How do you determine rental demand in your area

In My Humble Opinion
1

I am thinking of getting a mortgage on a 3 bedroom house here in town, they start at 59k. Property taxes run roughly $50-90 a month so insurance/taxes/30 year mortgage at 7% together should run about $450-500/month, sans maintenance (i have no idea how much this would be I assume $1500/yr as a ballpark). I figure if I get a place I could rent out two of the bedrooms and live in the third but how do I determine if there is enough demand for anyone to want to live in the two bedrooms? I would be willing to lower the price down to $200/month (nobody on roommates.com offers anything lower than $250/month for this town), but i’m still not sure if that is. On roommates.com there are 95 people in my town looking for a place to live, and 94 of them are willing to spend up to $300 a month. Since i’d end up spending $250/month for rent anyway even one roommate at $300/month would let me live at roughly the same cost as I would have in an apartment and build equity at the same time.

Also, how hard is it to unload a house after you move? Should I keep it as a rental or get rid of it entirely after I move out of town?

2

[QUOTE=Wesley Clark]
On roommates.com there are 95 people in my town looking for a place to live, and 94 of them are willing to spend up to $300 a month. QUOTE]

That should say ‘at least 94 of them are willing to spend $300 a month or more’. Their max rents go higher than $300/month for most of them.

3

First of all, don’t forget the time in between people moving in and out. You’re in a college town which means frequent move in and move outs. Sure, make people sign a lease, but the hassle of tracking them down, suing, and then collecting may not be worth it.

The move in/move outs might drive you crazy. People in college towns looking for rooms to rent may not always be the most stable. You’re going to get people moving in after breakups with boyfriends/girlfriends or perhaps ugly baggage and drama from earlier roommate relationships.
You may wish to actually price just a bit higher…to avoid getting people who need a place quickly but may be just as quick to move out on a day’s notice. I guess I would spend serious time looking at rooms for rent rates in your local college paper.

4

The usual rental rate here in town is $300-400 for a room from what i’ve seen on the fliers around campus.

5

A rule of thumb I’ve heard is that annual rental income should equate to 10% of the property valuation were it currently listed, e.g. 100K listing price means $835 per month w/o utilities.

If you expect high turnover, invest in interior finishes which are more difficult than average to f**k up. The cost of FRP once in a laundry room will recover itself over numerous repaintings, for an example.

Collect a deposit, take digital pictures showing condition of the unit at time of rental. If they f**k it up, you have evidence of reason to withhold/revoke their deposit.

Contact your State Department of Consumer Affairs. Ask for a copy of whatever document governs rental covenants/contracts/agreements. In PA it is called the Landlord Tenant Act, and states what you as owner can and cannot do to protect your interests.

Speak with an Attorney fluent in Real Estate law in your area. A couple of hundred spent there can keep you from losing many times that amount.

Some other tips: If you can’t surcharge a late payment, make the surcharged payment the rental amount, and offer an early payment discount, e.g. the rent is (in your head) $850. The lease then states that rental amount is $935 per month, payable on the 10th, but if payment is received by the first of the month, the renter is entitled to a 10% discount, and you’re back to $841.50.

Make arrangements with maintenance people first. Try to find a guy (like me) who has done absentee property maint, is street smart, and will watch your back door. You want a maintenance contractor who will call you the minute they think your property is being f**ked up, as well as one who will offer proactive maintenance tips.

To preclude tenants nickel and diming you to death, if your statute allows it, put in a first $50 clause. That way, when the tenant’s kid tries to flush a roll of paper towels down the john, they take the hit. Final bills over $50 are on you.

There are a gazillion other things I could tell you, but this post is long as it is. Shoot me an email if you’d like further dialog.

6

This will depend entirely on the sales market at the time you vacate. You can get an idea of this based on past performance but there’s no guarantee the market will stay the same in the future. It might be easy to sell or it might be practically impossible. It’s a gamble you take.

Or, do you mean how hard is it to unload a house AFTER you have moved to an entirely new location and are no longer in the house or nearby? My opinion is that it can be a lot harder since you’ll be dealing with the real estate agent by phone only. I prefer to have face-to-face contact with a person on whom many thousands of my dollars are riding. And, obviously you can’t do a FSBO unless you’re nearby or are willing to spend lots of money on commuting. (I would also not recommend that someone who is not very experienced in real estate transactions try to take on a FSBO.)

