Tag Archives: rental property

Stir Crazy

So last weekend Dad and I found a house as we were walking around a neighborhood we liked. I took note of the address to look up the tax records, and lo and behold the house was listed and expired about a year ago. My hopes started going up, and over the past week I have become obsessed with this house.

Every time we have been interested in a house in the past there has always been something insurmountable. The price is too high, or the houses in our price range have a steep driveway, are next to a freeway or railroad tracks, are on a small lot, have no room for a garage, etc. I really want the next house we move into to be a long term house that we can grow into, but I also am desperate to get out of our tiny house in our crappy neighborhood. This house seemed like the perfect solution. It would be affordable, it’s not updated but it’s the mid-century style we want, and it’s on a large level lot with a 2 car garage.

There is, however, a glaring insurmountable issue. The woman who lives there isn’t motivated to move. She’s very old and according to the prior listing agent couldn’t find a place she wanted to go.

The problem with us waiting is that Dad would have to qualify for the loan. We are about 60k upside down on our primary residence so we can’t sell.  I cannot qualify for both mortgages. Currently, Dad would have no problem qualifying with his salary. However, last week we agreed that he would quit on the 16th of this month to make some headway in his own business. We have enough savings to last a few months while he gets off the ground. However, once he’s self-employed it will take 2 years of history before he qualifies again for a loan. So basically we have to move now or we’re stuck in this house for another 2 years.

We’ll see if any developments happen with this house over the next few days. Dad is willing to not quit if we can move towards closing on this house, but that seems unlikely. If the owner wants to move in 6 months, we’ll either have to pass up the deal or get really creative. Arg.

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The Deal’s Off

So, the house that I almost pissed my pants over when I bid on it has gone defunct. We were supposed to close in December, they have asked us to extend till February 10. There was also some vandalism from some very irritating idiots. Good job stealing the copper lines from the AC condensors to the heating units and not taking the condensors themselves or pulling apart the units to get the scrap from there!

My partner and I after much consideration terminated the deal. It was just getting too difficult, too time consuming, and there was another lower comp that came up in the neighborhood that might have affected our appraised value.

Sometimes you just have to walk away and move on to the next one. If you have a manager, once the property is rented it becomes almost completely passive. Getting there, however, can be anything but.

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2012 – Best Year Ever?

December was a crazy month. There were the holidays of course, B’s first Christmas, New Year’s Eve, a trip to CA to visit Dad’s family.

My brokerage let me know they were closing on December 31 so I have had to scramble to get into a new brokerage and get my listings transferred. I’m a firm believer that everything happens for a reason, though. My new broker has a much larger vision. The firm does bulk deals and new construction, a far cry from the 30k properties I currently sell. While things are in the beginning stages, I feel confident that my business is going in a new, better, more lucrative direction.

This brings me to my New Year’s Resolutions:

-Buy 4 rentals

-Complete one multimillion dollar transaction

-Stay physically active

That’s it. Nothing else. Of course, each of those large goals involve a lot of little ones, but I figure that’s pretty straightforward and sufficiently ambitious.

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Learn It Here – DO NOT Make Large Financial Decisions Without Your Spouse

Great. I’ve basically been in freak-out mode since Monday morning. There was an online auction for properties. I told Dad there was a property I was interested in but that it was going to be too expensive for us. I watched anyway. And guess what…I bid. And guess what…I got the property. For $72000 plus the buyer’s fee of $3600. I really didn’t think no one would out-bid me. I really didn’t. I only clicked the stupid button once.

Here’s a pic of the house:

So now I was stuck. I would have to cough up the down payment of $3700 and walk away, or try to figure out a way to buy the damn thing. Since I only have 40k in cash right now for property I would have to borrow the rest. The house is a good deal, not a screaming deal but a good one. Here’s the numbers:

Comps in immediate neighborhood

Last sale 126k (with basement mine is on a slab with slightly larger square footage)

Current pending contract in subdivision 115k under contract in one day

Mine needs about 10k in paint, carpet and appliances to look great. So:

  • Purchase Price $75,600.00
  • Fix up cost $10,000.00
  • Sales price $115,000.00
  • Closing costs/broker fees $7000
  • Total upside potential $22,000

The problem was I didn’t discuss this with Dad before I did it. I felt horrible. I’ll admit it I peed in my pants a little when the auctioneer said my number won. Dad was upset, but said he trusts me. This is my business. I know I can do it and make a profit, I just shouldn’t have done it this way. I’ve learned my lesson and will never, never do anything like this again.

Also, flipping was never in my plan. I just want to buy properties under 50k and rent them long term.

In the end  a real estate agent friend of mine agreed to go in on it with me 50/50. We’ll both put in half the cash and split the profit when it sells. Personally I can’t wait for the day.

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Allowing Your Tenant to Repair Your Property? BAD IDEA!

Someone clicked on my blog by using the search term “tennant fix up property for lower rent”. Yes, they spelled tenant incorrectly, but it made me ponder their question (which I hadn’t previously considered).

The answer I would give is unequivocally NO. Not only is it difficult to monitor their work, but if there is any disagreement now that person is LIVING in your house. Heck, if they got really pissed they might not pay at all then you’d have to evict them. Not only that, but if they got hurt doing repairs you might be liable, adding yet another crappy layer to an already crappy situation.

Just pay someone licensed a fair price. Your tenant should have 2 roles, one is to not destroy your property and the other is to pay a fair amount for rent every month. Don’t let your relationship get to be any more than that or you can prepare to deal with the consequences.

