Author Topic: Potential Rental buy..what do you think?  (Read 2036 times)

soccerluvof4

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Potential Rental buy..what do you think?
« on: December 19, 2015, 11:40:22 AM »
I have been gradually looking the last couple years for some income rentals and now that I have settled in other matters I am cranking it up a bit.  Just on the numbers I am curious as to what one would think on this.

This is a 3 unit made up of 1- 2 bedroom, 1 one bedroom and 1 efficiency in a desirable area. Asking price is $224,900 and comps usually start around 243k and go to the 280's Its a older rental built in 1910 but has been updated with most recently new roof in 2013 and 3 new furnaces in 2009. All 3 units are currently rented on a month to month for a total of $2275 a month and Taxes are 2660$ a year. Its walk-able to a desirable inland lake with a beach and amenities and in great school system. Economy is good in the area. Zillow says the house was last purchased in 2003 for 175,300. Not sure who is paying the utilities.

Just on the numbers does it work and or all other comments appreciated...

There are a few others in a community close by in the same price range but this one stands out a bit.

Thanks in advance...

monarda

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Re: Potential Rental buy..what do you think?
« Reply #1 on: December 19, 2015, 10:34:37 PM »
Sounds like a decent 1% rule deal. Do you know, is the $2275 rent at market rate? Would you switch to full year leases? Good news that the roof and furnaces are new. How are the kitchens and baths? Flooring? Laundry? Water heaters? Insulation?, ? Any needing update soon?




arebelspy

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Re: Potential Rental buy..what do you think?
« Reply #2 on: December 20, 2015, 02:16:55 AM »
Eh.  I'd look for a better return for a few reasons:
1) Age
2) Potential utilities (make sure they're separately metered)
3) Multifamily tendency towards higher turnover (increasing vacancies + turnover costs)

It's barely below market, old, with mediocre return.

Unless the market itself was phenominal, I'd pass.  Given that the comps aren't much above the asking price, I'd guess that is not the case.
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Another Reader

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Re: Potential Rental buy..what do you think?
« Reply #3 on: December 20, 2015, 05:26:42 AM »
If you think managing teenagers is difficult, try managing tenants.  It's not that much different.

My first concern about this property is that the tenants are on month to month tenancies.  This is a red flag.  Did the seller put just anyone in there to show an income?  Are they all going to give notice and move 30 days after you close?  Plus one to Arebelspy's comments - my concerns as well.

In your shoes, I would look at a lot of properties before writing a check.  Find people in the real estate community that have worked with investors for a long time.  If there is a local real estate investors association, attend a few meetings to get a feel for what they look for and what their concerns are.  Spend time, which you have a lot of as an early retiree, before you spend money.

soccerluvof4

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Re: Potential Rental buy..what do you think?
« Reply #4 on: December 20, 2015, 05:38:49 AM »
Thanks to you both. I did find out that the renters do pay the utilities and I for sure would want a year to year lease not a month to month but loved the kids analogy!  As you guys indicated I have the time now so I reached out to a few realtors I have known for years and I am going to keep on it. There is another area about 15 minutes away there is a mid-size city with a college etc.. that will present more opportunity at least in the case of rental type properties as this one was in a HCOL thats pretty tough. While now that I have the time I am anxious but more important to find a good one and then another!

Bobberth

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Re: Potential Rental buy..what do you think?
« Reply #5 on: December 20, 2015, 09:39:01 AM »
I'm in St. Louis so 1910 doesn't seem that old to me. There are certain things you have to look for at that age though-cast iron sewer lines & stacks, water pipes that are potentially lead or galvanized, lead paint issues, old wiring etc. that you don't have to pay as much attention to on newer homes. Our first house, built in 1894, is much higher quality than new construction. My in-law's house that was 6 years old had 4 cracked joists whereas our old growth timbers and actual 2x4s were absolutely rock solid.

What concerns me with that property, and this is coming from my experience and your market may be different, is the mix of units. Somebody looking for a 2bedroom is not the same person looking for an efficiency. I would think you might have even more multifamily turn over as the single person/couple in the efficiency may not like to be near the kids in the 2bedroom. This mix might work in a larger apartment community, but I think in one building it's too much. What I have seen in this market is that the efficiency was probably hacked into the property by a slumlord type landlord to make extra $$ and it isn't that great and either brings down the rest of the property or the quality of tenants who want to live there.


monarda

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Re: Potential Rental buy..what do you think?
« Reply #6 on: December 20, 2015, 10:31:30 AM »
Another question - Was this built as a 3-unit? Or was it a SFH that was converted?  Converted places often have really strange placement of extra walls, doors, plumbing, etc - I would add extra caution if that was the case. Some conversions are well-done, but around here, people are converting them back to the original SFH configuration more often than not.