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Notes -
Has anyone here ever purchased a rental property? I'm considering purchasing a single-family home and I'm curious how someone selects a specific property and a specific neighborhood/location.
Selecting the property itself seems fairly straightforward: work with a realtor to find a house within your budget and make sure it doesn't have any major issues. I know what I'm looking for: a house that is move-in ready and doesn't need a whole lot of fixing up. Obviously, there will be upkeep costs and I'm realistic about that. What I really don't want is to purchase a 200k house and find out I need to replace the entire foundation for another 50 grand. This seems like something a realtor can help me with especially if the house has publicly available inspections.
I already have a general idea of the location where I want to buy. I have family who live close by and they would be able to help me manage the property. But even within a 5-10 mile area, I'm thinking there must be criteria for selecting a better neighborhood than others. Obviously cost comes into play here as well, but without spending a lot of time on the ground, I'm unsure how I would select a location where the house *at least *retains its value.
Any input from those with rental properties, especially those who own in a different state, would be appreciated.
I haven’t personally owned a rent house, but I have both gotten fairly far along in the process and had fairly close relatives who owned them. So-
A real estate agent can tell you how much rent you’ll be able to charge in a particular neighborhood. You can use a mortgage calculator(add ten percent for loan fees) plus publicly available data for taxes and insurance to guesstimate costs. Run the numbers, then run them again.
Your tenants will damage your property. Expect to have to repaint and change the carpet before a tenant, and in between tenants at the very least. White collar tenants are hell on the plumbing, blue collar tenants just damage shit(walls and the like), both of them need an exterminator all the time, non-gypsy euro immigrants are the best ones. everyone has HVAC emergencies and service techs are less honest than usual with landlords. No tenant will do maintenance past mowing the lawn. Do not allow your tenants to have male dogs.
Check tenant rights law and what you’re required to provide+what recourse you have for nonpayment. Make tenants undergo a credit check, have renters insurance, and provide a deposit.
Rental agencies can help you find better tenants, but factor in that they’ll take a cut of the profit. If they tell you not to rent to a certain tenant, don’t accept the inevitable sob story.
Home inspections are your friend. Use an inspector, ideally more than one.
And finally, remember that owning a rent house is a job, not a source of passive income like a dividend paying stock. You do have to invest time and work into it.
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I've had rental property before. A few notes:
The economics of it are a little tricky and rather different than buying as a personal home. You have to know all of, what you can actually buy the property for, what kind of financing you can get, and what you can actually rent it for, and balance them to make it actually profitable. Specifically, it's not to your benefit to make rental property too nice. In most markets, rent that tenants will actually pay is mostly based on location and bedroom count, most updates and amenities won't get you anything in higher rent. Being truly broken down or a dump won't rent, but it's not to your benefit to buy or make a property significantly nicer than the average rental in the market you're targeting.
You need to be familiar with the landlord-tenant laws in your jurisdiction. Know what's involved in evicting somebody, what obligations you have for security deposits, and any other requirements that might be in place.
You may or may not want a realtor for the property purchase, but you'll need one for the rental. You need somebody who knows how and where to advertise to tenants, screen tenants, and set up rental contracts. You definitely need a standard, good-quality contract, and you definitely need to screen, as a bad tenant can seriously wreck your finances, especially if eviction is difficult in your jurisdiction.
There will be some management work too. You need to know who to call when things break down, and it helps a lot if you are personally handy enough to deal with minor issues without hiring more contractors. Plan on needing to take time off during business hours to meet contractors or delivery people at least once a year. If you can't do it yourself due to your own work obligations or being too far away, you need somebody else who is local and reliably available on call to handle that sort of thing.
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I'd think hard about buying multi-family property rather than single family. Or at least be eying the time when you sell your single family properties to buy a small complex. Unless you're in an area where there are permanent reasons why multifamily can't be built (zoning, historic buildings etc). It's more costly to get started, but you can probably invest in public real estate firms while acquiring the capital.
In the US, I think the money in single family housing is in buying a place that needs a little TLC and doing some of the work yourself.
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The word "realtor" is a trademark of a specific organization. In order to avoid encouraging that organization's market dominance, one should instead say "real-estate agent".
Wait, you’re fighting their market dominance by…telling people that they exist and are important?
That seems counterproductive. You should be using the term; if it loses its distinctive character, they lose the legal protection of the trademark.
Imagine a graph with the linguistic dominance of "realtor" vs. "real-estate agent" on the x axis and the enhancement of the market dominance of Realtors vs. real-estate agents (not the market dominance itself) on the y axis.
When x = 0, Realtors are just an eccentric group of real-estate agents that insist on using their trademarked name even though everybody just calls them real-estate agents. y = 0, or even a negative number because people are annoyed by their behavior.
When x = 0.75, most people incorrectly call real-estate agents realtors. The typical person who wants to sell a house will type "realtor" into Google and will hire a Realtor rather than a non-Realtor real-estate agent. Therefore, the market dominance of the Realtors is enhanced by the linguistic situation: y = 0.75.
When x = 1, as you say, the trademark becomes genericized by a court ruling. It now is legitimate for all real-estate agents to call themselves realtors, the official Realtors no longer get extra traffic funneled to them by Google, and y = 0.
If, IRL, x = 0.5, then I think pushing it down to 0.25 is more palatable then pushing it up to 0.75 and hoping that it overshoots to 1.
Y=0.8 currently
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Hmm. You make a good point.
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I would recommend against working with a realtor. Unless you have a very close relationship with the realtor, they will get you market rate housing. If they had a screaming bargain, they would buy it themselves or flip it to a friend before they show it to a stranger. Market rate houses don't leave meat on the bone for a budding landlord, you will make minimal profit. You need to get something at a below market price, if only by cutting out the realtor's commission and finding a seller who hasn't listed yet to get 5% breathing room.
Working with a realtor will not ensure that you face no upkeep costs. I can share many horror stories. Realtors don't know what they're looking at, or might not tell you if they did. Most cultivate intentional blindness to ensure they don't need to disclose.
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