7

This sounds like a pretty good idea, particularly if you’re in a college town and can happily live with students. The numbers you’re talking about, what with mortgage, insurance, and taxes combining to something in the $500/mo. range, don’t sound like anything that could get you in a whole lot of trouble if you should have a rough month or two (as in, no roommates for some reason), especially if you make it a rule to keep the equivalent of what would ordinarily come from the roommates in a house account for contingencies. If you can make the down payment and get the mortgage, I think you’d be doing yourself a favor to own rather than rent, since your scheme involves income that will help you pay for the house. From what you’ve said, I’m guessing that you’ve been living with roommates anyway, so there’s no reason why you shouldn’t benefit from roommates helping you build equity instead of building it for some other landlord.

Here in Parousia Falls (a/k/a Providence) I’ve had great results finding tenants by listing on the Brown University off-campus housing website – you might want to see if a similar site exists at the college(s) near you. Be aware, though, that it can be rough, in a college town, finding tenants in the fall through spring – the big rush to find housing here is in July and August, and of course students tend to move out after May. My experience has been that grad students are more stable than younger ones and more likely to stick around from year to year. That goes double if you can provide a good vibe in a nice house.

danceswithcats provides good advice, but since you’d not only be an on-site landlord but a roommate as well, you could probably get away with somewhat less formality in your rental arrangements. (I’m not sure if dwc is thinking you’re planning to be an absentee landlord?) But certainly, check out whatever Indiana has for landlord/tenant laws (you can probably find that online), and if there’s a state or local agency running a first-time homebuyer’s program available to you, by all means take advantage of what they have to offer. These programs can really help you understand what you’re getting into, and in some cases can help you get a good rate on a mortgage. (Actually, I just googled “bloomington indiana first-time homebuyer’s classes”, and it looks as if the Housing and Neighborhood Development agency has a great program, with downpayment and closing cost assistance for income-eligible graduates of their seven-week course. Take a look!)

As far as ‘unloading’ a house when you’re done living in it, that can vary, and I’m assuming that’d be a couple years down the road anyway. Around here, it’s been a hot market, with hardly anything staying on the market more than 45 days lately. But two years from now, who knows? The market does seem to be softening a little. One constant, though, is that a solid, well-kept house in a decent neighborhood will always have the edge.

Good luck with this!

8

Does anyone have any opinions on mobile/manufactured homes vs condos vs single family homes vs multi family homes?

Here in Bloomington single family homes and condos with 3 bedrooms start at 59k. However mobile homes with 3 bedrooms start at 39k and charge only about $200/yr in taxes compared to the $1200/yr charged by condos and houses. Plus i’m sure insurance for a mobile home is cheaper too. Plus Condos will probably have a condo fee. A regular 3 bedroom home or condo is $365/month (59k mortgage with a 5% down, 7% 30 year loan) & $80/month (taxes). I don’t know about insurance rates, maybe $50/month. So that comes to $495/month minus condo fees. Not bad. For the mobile home its $243 mortgage & $20/month for taxes, maybe $40/month insurance so $303.

The only question is would I get anyone who wanted to live in a mobile home with me? Would there still be strong demand to live in one? What are the detriments of a mobile home other than the social stigma some people have over them?

9

I’d pass on the mobil. Even if you could get over the stigma, I’ve heard they seldom appreciate in value.

And 59k for a house. Amazing.

10

Definitely do some local research to hopefully buy a house that will appreciate in value. The fact that you’ll be renting rooms in it probably doesn’t help that cause, but maybe you can learn about other factors that will. Is it near an area that will be developed to create more jobs, amenities, a school in the next 5-10 years? That could help it increase in value.

Also, I wouldn’t do this unless I had a cushion to guard against cash flow problems. A good general guideline is to have 3-6 months expenses saved in a liquid account.

In general I think it’s a great idea, though. Using other people to build equity for you.

11

I personally don’t care about the stigma, but I am afraid other people will. And the mobile home is at least $200 a month less than a condo or house.

And appreciation of value isn’t important, i’ll only live in the place for 2-3 years.