Purchasing a Rental Property?

[notallwhowander]

It's been forever since I've really been on here, I kind of fell out of the loop when we changed from MSN. But I need some advice, and know that I'll get what I want (and maybe don't want ) here.

My husband has an opportunity to purchase a property which would be a rental. The owner has held it as a rental since 1991 and wants to offload it for personal reasons. We would be able to purchase it for $20k, it would appraise around $40k.

WHAT do I need to consider when looking at this opportunity (we have never held a rental property)?

Monthly costs:
P&I (approximately $150/month at a 4% 15 year note)
Taxes (approximately $75/month at the new appraised value)
Insurance (waiting on a quote for this one)

Turnover costs (between tenants):
ranges from cleaning to flooring, cabinets, windows, who knows

Start-up costs (repairs it needs now):
2 rooms repainted (DIY, we have a sprayer) $200
1 room floor repaired (DIY) $400
full cleaning inside and out (DIY) $100 supplies
carpets cleaned (hire out) $300

Rental prices for the neighborhood are $900-$1,000 per month for this type of floorplan (it's a 3 bedroom, 1 1/2 bath, 1,200 square feet). Previous tenant was paying $1,000/month.

My first concern is that the neighborhood is not the best neighborhood. Then again, you can have a meth lab crop up in ANY rental, nice neighborhood or bad. Liability is another concern, although insurance and possibly an LLC can cover that.

What else do I need to consider, ladies? I know there are some landlords on the boards, what wisdom can you impart?

TIA!

[Deleted]

$1000 a month for a purchase price of $20k???



Buy it now. Buy as many as you can. Buy it, buy it buy it. Don't worry abut anything else.

[notallwhowander]

Okay, then let's change it to we're buying the property and what do I need to think of? ;D

*Strong rental agreement.
*No pets (aside from the damage issue, causes issues with insurance).
*Background checks.
*Keeping water/sewage/garbage in my name instead of theirs as if unpaid it results in a lien on the property, unlike gas/electric which just get turned off.
*Rental grade everything, since we might just have to replace it all with the next tenant.

And....

[hockeygrl]

If this rental is located in an area where there are a lot of indoor marijuana grows proliferating, be aware that there is some talk among law enforcement and regulatory agencies about treating those locations like they treat meth houses. That would likely impact insurance rates paid by landlords. I only mention this because you mentioned the meth lab thing, and these two operations are often located in close proximity to each other.

[mizbear]

A lot of people I know who rent their homes out are beginning to prefer Section 8/HUD tenants. Yes, there are rules that the landlords have to abide by, but there are a slew of rules that the tenants have to follow as well. And it's guaranteed rental income.

I would be very concerned about why this place is going so inexpensively- make sure that there is not something really really wrong with it.

[busybee]

meth lab homes have to be regutted...........

[Deleted]

The owner has held it as a rental since 1991 and wants to offload it for personal reasons. We would be able to purchase it for $20k, it would appraise around $40k.

I am a firm believer in rental RE, but this really does sound too good to be true. I'd love to know just what those "personal reasons" are. If the owner has held it since 1991, it should be paid off by now, or nearly. If it's appraising at 40K, why is he selling it for just 20K when it's CFP (cash flow positive)?

I'm not saying not to buy it, just be sure to do your homework. Maybe the owner is in debt up to his ears, and he needs a quick sale, who knows. But it sounds like too good a deal for there not to be "issues".

I would really encourage you to do "due diligence" ... get a property inspector to check out the property, and a RE lawyer.

[notallwhowander]

Okay, so I try not to throw out too much personal information on the 'net, but I have erred on the side of not enough here.

The selling party is, in a roundabout way, related to DH. He has gone through years of medical issues, and has moved halfway across the country (always managed his rentals on his own previously).

So, while the property is free of encumbrances, it's not at the moment CFP for him, as he has not turned it and it's been vacant for 8 months now. He's just tired of dealing with it, it's his last property in the state (sold off the other dozen).

Hence why he's willing to sell it to us for cheap. If DH's mother hadn't died far too early, part of this property or another would have probably ended up in DH's hands anyway.

We went to the property to replace the locks on Sunday, and it's in a little worse shape than we were expecting, but it's not horrendous.

DH and I are still talking out all the details and trying to figure it out.

