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Discussion Starter · #1 ·
So I've been thinking about buying a rental property for several years. I'm no expert but it seems to me the key to building wealth is real estate. Lots of folks with money have properties. The rental market around here is really strong because there are 3 major colleges in the area. UofI, WSU, and LCSC.

What I'd like to do is buy nice properties. However that takes a lot more cash than I have at this point.

What I'm thinking is do the rental property thing like I did my landscape biz. Start small.

I've found this house in Lewiston. Decent neighborhood, property values are climbing. This house is in pretty poor condition for that neighborhood.

http://www.cargillrealty.com/index.php?action=listingview&listingID=12382

It's $35,000. I'm thinking of making an offer of $28,000. It needs a total redo.

Talking with a few property management companies (I plan on using one) I should be able to get $1,000 to $1,300 a month for this house after it's renovated.

Here's the blurb that covers the condition of the house.

2 BED 1 BATH FIXER-UPPER WITH NO FOUNDATION, LARGE KITCHEN WITH GOOD CABINETS, NEWER ROOF, LOTS OF FRUIT TREES,NEWER GAS FURNACE, H2O LINE BUSTED IN BACK PORCH THIS WINTER CAUSING SOME MOLD,MILDEW AND DAMAGE IN BACK OF HOME.
The lot is big enough that we could add a bedroom and a bath. Turning this into a 3 bed 2 bath home.

I talked to a GC I know and trust. He figured the cost of renovation and addition at roughly $52,000. We could add a detached garage for an addtional $21,000.

I have some cash, but the majority of this would be financed through a home equity line of credit on the house I currently live in.

The landscaping is pretty bad. I'd want to fence it in, add a sprinkler system, treat the lawn, etc. Figure another $9K for that.

Bearing in mind that I'm a newbie and know little to nothing (except theoretical) of investing in real estate long term. Is this a bad idea?

My goal is for this to be the first house of many. Use the income from this house to buy nicer ones. Maybe someday buy empty lots and build rental houses on them.

Is this a good house to start with or?
 

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Grand Rapids Remodeling
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Bob I had 1 property and had plans like you. Everything went fine til I had to find renters. It made me remember that I'm much better at fixing houses than working with people.

I posted this because in your model plan you left out the actual renting part as I did in my planning and the headache's it can cause. Good renters are out there but so are the ones that will make misery.
 

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Is a water sprinkler really necessary for a rental house? Or is that just the landscaper coming out in you
 

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Discussion Starter · #6 ·
I would use a property management company. They set the rental rate, screen renters, and handle all the legalities and paperwork. The going rate is 10% to 12%. I know enough about landlord tenant law to know that I would want an expert handling that aspect so I don't get burned. Basically they would send me a check every month. I'd never have to meet with or interact with the tenants.
 

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Grand Rapids Remodeling
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I would use a property management company. They set the rental rate, screen renters, and handle all the legalities and paperwork. The going rate is 10% to 12%. I know enough about landlord tenant law to know that I would want an expert handling that aspect so I don't get burned. Basically they would send me a check every month. I'd never have to meet with or interact with the tenants.
Smart man.
 

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I have a prop management company take payment and do the bookkeeping but I pick the tenants, do all the improvements/repairs and show the prop. My formula is the rate of return must pay off the prop within 10 years.
 

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My bro in law rents houses out and i can tell you now from first hand experience that it's almost impossible to find anyone that will look after the place. So far this year we have done a 3 month renovation on the house because of water damage where the tenants left the heating off over winter and went on vacation so we had frozen pipes everywhere and temp went back up and water was everywhere leaking for 2 weeks. so after their lease was up they was out of there.

He then decided not to lease to college people anymore as they have no respect for anything and he found a woman who really looked like she was the kind of person to look after the place. Well 2 weeks into her 6 month lease the back yard was turned into a car scrape yard and there was about 10 people living in the place which only has 3 bedrooms and there were about 6 dogs and the brand new kitchen was ruined. He got them kicked out.

Now he rents to college people again and already they have nearly burned down the place because they didn't change the filter on the A/C return and the motor burnt out and caught on fire and i went round to check it out and they also have 2 dogs and 3 cats in the house and it's a complete mess. 95% of people who rent wont give a dam about what condition they will leave your house in.
 

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Discussion Starter · #11 ·
Yeah, I like a well kept yard.

As far as the inside, the plan is a total gut. Replace all the wood paneling with drywall. Commercial grade stain resistant carpet, decent kitchen, nice baths, etc. My thinking is that the nicer I make the property the more I can rent it for, the more money I make.

We can add central heat and air for another $15K. I may do that instead of a garage.
 

