What is more important in your rental houses, a basement or a garage?

Question

I have been looking for sfr deals for at least a month now and the agent I've been working with has been adamant that we only look at properties that have a basement and a garage.  The problem with this however is that the houses that have both of these are usually priced much higher and the numbers don't really make much sense.

I understand the agents point about having both for resale value and for commanding higher rent, however the deals just aren't making sense.  The taxes are higher on these homes as well which directly eats into the added rent totals that you are collecting.

In your experience, which feature between a garage and basement is more important if you can't have both?

Anyone like Tom N. and others from the Metro Detroit area specifically want to chime in?

Thanks everyone for the help!

Michael Dundon · Answer

Hey Nick,

If I had to pick one I'd go with a basement. But I'll only buy a house in my areas with both a garage and a basement. While the resale and higher rent part are definitely true, I wouldn't do it because the quality tenants that I want to rent to in our markets (mainly South Redford) expect the house to have both.

But it totally depends on the demographic that you're renting too. It's mostly families/ people with kids that rent our houses and they fill the basement and garage (they never park their cars in there) with all of their stuff. And to me that's great because it most likely means that they're planning on staying awhile. I would never buy a 2 bedroom or a house that's less than 1000 sq. ft. for mainly the same reasons

However, where I live in Ferndale I know many investors that buy 2 bedroom houses on slabs/crawl spaces with no garage. They rent just fine because the main demographic are single people without any kids. That's not my model but it works in Ferndale.

So long story short, just know the demographic that you're renting too. If the numbers don't work they don't work, but I'd take a higher priced home with a garage and a basement over a cheaper house without a garage or basement all day long. You'll get better tenants and have less turnover/vacancy.

Hope this helps- Good Luck!

Aaron Yates · Answer

Is your agent an investor? Does he own Rentals? If not, then don't listen to a word he says. It will steer you in the wrong direction.

Listen to your gut. Do the numbers work for you? Can you handle the rehab? How does the neighborhood look?

These are what you want to look at. I didn't buy one single property based on what an agent told me, what an opinion of friend/family member had, or even based on what I 'Could' get for rent.

When I started, I bought simply because it was cheap and that's all I could afford. Read my latest blog if you haven't already. It sounds like your mind is getting clouded. I've been there and recently too.

http://www.biggerpockets.com/renewsblog/2013/12/11/real-estate-rules-really-need/#comments

Hell, I never even had a plan when I started investing. I just knew I wanted houses. So I started buying them. Almost EVERONE told me I couldn't do it. But I did and I am making money. These same people are now surprised and have so far STOPPED giving me their 'expert' advice and opinions... ha ha ha...

Are you finding the properties yourself or waiting on your agent to find them? This is not the best way either in my experience. You can miss out on some deals. Are you going for cheap houses? This will also make them not work very hard for you.

At the end of the day, I buy a house based on what 'my' feeling and thoughts are. Not anyone else's. If you are not comfortable with the house then don't buy it. Agents will try to talk you into buying something you don't want. Especially if it's the seller's agent.

Sorry if you know a lot of this but I am not familiar with your background and wanted to add my $.02 in since you asked so nicely.. ha ha ha..

Here are some of my posts that if you aren't familiar with already, can give you some tips on searching and what not.

http://www.biggerpockets.com/blogs/4178/blog_posts/28728-property-searching-tip

http://www.biggerpockets.com/blogs/4178/blog_posts/29349-arv-calculating

This next one I threw in because it will help you when trying to find a tenant.

http://www.biggerpockets.com/blogs/4178/blog_posts/30113-how-to-qualify-as-a-landlord

And one last one.

http://www.biggerpockets.com/renewsblog/2013/10/28/way-to-invest-in-real-estate/

Oh, and think to yourself, would you live in the house? I have to personally like the house or I won't buy it. If it's a house I could see myself in if need be then that means someone else will like it to. If you have the feeling that it may be difficult to rent due to the layout, or the exterior design, then you may be right.

Example. I have a property in Warren just north of 8 mile and west of mound. I had to occupy it again last month due to a tenant moving out. I was nervous. It was November, getting cold, and there were 5 other properties that have been and still are vacant, for the past 5 months.

But I was able to get my property occupied in 2 weeks. Why? Because I go above the norm when I rehab my properties. I pick properties that look nice on the outside and if they don't then I make them look nice. And lastly, because I don't ask top market rent. I don't need to.

Ok, so I'm stopping now. I am actually writing a book about my process so I don't want to give it all away in your thread. Hope my tangent helps you.

