I want to start a Rental Portfolio in Denver but I know Nothing

[Kathryn Mills]

I am a first time home buyer. I do not want to buy a house for myself. I want to buy a house to start building a rental portfolio. This would be a side endeavor for me, and I am simply considering this for a small side gig/I have always had an interest in real estate. My questions are intended to build a small foundation of knowledge in order to better understand what I am researching when I am googling about building a rental portfolio.

Here is my current set up:

• $30K downpayment (but would rather not since I am a 1st time buyer)
• I am approved at $500,000
• I have no debt
• Denver Market and Surrounding areas (most of the Denver neighborhoods have rather old homes with a mix of shops, condos, new modern homes, etc).
• I am not ready to find an agent. I want to understand the below better before I start looking. 

Here are my questions (they are not in any particular order, just as they came to mind):

1. How did you get started in rentals and what does your portfolio look like now?
2. Are there real estate agents that specialize in foreclosures, fixer uppers, or auctions?
   1. Are there different types of home actions? (I am looking at a few homes for bank auction, but its an online bid and I am very unfamiliar with this)
   2. How do you decide on a bid amount?
   3. Do real estate agents get involved in a bid/auction set up? Do I need one?
   4. Can one who would have a mortgage bid in a home auction or foreclosure?
   5. How do short sales or foreclosure purchase work (many of the homes I am looking at are under the “foreclosure” category)
   6. What are the questions that you can think of (from your experience) to ask a real estate agent before agreeing to work to find a home.
3. How do you have your rental business set up? LLC or did you even set up anything? I was thinking of setting up an LLC
   1. How do you manager you profits from rentals
   2. How do you manage your taxes from rentals
   3. After you purchase your first home (and say have a $1500 monthly mortgage and then charge $1700 for renting) and rent it out, when/how can you go about getting the next home (with a small downpayment). What is this process?
4. How did you decide the best location for purchase
5. How did you find renters?
6. Is there a way to determine if a neighborhood is best for rentals?
7. Is there any special insurance that is needed with rental properties to protect yourself?
8. What are the best ways to protect yourself against bad renters?
9. What types of spreadsheets/business records do you maintain in order to keep your portfolio organized (I can build my own, just need a list of ideas).
10. What paperwork should I have ready to check my renters (application, lease agreement, etc)
11. Do you do background checks on your renters or credit checks? How and how long?
12. Denver is a Dog City, so what do you do to ensure responsible pet owners... or is this even worth allowing? 
13. Do real estate agents assist with rentals/finding renters? If so, what is the typical cost structure?
14. How do you determine the deposit amount?
15. Do school rating matter that much to renters? What is it about the school rating that actually matter the most?
16. Do you have to notify the city if a home is a rental? Anything special?
17. Do you ever open up your rentals to Air-BnB and are there any special issues with this?
18. Do you provide furniture?
    1. Do you charge anything for furniture in rental price?
    2. How do you ensure your furniture stays nice and clean?
19. How did you find your service companies? (Lawn care, pest control, etc)
    1. How do you keep this cheap?
    2. Can you list all of the types of companies you use to maintain your rentals?
    3. Most Denver neighborhoods are older, is there anything special to think about with older homes as far as maintenance is required? There are basements, so radon?
20. How did you decide the amount to charge by rental?
21. What if the home needs a few updates? I wouldn’t want to customize anything that I am not living in, but I want it nice enough to attract renters… so how do you limit?
22. Do you use any executive placement companies to find renters?
    1. If so, how does the cost structure affect your rental income
    2. Are these worth the investment

I understand some of these questions are very basic. Any thoughts or feedback is greatly appreciated! 

[Jon Holdman]

That's a huge list of questions. I highly recommend spending time reading here, especially in the Rental Property and Landlording forums and asking more specific questions. I'll give some brief answers below, but it would take a book to fully answer all of these. I'm having a hard time formatting this, my replies are in bold.

Here is my current set up:

• $30K downpayment (but would rather not since I am a 1st time buyer)
• I am approved at $500,000 You should expect to need 20% down payments, plus closing costs, plus cash reserves (typically six months PITI).  You might want to read posts about the "buy (a junky house using hard money), rehab (to add value), rent, refinance" or BRRR process.  That's a way to get in with less than 20% down.  Still doesn't mean nothing down.
• I have no debt
• Denver Market and Surrounding areas (most of the Denver neighborhoods have rather old homes with a mix of shops, condos, new modern homes, etc).
• I am not ready to find an agent. I want to understand the below better before I start looking.

Here are my questions (they are not in any particular order, just as they came to mind):

1. How did you get started in rentals and what does your portfolio look like now?  Buying REO and short sale properties in 2008-2009. Looked at hundreds, wrote dozens of offers, bought two, decided to work on my personal finances rather than get deeper in debt. Sold one in 2016 and would sell the other one if the tenants moved out.
2. Are there real estate agents that specialize in foreclosures, fixer uppers, or auctions? Not really.  There are agents who work with investors, though, vs. owner occupant buyers.
   
