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Updated 10 months ago, 01/23/2024
Questions for those buying Single Family homes as rentals...
I'm a builder and investor in Boise, ID. I'm currently designing my next builds, and want to make sure they are the most appealing and can make financial sense to investors. So, I have a few questions for those of you still buying single family homes as rentals.
1. How are you analyzing your deal and what is your goal when you are buying a SF home? Is it cashflow still(and how much?), or more for long term benefits and try to break even?
2. What is your strategy for renting... is it LT, MT, ST, rent by the room, or something else?
3. How do you value new construction as opposed to an older home that may look nice, but still older? Do you take into account that you shouldn't have any mainenance for at least 10 years or not really?
4. Is there anything that you have really wished you could find in homes that you don't see often that would increase your return or lower your expenses?
5. When you see a listing, does it help when the remarks are tailored toward investors? Such as ease of maintenance, durability, return on investment, etc?
6. Is there any other suggestions you have for me to adapt to the current market?
Any feedback is greatly appreciated!
A few of my ideas so far, that I'm starting to implement...
1. On houses that have small yards I have done artificial(but real looking, they've come a long way) grass. People have mixed feelings but it seems that investors love it at least.
2. My most recent floorplan has private bathrooms attached to each bedroom. This only increases my cost by maybe 5k(added a bathroom), but seems like it will be much more marketable as a rental. But, this did eliminate a family room upstairs, so the only living space is on the main floor.
3. HUGE primary en-suite with walk in showers and soaker tubs.
4. Model my homes and design after $1M+ dollar homes, but they are in more up-and-coming neighborhoods.
- So basically they are the nicest homes in the neighborhood, but the neighborhoods are very much improving around them.
5. I use upper mid-level finishes. Better than builder grade but not top of the line like on the high end custom homes. The result is a very upscale feel compared to other comparable price points typically. I.E. Good quality LVP flooring, Upper mid level appliances, energy efficient furnaces and tankless water heaters, semi-custom and now custom cabinets, quartz counters, and each home is professionally designed.
Quote from @Nick Trimmer:
Interesting. Thanks for sharing. I know my providers can consistently do better than those criteria.
You have certainly given your builds the right thought. I still by SFH for rentals, and I do look for cash flow if the market growth rate is typical midwest. If it is in a hotter market with appreciation, then I settle for break even. It must cover the mortgage + ins + prop taxes + ~150-200/mo for repairs etc. I usually do LTR and I am now evaluating some for MTR. I avoid HOAs always, and I like when zoning would permit STR (just to future proof options). For construction, there needs to be 2 bedrooms with connected bathrooms, open(ish) kitchen, nice family room, 2 car garage. Always there needs to be bathtubs in some of the bathrooms. That is overlooked often by builders. Families need bathtubs for their kids, and that is a must! I like the buy down of interest rates from new builders on long term loans - that is their secret sauce these days.
I think while the trend is cash flow, we've had a few long threads about how cash flow isn't quite the way to go for long term wealth generation, and it isn't as nearly easy as "they make it out to be."
With social media, etc, we've had a lot of "new investors" for the past say 5 to 7 years, maybe up to 9, who can say they'd made both cash flow and appreciation... But, we've had seriously disclocated market conditions in that period. Historically, this isn't the case.
We don't have free, cheap money anymore, so getting cash flow WITH high leverage isn't going to work. Sure, some markets it may work. Sure, if an investor can source a property off market at a great deal thats always good
Remember, "you make your money when you buy, not when you sell." So, new builds are not normally in my mindset. New builds have a serious drop in value for those first number of years. So, it doesn't help my appreciation since I'm automatically taking a hit for those first several years. Plus, without transactions/movement, tough to appreciate the development.
To me and plus I have a very old market, I tried to stay no older than about 20years. Towards the end of that timeframe I can find something that that is due for an update and I can put my own quality materials in for the long haul. Earlier in that timeframe there should be limited issues and I take care of any capital expenditures late. This takes care of my maintenance issues.
Sounds like you are doing much larger homes/mansions. It all depends on the market area. For my market, making like hotel might be nice, but seriously overkill. Honestly, more things to leak and/or replace. Might be nice for those wanting to rent by room or something (again, hotel..). But for long term appreciation / wealth growth, I don't have that sort of vision to really say that people will like to hotel-style living. Obviously, you can't just have 1 full bath in a multi-bdrm home...
Remember, the point is to be more "neutral," for lack of better terms, with your assets. I want to appeal to the most number of renters possible to widen my market.
Sorry not more upbeat. Hope this helps. Happy to chat. Good luck.
Quote from @Zach Matson:
I'm a builder and investor in Boise, ID. I'm currently designing my next builds, and want to make sure they are the most appealing and can make financial sense to investors. So, I have a few questions for those of you still buying single family homes as rentals.
1. How are you analyzing your deal and what is your goal when you are buying a SF home? Is it cashflow still(and how much?), or more for long term benefits and try to break even?
2. What is your strategy for renting... is it LT, MT, ST, rent by the room, or something else?
3. How do you value new construction as opposed to an older home that may look nice, but still older? Do you take into account that you shouldn't have any mainenance for at least 10 years or not really?
4. Is there anything that you have really wished you could find in homes that you don't see often that would increase your return or lower your expenses?
5. When you see a listing, does it help when the remarks are tailored toward investors? Such as ease of maintenance, durability, return on investment, etc?
6. Is there any other suggestions you have for me to adapt to the current market?
Any feedback is greatly appreciated!
A few of my ideas so far, that I'm starting to implement...
