What do you look for in a rental property?

Question

Jason Tham · Answer

I invest in Madison, so my criteria are a little different, but I always take my inspections seriously.  First of all, the numbers have to work for me to even consider a property an investment.  After that, the house should:

1. Roof is no older than 5-10 years old, with 10 being on the high side.

2. The basement has to be in good shape.  Or easily repaired.  The basement can doom your property.

3. Make sure you get the chimney inspected by a trusted professional.  Chimneys can become ridiculously expensive.

4. Solid location.  Nothing 'on the fringe' of an undesirable neighborhood.

5. Always ask for a rent ledger / rent roll from the previous owner so you know what you're buying into.  It also sheds light on the neighborhood, and what kind of tenants you can expect.

Feel free to shoot me a message.  I'm still a small time investor, but I'm proud of my investments so far.

Lisa Ross · Answer

@Jason Tham, yup you're right! I've heard of that too!

Ivan Burley · Answer

I'll say I follow the common theme here and look at the roof, siding, windows, ect.  I also always look at the grade and pitch of the lot.  This natural leads to looking at the condition of the foundation.  Look for stairway cracks and signs of repair.

Right now I am looking for homes on slabs.  There are typically less issues to deal with as opposed to homes with craw spaces.  No floor joists, standing water, pests, ect.  To me the most important thing is no major structural issues.  Anything cosmetic is any as fix.  When you start getting into foundation and structural damage that's when you lose.

Jason Tham · Answer

@Steve S - I realize I didn't fully answer your question.  I do sometimes look at a property from the perspective of a tenant.  When I'm looking at a property I ask myself, "would I live here?"  It's not necessarily a way for everyone to evaluate a property, but for me, it gives me peace of mind that I can create a good, safe and comfortable environment for my tenants.  It helps me sleep at night.

@Vincent Lang - most of the houses I look at are 50-100 years old.  I have had to turn down a property because of the roof.  I once had an accepted offer and escrow payment made on a place in Madison - the numbers were mind-blowing for the area.  I didn't know about the roof problems until the inspection (I was a first time investor and didn't know a thing about roofs).  The roof looked good to me visually, but what I didn't realize is that there was 3+ layers of shingles up there. Too many layers of roof is extremely dangerous in the case of a fire, since it is so heavy.  If I would have purchased the place, I would have had to do a complete tear-off, totaling over $20K.  I'm happy to have wiggled out of that one!

Regarding HVAC - I bought a place in 2012 in east Madison.  The place is over 100 years old, and the boiler was much older than me.  I wanted an efficient boiler, so I negotiated a new boiler into the offer.  I love it because it raised the value of my house and made it more energy efficient.

That said, I do like a place that needs some work. For example, a place has a bad interior paint job, or a bathtub that needs to be refinished.  It drives off competing offers, and I know that I can either fix it myself or get someone to do it on the cheap :).

@Russ Mattson I agree with you on #3.  Windows can easily be checked out from the outside.  I also think windows are a great thing to sneak into your offer to purchase conditions  Just make sure you specify what type of window!

@Lisa Ross - I have heard of people just parking their car on the street by a property and seeing what its like during the day, and in the middle of the night.  Then you can see the noise and what kind of neighborhood you're dealing with.

Lisa Ross · Answer

Other points to consider:

1. Noise - be quiet to see the noise that you'll have to face up with from now on

2. Fire. Are there any smoke detectors? Fire extinguishers? A building-wide fire alarm? It may be helpful someday

3. Appliances - Do they actually work?

Russ M. · Answer

I usually do a "drive-by" and check for obvious big ticket capital items that could turn any numbers sour quickly.

a.  Visually check roof.  You don't need to be a roofer to tell if a roof is in decent shape or is going to need to be replaced.  Are there overhanging tereres that should be dealt with to avoid surprises during a storm, etc.

b.  Building exterior/siding/etc - Any obvious damage, general condition.

c.  Parking lot - Is parking lot in decent shape or is it a lawsuit waiting to happen.

d.  Windows - you can usually tell if windows are original or have been replaced.

e.  General overall appearance of the exterior.  Often an indicator of how the previous owner cared for the property (and possibly treated the tenants).

f.  If a multi-family can you see any common areas without trespassing.  Again an indicator of previous owners attention to property.  If everything appears well kept, clean, etc, cahnces are issues are dealt with as soon as they arise.

g.  Neighborhood - an indication of the types of tenants you'll attract.

I'm sure I am missing some things that we look for, but my wife and I will usually drive by any property and do this sort of review before even starting to look at numbers or considering anything else.  Since we are not looking to rehab or put a lot of money into the properties we buy, we eliminate many potential properties that would have a potential for high capital repair costs.  I'm sure there are probably a few "diamonds in the rough" that we miss, but thats a chancce we take.

Vincent Lang · Answer

@ Steve, good question!

@Jason Tham I will remember those points for my first purchase! I found your roof requirement interesting. Have you found that to be an easy find or do you have to turn down a lot of houses because you feel the roof is too old? I'm in SE Wisconsin so I understand the wear our winters have. How old are the houses you both consider? Is there a certain age that is too old for or is it completely dependent on the shape of the house?

What about windows/HVAC?

Steve S. · Answer

Good points given , thanks for the help!

What do you look for in a rental property?

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