hundred dollars) instead of installing central AC (several thousand dollars). This is in KY, so it can get hot and humid in summer. The three windows AC was able to cool down the house sufficiently.

We hire a property manager, and she rented that house so fast, we had to hurry up and finish our work - we thought we had 2 weeks to work, and she gave us one week because the tenants wants to move in asap (good problem to have). The house was rented at the price that we wanted, so we did not reduce the price at all.


Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #20 on: May 24, 2017, 07:44:01 AM »
There are also lots of holes drilled in the floors from former tenants fishing cable through (like, 5+ in the middle of the living room, among others).

I can not advise you about finishing the floor, but you MUST plug holes on the floor, especially you said there are many of them. It is easy and cheap like @nereo said. If I am a potential tenant, that would be make me worried. Are ants and bugs going to crawl out of there? Are those bullet holes? (I am exaggerating but you get my point). I am not surprised potential good tenants would pass on renting the place.

I also patch any holes and pull out any nails on the wall before putting up fresh coat of paints. I think this makes a difference.

I agree the holes need addressed ASAP. Also, all nails have been removed and all walls freshly painted, including most trim. There is one wall in an upstairs bedroom that needs skim coated and re painted, then I think we'll be good.

We had a lot of people not interested due to lack of central AC.

Just want to share this:
We purchased an older house last year that do not have central AC. After going back and forth what to do, we decided to invest on 3 windows AC (several hundred dollars) instead of installing central AC (several thousand dollars). This is in KY, so it can get hot and humid in summer. The three windows AC was able to cool down the house sufficiently.


I have tossed this idea around in my head a bit. Almost everyone who looked at it asked about utility costs, so I assume many would be concerned about the high electric bills that come with window units. But providing a few would definitely be cheaper than adding central air. I'm betting we'll get sticker shock when we find out how much that will run!

nereo

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Re: Please help me evaluate this rental I already own
« Reply #21 on: May 24, 2017, 07:59:30 AM »

I have tossed this idea around in my head a bit. Almost everyone who looked at it asked about utility costs, so I assume many would be concerned about the high electric bills that come with window units. But providing a few would definitely be cheaper than adding central air. I'm betting we'll get sticker shock when we find out how much that will run!

While more efficient, the energy efficiency of installing an HVAC is going to take years and years to recoup over buying a few window-mount AC units. The real energy gains come from properly insulating your home - if that's not done (and it includes a tight building envelop and good windows) than it'll cost a lot regardless of which system you use.

Put another way, don't even both with installing an HVAC system until you have done a complete energy audit of your home (often free and avilable through your utility company - if not they're usually $100-300).  Step 1 is always insulate your home to the greatest practical degree.  If you have holes in your flooring I'm betting you have lots of other ways air can leak out. Many fixes are simple (plug holes, re-seal windows, lay extra insulation in the attic) but others might require more serious outlays of cash and may not be worth it from a ROI standpoint.

Much of this may be mute if tenants are paying the electric bill, but saavy (and safe) tenants will be weary of a home they can't afford to keep at a comfortable temperature due to poor insulation.


Stachetastic

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Re: Please help me evaluate this rental I already own
« Reply #22 on: May 24, 2017, 08:42:46 AM »

I have tossed this idea around in my head a bit. Almost everyone who looked at it asked about utility costs, so I assume many would be concerned about the high electric bills that come with window units. But providing a few would definitely be cheaper than adding central air. I'm betting we'll get sticker shock when we find out how much that will run!

While more efficient, the energy efficiency of installing an HVAC is going to take years and years to recoup over buying a few window-mount AC units. The real energy gains come from properly insulating your home - if that's not done (and it includes a tight building envelop and good windows) than it'll cost a lot regardless of which system you use.

Put another way, don't even both with installing an HVAC system until you have done a complete energy audit of your home (often free and avilable through your utility company - if not they're usually $100-300).  Step 1 is always insulate your home to the greatest practical degree.  If you have holes in your flooring I'm betting you have lots of other ways air can leak out. Many fixes are simple (plug holes, re-seal windows, lay extra insulation in the attic) but others might require more serious outlays of cash and may not be worth it from a ROI standpoint.

Much of this may be mute if tenants are paying the electric bill, but saavy (and safe) tenants will be weary of a home they can't afford to keep at a comfortable temperature due to poor insulation.

Excellent points. The tenants will be paying the electric, but I know most are considerate of these issues. We are looking at replacing the front windows in the home (9 in the front room). We have replaced 6 others through the years as needed, but there are over 35 total in the home, not a single one being a standard size. When this property was a duplex, I paid the gas bill, which was on a budget for $77/month without fail. It never made sense financially to replace all the windows at once with such low utility bills, but aesthetically, they could all use replacing eventually. The 9 in the front room are the most obvious, and visible from the street/front porch, etc. I think replacing those will definitely make a difference.