Buying a 2nd Rental Property
Sometimes things move fast. Two weeks ago I decided to start looking for another rental property, figuring it could take several months to find what I was looking for. But, bam! 3 days later I found one here in the valley.
It’s a 3 bedroom single family home, and the deal should close later today. I’m excited about the potential upsides, and of course hoping the potential downsides don’t come to pass.
The buying process
In some ways, I’ve gone about this the wrong way. I haven’t researched rents in the area, which means I haven’t calculated potential net operating income (NOI).
I haven’t gotten cost estimates on the repairs that will need to be done to it, or on how long they might take. I do have a pretty good idea of what those will be, based on being familiar with the area and getting a ton of renovations done on my other rental house — but vague notions aren’t facts.
Unless you count the 5 minutes of Googling I did on Section 8 properties, all I’ve really done is have it inspected, check for obvious potential issues, look up the property taxes, and get a quote on insurance.
I didn’t even look at more than one house, but that’s ok with me. (Can you tell I’m a satisficer and not a maximizer?)
Why this house?
I was looking for an affordable, well-built older single family home without a home owner’s association in a specific location, and that’s exactly what this is.
Those may sound like very basic requirements, but for the area and my budget they are few and far between. If I’d wanted a condo or townhome and been willing to accept an HOA, it would have been a different story. I didn’t want that because I didn’t want to add another fixed monthly expense. The goal is to generate mostly-passive income, not increase my expenses.
This house is close to public transit and in an area that has markedly improved safety, resource, and appearance-wise since I lived there in the late 80s. The city also plans to continue improving it.
Of course I believe the property’s value is likely to either stay about the same or increase over time, and that it has good rental potential because of the location. It’s also not the best house on the street, which is excellent from my perspective.
So I think/hope it will be a good source of long-term rental income, and if the housing market goes insane again like it did back in 2006 I will likely sell it. Since no one can see the future, if I’m wrong I’ll take my lumps and figure out what lessons there are to be learned.
Offering less than asking price
I was able to get the home for below asking price, which was awesome. In fact, that’s how I could afford it. If they hadn’t been willing to accept my offer I would have had to keep looking.
I worked with a Realtor who helped me find the home and submit my admittedly-low offer. His strategy was for me to make the strongest offer possible in order to provide an upside so that it would have a chance of being accepted. (Because who wants to accept less than you’re asking?)
So after having it inspected, I offered to buy it as-is with no contingencies, a quick close, and included a large earnest money check. I do think my offer reflected close to fair market value for its condition, although it’s a little difficult to tell since there hadn’t been any recent sales. At the very least, it’s close to last year’s market value.
Assuming the deal does close without issue, I’ll be a busy bee. I’ve got to:
- Accept the insurance quote
- Get the utilities in my name
- Have an HVAC person come out and give estimates on repairing and/or replacing the AC and heater
- Do some cosmetic repairs
- Kill the weeds and (likely) bring in rock
- Add another section of fence
- Possibly turn an odd niche in the hallway into a linen closet
- Possibly buy a dishwasher
- Register it with the county as a rental property
- Have it inspected by the housing authority if I want it to be eligible for Section 8
- List it for rent once it’s ready
- Rent it
I’m really hoping I can find a good, long-term renter who pays on time and takes care of the home. That’s one thing that makes a huge difference in owning rental property.
So, any tips from folks on finding an excellent tenant? Or comments if you’re thinking of buying rental property? Here’s hoping this turns out to be a good long-term investment.