[mizbear]

Remember the amount of $$ you have to put into fixing it will have to be added into the rental amount which could make it a higher rent property for the area- check into what current rental rates are for similar properties in the area
Run a estimate of your costs (repairs, etc)
Figure your rental costs

Decide if it is worthwhile

Also remember that any month it is unoccupied you will have to pay the mortgage, taxes, water, sewer, etc. Not just the taxes.

[Deleted]

Cheap investment to "learn" about landlording. I would buy it, see if you like it, and if not sell it later.

- Get a RE attorney that specializes in Landlord/Tenant law & get your leasing agreement from them.
- I would not do a "no pets" on a home, just put a hefty pet deposit to cover potential damage. People will sneak in pets and lie about them otherwise. For tenants already in place you might want to put a pet deposit payment plan in place (like over 3 months) for a pet acquired after the fact. Then you can also restrict the type of pets or breeds that will allow in the lease, so you don't get aggressive pets.
- Homeowners insurance for Rental properties is higher than for your primary home.
- You will need an umbrella policy for liability purposes.
- In some states you have a duty to ensure that your rental does not become a meth lab or drug den, so be prepared to have it routinely inspected. I would have a property management company involved to screen tenants, collect rent, coordinate repairs, and do inspections. This shares some of the liability.
- If it is in a rough neighborhood, you need to decide what is/isn't acceptable to you for a renter. Will someone with a completely clean criminal record want to live in this neighborhood? Is it not renting because the neighborhood has declined badly & the rent is now too high? You have lots of room to move on the rent and still be CFP, so I would carefully assess so you don't have vacancy.
- You need a lawn service if there is yard to maintain.

[Peace77]

You don't have to have the water/sewer/garbage in your name. You can require the tenant to put it in their name and pay the bill. Meanwhile, have the utility company send you a duplicate bill. My company charged me $1.50 per month for this service but it is far better than paying the bill. The duplicate bill will warn you if the bill is not paid.

You can use an Online service to do credit/background checks. Or, you can hire a real estate agent to find a tenant. If you hire a property manager, you have to pay them every month even if the do nothing. They may drive by the property and still charge the full fee.

If you manage the property yourself, don't tell the tenants that you are the owners, tell them that you are the managers. Set up a separate Business account at the bank with a DBA (doing business as) name.

Be sure to find out requirements that your town and/or county have for landlords. Where I worked previously, landlords were required to offer a 2 year lease and pay interest on the security deposit

Be sure that your lease states clearly how much the late fee is and how many times it is acceptable to be late. I had one tenant who thought it was acceptable to be late every month if she included the late fee.

Be clear in how much notice is needed to move out.

You can require the tenant to mow the lawn.

It is recommended that you require the tenant to obtain renter's insurance. You can't enforce it, but they can't later claim that they thought they were covered under the home insurance.

Make sure that the lease includes provisions for future rent increases.

Make sure to leave a number where you can be reached.

[blackcard]

We are looking at investment properties for rental. One thing that has been made clear to us is to stay as far away as possible from the tenants in the area of communications. Do not give out your name, phone number, address, use a property mgt. company. Get a DBA and move the property into the DBA name. The last thing you need is an angry tenant looking to harm you because you evicted them.

[moxie]

"My first concern is that the neighborhood is not the best neighborhood."

LOCATION, LOCATION, LOCATION!!! I personally wouldn't buy it. JMO

[moxie]

Oh...and...don't rent to family members...and if you DO...a least is a MUST and treat it like a business deal. Been there, done that...WILL NOT do it ever again!!

[zibazinski]

I would never rent to section 8. That is just asking for trouble. Baby daddy moves in 5 minutes later and the place is always trashed. They have no concept of work, why would they have a concept of clean and not treating your house like they do everything else in their lives? That being said, you can, and I do enforce insurance. I inspect yearly and ask to have the copy when I inspect. If you rent to garbage, you will have to inspect a lot more often and section 8 protects the tenant, not the landlord. It used to be if a tenant trashed your house, they lost housing for 2 years, not anymore. If you buy in an area that is so bad you have to take section 8, then you already are behind the 8 ball. I suggest no carpet anywhere, it'll be trashed. The cheapest linoleum you can get and used appliances because they will be trashed
Or stolen.