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What’s a Good Deal on a Rental Property? Here’s My Formula:

Fellow blogger The Small Investor asked me on a previous post if I would be willing to outline how I find my rental properties and specifically what returns I’m looking for based on rents, purchase prices, repairs etc. I mentioned some stats briefly in another post,  but I’ll attempt to get a little more in depth here.

NOTE: I’m in Atlanta. This formula varies widely across the country. One of my best friends works in real estate in Los Angeles, and her investors typically get a much smaller return on their investments. I love Atlanta because it’s incredibly affordable. I love calling it our home and I love investing.

My particular strategy is buy and hold. When I first got into real estate here about 6 years ago people were flipping, wholesaling, buying notes, and also doing tons of mortgage fraud. Now none of that works quite as well. Can you flip in Atlanta? Of course! I know people who do. It’s just not my thing right now. My view is I could flip and make a fast 20k, or I could rent and make that same 20k in 2 years, and another 10k every year after that for the same investment. Slow dollar quick dime.

Used to be that we had a 1% rule. In other words, buy for 100k and rent for $1000 per month. This was pretty typical of what was considered a good investment. Now that doesn’t work quite as well. I’ve found that there is a general correlation here in Atlanta between return and risk. The crumbier the neighborhood, the higher return if you can get it. Buy a quadraplex in a nice area, and you’re probably going to get closer to the old 1% rule.

I have a colleague who bought a house in a really terrible area of Atlanta a few months ago for $3500. She put about 10k into it, and gets $500 a month in rent. I do not have the stomach for the neighborhood, but she does and can make it work.

My sweet spot it in an area of a city called Decatur where my goal is to buy (aquisition cost plus repairs) for between 40-50k and get between $900 and $1100 per month in rent. I own two of these currently, I’m about to start the process of buying a third.

To answer Small Ivy’s question – I have not had mortgages on these two. I am doing a cash-out re-fi on the first one to buy a third. However, if I was buying with mortgages I would absolutely have to do BETTER than just making the mortgage, taxes and insurance on the rent.

Here’s the breakdown so far:

Rental #1 – Cost ~50k total (purchased for 27k, put around 23k in.) Monthly rent $950 – Property manager $95 – Taxes $70 – Insurance $70 (The tenant does the lawn maintenance.)

Rental #2 – I did better on this one. Cost ~ 48k total (Purchased for 43k, put 5k in) Monthly rent $1050 – Property manager $105 – Taxes $120 – Insurance $65 (Tenant maintains lawn).

So monthly, if there are no repairs and no mortgages, I would make $1475. I am closing this week on the cash out on Rental #1 and getting 30k, which will cost me an extra $200 a month but will enable me to buy #3 along with the savings I have. Once I get number 3 out of the gate I’m hoping to do approximately 2k per month AFTER expenses.

I have seen quite a bit of information from seasoned investors that say over time, typical costs of maintenance, taxes and insurance will cost you approximately 50% of your rent, so over a period of years if your rent is $1000 you should typically expect to spend about $500 of that, NOT INCLUDING any loan costs.

Some people would say get rid of the property manager and do it yourself, but frankly I think she’s worth every penny. She’s gotten me two amazing tenants on 2 year leases. I wouldn’t have known the first thing about screening them and would have lost far more than she costs in time and days on market for rental. The other cost not stated in the monthly cost is that the initial fee for rental is one month’s rent, which has to be factored in to your total return.

If you are really just barely making the mortgage and expenses I can’t see doing it. You need to be making actual passive income regardless of whether the property value goes up. If you can’t do this in your area, consider investing elsewhere or try to get a screaming deal.

Hope this helps! Let me know if I didn’t answer anything.

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Property Value Twist

I’m under contract for Rental #3. I have a purchase price of 25k. I was expecting there to be around 15k in repairs putting me at a 40k price for a lower rent than my other properties at $850 per month.

Two problems came up today that I’m concerned about.

#1 – The repairs are going to be a lot more than I’d expected at about 25k. There are roof and mold issues that are going to need some very expensive repairs.

This I could deal with if I got a good enough price reduction. The next issue is the biggie.

#2 – The appraisal came back on Rental #1 ( which I’m mortgaging to buy #3) at only 45k.  At a 75% mortgage plus closing costs I’m walking with about 29k. And #1 is in the same area as #2 and slightly larger with 1 more bedroom.

If you’re an investor by now you’re putting together the pieces. The whole point of mortgaging these properties was to be able to at least buy one more with each mortgage. The closing costs are relatively the same for higher priced vs. lower priced properties, so I’m paying a higher percentage for lower amounts. If a better property than the current one I have under contract will only appraise for 45k, then putting even 40k total into this one seems a little silly IF I’m planning to mortgage it, which I am.

There are other areas of town where there are a wider spread of values, making it easier to have “instant equity”. I don’t like those areas as much for steady rental, but if I’m only going to mortgage 6 and buy 8 more in the next 2 years I just don’t think I’ll have enough cash if I’m only getting 30k out of each one that’s mortgaged.

Plus there was a dead bird in front of the garage today. This just doesn’t seem like a good sign.

UPDATE 10-30 I ended up cancelling this contract. The seller wasn’t willing to go down in price and there are other deals where the repairs wouldn’t be so incredibly extensive. Sheesh. A ton of time for me and the contractors for nothing.

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