Aaron Yates · Answer

I bought one property with this exact thought in mind as well. Not sure if I will ever build the garage but though. Depends on what the future brings. I've only owned it for 10 months and has been occupied since June. In fact I was finishing up the cleaning from the rehab until 8:30 the night the people were moving in.

Time will tell I guess.

Roy N. · Answer

Rob:

You can always add a basement later as well ... it's not pretty and rather expensive, but I lived though this very event when I was a teenager.

:-)

Brad T. · Answer

@Nick Keesee

Nick, did you ever find a house that worked out for you?  I have been thinking over the basement and garage decision also.  When I crunch the numbers in my area, I get the below numbers roughly.  The numbers seem to favor no basement or garage.  The acquisition cost is $8K-$9K cheaper for the $75K house, so I could add them faster.  What are your thoughts?

- $75K house without a garage or basement (easy to find) renting for $1,050 - 16.5% ROI

- $105K house with garage and basement (harder to find) renting for $1,225 - 11.4% ROI

Mike H. · Answer

All but 2 or 3 of my 23 houses have garages.

Less than half have basements. They're either on crawls or 
	they are tri-levels, etc. Of the 5 or 6 that do have basements, they are
	all unfinished and are in the older houses.

Newer houses with basements tend to be out of my price range.

Even if they were finished, I demo all of them and tell every tenant
	the same thing. "The basement is unfinished for a reason. There is a chance
	of it getting water down there so don't put anything you dont want to lose 
	on the floor".

I do this because some of the older houses are block and will leak a little
	every now and then in a big storm. The others may seem dry as a bone
	but I just don't want any late night calls that I need to get over there
	because the basement has water.

Since they're all unfinished, nothing of mine can be damaged unless
	there's a significant flood in there.

Basements attract water and water is truly the enemy. 
	I know that renters prefer basements but I prefer crawls
	so I don't have any big bills for basement cleanup.......

Wet drywall is a nightmare. Wet concrete is a a 2 day wait 
	for evaporation to take its course. :-)

Justin B. · Answer

I invest all down south right now and basements are uncommon.  In fact, none of mine have a basement and only 2 have garages.  Since basements aren't common in TN and MS, nobody misses them but I haven't had any issues with a garage.  All 5 of my properties are sub-$100k so maybe renters at that level (~$1,000/month) don't expect garages?

As to which one I'd rather have, I think it totally depends on the area and the tenant but I don't think a lack of either (unless it's the only one in the neighborhood without one) is a big deal.

Aaron Yates · Answer

Ok good. Sounds like youre trying to stay on top of things. Sorry for getting off subject. Just wanted to make sure you are not just relying on the agent.

Jeff Rabinowitz · Answer

Nick, my portfolio has properties with both a garage and a basement, just a garage and just a basement.  Different tenants are attracted to different properties.  When I look at my rental board I see that I have a couple tenants who moved in 2008 (the homes are near each other, both have basements, only one has a garage).  3 tenants moved in 2009 (all have basements only 2 have garages).  Another moved in 2010 (the home has a garage but no basement).

When I add a home I prefer that it have a feature, if not special, then at least something that is quite nice, something that a tenant may truly appreciate.  I find those homes tend to attract tenants that stay for longer periods.  I have a couple homes that are a little unusual but the tenants who choose to live in them appreciate the special features well enough that they can overlook the unusual features or at least take a chance on moving in and getting used to the unfamiliar feature. (A couple unusual features I am thinking of are a steam boiler heating system in one home and a well and water softener in another.  None of the tenants who have rented those homes had ever lived in homes with those features before but I have never had any issues because of that).

Sometimes price alone can be a special enough feature.  If you can find a home that you can buy significantly under market and you can subsequently rent it profitably at under market rates you may do quite well.  Beware, that these may be particularly hard to find as many investors lock into sales price and compete for these homes.  Also, tenants whose main concern is low rent may be considerably more difficult to deal with than those who are choosing your home because they truly like it.

Tom A. · Answer

@Nick Keesee, if you want to access the consumer-facing side of the Realcomp MLS go to moveinmichigan.com.  It draws from the same database as Realcomp 3.0 does, which is probably what your agent is using.

Sites like realtor.com, Zillow and Truila also receive data from the MLS's but in my experience there can be time lags and occasionally flat out incorrect information.  Zillow and Trulia pull from many more data sites than just the MLS (for example, Postlets and Vflyer).

That can be a good thing in that you may see more homes for sale, although IMO 95+% are also on the MLS, but they can also pull in old data.  I've had calls on houses that sold over a year ago but still showed up on the Z and T sites.

What is more important in your rental houses, a basement or a garage?

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