Buy a Rental Property? Love the Idea!
by Evan Vanderwey on 16/08/11 at 12:19 pm
A friend asked recently for my advice on buying a rental property…
Hey Evan,
This is a different note but what do you think about Heidi and I trying to get some of these really cheap houses right now, fixing them up a bit, and renting them out? We gross about $36,000 right now and don’t have that much cash on hand, but could potentially borrow some from our parents for a down payment.
Any thoughts?
~Dave
Here’s what I told him…
Dave,
Love the idea. This is really a business venture. Would you like to sit down and talk about your ideas sometime?
In this “game” you really need to think through four main systems. If you win at all four, then you can be confident you’ll be successful in the end.
1. Acquisition. Know you are paying a good price up front and work out an evaluation system so that you can be sure about the price you will offer. You need to know when you can jump in and when you need to walk away. This also includes the location of the homes you are looking at.
2. Rehab. Know what you need to do and what you don’t. Many will lose at this because they have over or under improved the home. You want the home marketable from a rental perspective and yet you don’t want to over kill on it. You also need to figure out a below-market price for repairing the home. YOU are your least expensive “help”. What other sources could cost you less than market and still get good work done? Then consider what do you need to pay market price for so that you know you have quality work completed.
3. Rental and Management. A lot to think about here: Finding and evaluating tenants; managing their varying desires and needs; signing the lease all the way through eviction or releasing; cleaning between tenants and repairing along the way. Think through every possible outcome.
4. Financing. It sounds like you have some ideas. Getting mortgages from me in this kind of venture is unlikely to be a great plan – Fannie Mae is expensive for the investor. If you can make yourself a cash buyer and pay your financiers a fair rate of return for putting up the dough, that is best, although difficult sometimes.
Think about things in these four categories and then set a time for a meeting together and I’d be glad to add my two cents.
You can also pick up the blue book by Gary Keller called The Millionaire Real Estate Investor. You will be able to read through sections of it quickly and give yourself a crash course.
Hope this helps.
Let me know what you’re thinking.
EV
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