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Particulate Filter
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I did tenant screening for several years. It's not that hard to find a tenant screening company and have them check out your prospective. I think that's the most important step. The management companies that are the most successful had good properties and very strict rules about who they let in. No collections on your credit report, no criminal convictions, no liens, no debt owed to another landlord, no evictions. That weeds out about 60-75% of the population.

But you say, hey I'll never find a tenant that meets that bill they'll own a house because their credit's golden. Probably true, unless you invest in baiting the trap, er, fixing up and choosing the right rental. What's better a negative 20% return on a 40k house with an annual appreciation of 2%(crappy neighborhood near public housing) or a 10% return on a 200k house with an annual appreciation of 6-10%?

It's hard enough making your first rental pencil out (unless you pay cash) let alone giving up 10% to the management company. Do your due diligence and screen the tenants.
 

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Lack Of All Trades
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When investing in rental property, make sure you look at the home's systems. This means plumbing, gas lines, and electrical. The roof, foundation, water heater, and HVAC system are equally as important.

Lot's of fruit trees mean lots of bees and mushy fruit scattered around the property. They will probably have to come down. The house would show better also if some of the greenery in front of it was cut back.

I would do a comparative market analysis to get a feel for what the homes in that area are priced at and have sold for. Going with a manage company is a good idea you have. They often charge 10%-15% of the monthly rent to manage and collect your rents. It saves you a lot of headache.

Also, ppl like to live in nice neighborhoods with decent schools. This is a plus; however, you could theorectically rent to a larger demographic if the house had 3 bedrooms from the start.
 

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Discussion Starter · #15 ·
Also, ppl like to live in nice neighborhoods with decent schools. This is a plus; however, you could theorectically rent to a larger demographic if the house had 3 bedrooms from the start.
That's one of the things that really attracted me to this house. The $35K is basically what the lot is worth. The house is almost a freebie because it's in such bad shape.

Nice houses in that neighborhood are going for $100K. This house and property is so run down that it drove the value into the sewer.

If I got this house fixed up and updated, added central heat and air, a garage, and all that it would be worth in the neighborhood of $105,000.

Granted it's going to cost that to get it to that point, but if I'm thinking this through properly that's not a bad thing. The house will be worth what I owe on it (maybe worth slightly more) and it'll generate income.

The neighborhood is midle class working families. Not working poor. Low/no crime.

On paper it seems like a winner. However in real life....?
 

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I would use a property management company. They set the rental rate, screen renters, and handle all the legalities and paperwork. The going rate is 10% to 12%. I know enough about landlord tenant law to know that I would want an expert handling that aspect so I don't get burned. Basically they would send me a check every month. I'd never have to meet with or interact with the tenants.
this is the only way to go. i know a couple people with rental properties that are big on the handshake and a word. one of my buddies was screwed over by 2 renters right in a row.
 

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Cabinetmaker
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2 BED 1 BATH FIXER-UPPER WITH NO FOUNDATION, LARGE KITCHEN WITH GOOD CABINETS, NEWER ROOF, LOTS OF FRUIT TREES,NEWER GAS FURNACE, H2O LINE BUSTED IN BACK PORCH THIS WINTER CAUSING SOME MOLD,MILDEW AND DAMAGE IN BACK OF HOME.

NO FOUNDATION??????????????????:whistling:whistling
 

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Discussion Starter · #18 ·
The foundation is like a deck. Posts sunk in the ground with concrete. It's not a slab foundation.

The GC I hired to inspect and estimate (yep, I actually paid for his time. WOW!!!) said it was fine. A little unusual, but fine.
 

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Fentoozler
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If I got this house fixed up and updated, added central heat and air, a garage, and all that it would be worth in the neighborhood of $105,000.

Granted it's going to cost that to get it to that point, but if I'm thinking this through properly that's not a bad thing. The house will be worth what I owe on it (maybe worth slightly more) and it'll generate income.



On paper it seems like a winner. However in real life....?
It's a dog.

You will be going into the rental business with $0 ROI.
How many months can you float the nut w/o it providing income?
How will that factor into the price of repairs and upgrades?


IF it were me....I'd buy it as a rental, fix it MINIMALLY....then rent or sell it.
If you rent it out, save some of the money to do the upgrades.
If you sell it, 1031 it into a better property.
 

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Discussion Starter · #20 ·
Realistically I can afford the nut on what I make now. It'll suck, eat up most of my disposable income, and not be fun. I wouldn't do this if I had to rely on the rental income to pay for it. If that makes sense. What I'm trying to say is I don't want to have to sweat the rent check to make the payment every month. I want to buy something within my means/comfort zone. Does that make sense?

I'm having a hard tme calculating ROI. Complex maths is not my strong suit. Can you use the numbers I posted to illustrate where I would be at with this house? An example would help. That way I can apply that example to other properties I look at.
 
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