   1. Are there different types of home actions? (I am looking at a few homes for bank auction, but its an online bid and I am very unfamiliar with this)  I've not tried any of these online auctions.  Most REO properties (properties that have been through the foreclosure process and now owned by a bank) are listed on the MLS.  If they get to one of these auction sites, they're likely the dregs.
   2. How do you decide on a bid amount?
   3. Do real estate agents get involved in a bid/auction set up? Do I need one?  
   4. Can one who would have a mortgage bid in a home auction or foreclosure?
   5. How do short sales or foreclosure purchase work (many of the homes I am looking at are under the “foreclosure” category)
   6. What are the questions that you can think of (from your experience) to ask a real estate agent before agreeing to work to find a home.
3. How do you have your rental business set up? LLC or did you even set up anything? I was thinking of setting up an LLC I do have an LLC, but its really just for tracking.  Buy liability insurance.  All income from an LLC flows onto your personal tax return.
   
   1. How do you manager you profits from rentals  I accumulate them into my business bank account.
   2. How do you manage your taxes from rentals  These go onto your personal tax return.
   3. After you purchase your first home (and say have a $1500 monthly mortgage and then charge $1700 for renting) and rent it out, when/how can you go about getting the next home (with a small downpayment). What is this process?  First, if you have a $1500 PITI and get $1700 in rent, you're going to be cash flow negative.  A lender would estimate you would be negative $225 a month.  I'd say that's a little optimistic.  But to answer your question, you save up cash for the next down payment and do it again.
4. How did you decide the best location for purchase  Where I can find something profitable
5. How did you find renters?  Stick a sign in the yard.  I don't bother with craigslist.  You just get a bunch of doctors from the UK that are moving here with their daughters.
6. Is there a way to determine if a neighborhood is best for rentals?  Where the price to rent ratio is most profitable.
7. Is there any special insurance that is needed with rental properties to protect yourself?  You want landlord insurance on the properties then an umbrella liability policy.
8. What are the best ways to protect yourself against bad renters?  Careful screening.  Many posts on this topic.  Its still a gamble.
9. What types of spreadsheets/business records do you maintain in order to keep your portfolio organized (I can build my own, just need a list of ideas).  At first it doesn't take much.   If you end up with more an more properties you want some accounting system.
10. What paperwork should I have ready to check my renters (application, lease agreement, etc).  That's it.  An application and a lease.
11. Do you do background checks on your renters or credit checks? How and how long?  You need to sign up with a screening company.   I do run checks with them.  I also run checks on CBI (Colorado Bureau of Investigations).  And I call employers and former landlords.  I check the claimed former landlord really owns the property they claim to have been living in.
12. Denver is a Dog City, so what do you do to ensure responsible pet owners... or is this even worth allowing? I would allow pets, with a pet deposit.  Hasn't been an issue, though.
13. Do real estate agents assist with rentals/finding renters? If so, what is the typical cost structure? These are property managers, though they are licensed as real estate agents.  They typically charge 10% of collected rents plus half to a full month's rent to fill a vacancy.
14. How do you determine the deposit amount?  I make it a bit less than a month's rent.  That helps avoid the "I want to use the deposit for the last month's rent" issue.
15. Do school rating matter that much to renters? What is it about the school rating that actually matter the most? I can't tell that it matters.
16. Do you have to notify the city if a home is a rental? Anything special?  Depends on the city.  Not in Denver or Aurora.
17. Do you ever open up your rentals to Air-BnB and are there any special issues with this?  Haven't done this.
18. Do you provide furniture?  No way.
    1. Do you charge anything for furniture in rental price?
    2. How do you ensure your furniture stays nice and clean?
19. How did you find your service companies? (Lawn care, pest control, etc)  Word of mouth.  In SFR rentals, tenants are responsible for lawn care.
    
    1. How do you keep this cheap?
    2. Can you list all of the types of companies you use to maintain your rentals?
    3. Most Denver neighborhoods are older, is there anything special to think about with older homes as far as maintenance is required? There are basements, so radon?
20. How did you decide the amount to charge by rental?  Looking at rentometer.com and then analyzing rentals in the area.
21. What if the home needs a few updates? I wouldn’t want to customize anything that I am not living in, but I want it nice enough to attract renters… so how do you limit?  Go look at open houses for fixed-up houses in the area.  If you're bold, pretend to be a tenant and go look at places.  Make yours match others in the area.  Don't get carried away.  It won't stay nice.
22. Do you use any executive placement companies to find renters? No.
    1. If so, how does the cost structure affect your rental income
    2. Are these worth the investment

I understand some of these questions are very basic. Any thoughts or feedback is greatly appreciated!