My wife and I are scouting around for an investment property to rent out- a single-family home, possibly detached but more likely a townhouse, which are numerous in my area. Probably 2-3 BR, 2-2.5 bath. Rental market appears to be healthy. We’ve bought two homes (our personal residences) and have refinanced each a few times, so we’re comfortable with the mortgage/loan/approval process, but owning a home for rental is new to us. We’re researching all of this but thought I’d tap into the collective knowledge base here as well.
A couple things we have little experience with, but are educating ourselves about:
-the lease- standard form or create our own?
-lease term- 1, 3, 5 years?
-escalator- annual or tied to lease term?
-advertising for tenants- Craigslist? something else?
-interviewing candidates- what can I ask them for- pay stubs? some other proof of income?
-vacancies- we’re assuming a 1-2 month vacancy potential per year, as we crunch numbers. Too high? Too low?
-what’s the customary frequency for checking up on the place- once or twice a year, just to poke around and make sure they’re not destroying it? Less?
-we’re not looking to make much if anything on a monthly basis, but plan to realize our profit on resale.
-we’re both handy with around-the-house fix-up issues and know of a couple reliable trades in the area, so maintenance and repair aren’t a big concern.
Anything else? Have your experiences been good, bad, other? Are there any traps to watch out for? Thanks!
You have it exactly backwards. You need to make your money on the monthly cash flow and not on resale - a house is a terrible investment solely judging by long-term resale.
A single family unit is is about the worst investment possible. You are out of pocket every month that the unit is untenanted, and yo have to be extremely careful about who you rent to. Plus, many condo complexes have rules about rentals-better find them and read them before you buy. You have to screen tenants religiously, and be accessible (you have to be around when the tenant’s toilet breaks).A muti-unit dwelling is a much better situation…but again, screen your tenants.
A few years ago, my SIL was so unlucky as to rent to a neighborhood drug dealer. That ended VERY badly.
I recommend using a management company. I pay them 10%, and they take care of everything. I live across the country from my investment property, so it makes even more sense to hire somebody. Also, the management company screens the applicants, handles deposits, inspections, advertisment, contracts, legal, evictions, etc. Well worth it, IMO. I would still use them if I lived in the immedite area.
Me
I’m not in this game, but talked to a friend a few years ago who has several properties. What I took away from that conversation is that you don’t make your money when you sell the property, you make it when you buy. That is to say you only buy properties that sell for a price that the expected rents will support. I may be off on my memory, but I think he bought property only if it was priced at 100 times the monthly rent or less.