1. On houses that have small yards I have done artificial(but real looking, they've come a long way) grass. People have mixed feelings but it seems that investors love it at least.
2. My most recent floorplan has private bathrooms attached to each bedroom. This only increases my cost by maybe 5k(added a bathroom), but seems like it will be much more marketable as a rental. But, this did eliminate a family room upstairs, so the only living space is on the main floor.
3. HUGE primary en-suite with walk in showers and soaker tubs.
4. Model my homes and design after $1M+ dollar homes, but they are in more up-and-coming neighborhoods.
- So basically they are the nicest homes in the neighborhood, but the neighborhoods are very much improving around them.
5. I use upper mid-level finishes. Better than builder grade but not top of the line like on the high end custom homes. The result is a very upscale feel compared to other comparable price points typically. I.E. Good quality LVP flooring, Upper mid level appliances, energy efficient furnaces and tankless water heaters, semi-custom and now custom cabinets, quartz counters, and each home is professionally designed.
Hi Zach!
1) I think that depends on the market and the property. In my market (Orlando), it is tough to find high cash flowing properties to purchase without using BRRRR, unless you've already been living in them for a few years. But a lot of investors we work with are buying new builds because of the appreciation, despite the low cash flow. I won't sell my rental (former primary) for a very long time because it does cash flow, but since 2017 appreciated from $245,000- $~420,000 and cash flows $1,000 over the mortgage.
2) I personally like LTR, but the by room (Padsplit) has been really profitiable for a couple flippers I know who pivoted, started rehabbing their flips with Padsplit in mind, and it so far has been kind of a "best of both worlds" when it comes to consistent cash flow to cover the mortgages, but also generating higher cashflow with the by room model.
3) Generally, the new build approach can be great because of what you said-- minimal maintenance for at least the first 5-7 years. With that said, a rehabbed property could accomplish the same goal of being "Like new," which about 45% of renters who desire a SFR look for new or rehabbed properties.
4) Based off what I've seen with clients properties, I would say avoid carpet for rentals and don't buy the lowest quality products when renovating. Spending a little more money to get more durable materials will save you money in the long run. If you are looking for rental properties, trying to find ones with new / relatively new ACs and Roofs will help because those are the two big maintenance items. Not having to replace them for 7-10 years down the road gives you the ability to gain equity through appreciation, and then leverage the property to cover those repair costs.
5) I read listing comments with a giant grain of salt LOL.
6) One investor I know works with a builder and has his own custom floor plans (3 or 4 beds, 1500-2000 sq ft). He owns quite a few in-lay lots and his build costs in Palm Bay, FL are about $230,000, but the appraised value is around $310,000-$330,000. Once he places a tenant, he does a cash out REFI, does a cost seg study, and repeats. Since you are a builder, I wonder if you could do something similar in your area?
If you are building your own houses, don't forget to factor in renter preferences, and build your houses around the biggest percentage of the rentat pool. Here's the link to Zillow's Consumer Housing report, which has some great renter data. (https://www.zillow.com/research/renters-consumer-housing-tre...)
Good luck!
Quote from @Zach Matson:
I'm a builder and investor in Boise, ID. I'm currently designing my next builds, and want to make sure they are the most appealing and can make financial sense to investors. So, I have a few questions for those of you still buying single family homes as rentals.
1. How are you analyzing your deal and what is your goal when you are buying a SF home? Is it cashflow still(and how much?), or more for long term benefits and try to break even?
2. What is your strategy for renting... is it LT, MT, ST, rent by the room, or something else?
3. How do you value new construction as opposed to an older home that may look nice, but still older? Do you take into account that you shouldn't have any mainenance for at least 10 years or not really?
4. Is there anything that you have really wished you could find in homes that you don't see often that would increase your return or lower your expenses?
5. When you see a listing, does it help when the remarks are tailored toward investors? Such as ease of maintenance, durability, return on investment, etc?
6. Is there any other suggestions you have for me to adapt to the current market?
Any feedback is greatly appreciated!
A few of my ideas so far, that I'm starting to implement...
1. On houses that have small yards I have done artificial(but real looking, they've come a long way) grass. People have mixed feelings but it seems that investors love it at least.
2. My most recent floorplan has private bathrooms attached to each bedroom. This only increases my cost by maybe 5k(added a bathroom), but seems like it will be much more marketable as a rental. But, this did eliminate a family room upstairs, so the only living space is on the main floor.
3. HUGE primary en-suite with walk in showers and soaker tubs.
4. Model my homes and design after $1M+ dollar homes, but they are in more up-and-coming neighborhoods.
- So basically they are the nicest homes in the neighborhood, but the neighborhoods are very much improving around them.
5. I use upper mid-level finishes. Better than builder grade but not top of the line like on the high end custom homes. The result is a very upscale feel compared to other comparable price points typically. I.E. Good quality LVP flooring, Upper mid level appliances, energy efficient furnaces and tankless water heaters, semi-custom and now custom cabinets, quartz counters, and each home is professionally designed.
2. I do all of these strategies. I have one STR, a few LTRs and have done many mid term rentals when the market had a high demand for them and that's how I got the highest rents.
3. See my first comment. I prefer newer rentals because it's lower cap ex and fewer headaches. I also feel like I get higher quality tenants because those tenants are looking for nicer homes.
4. Specifically in the Boise market, I wish there were more properties with ADU's. Now this might change with the recent zoning changes (I hope)! But it would really help to have more of that product type in our market for house hacking, etc.
5. Yes, remarks tailored toward investors would be great in my opinion because it also appeals to home buyers too.
About your floorplan/finish choices...
1. If the yard are super small, then artificial is best and will definitely appeal most to investors. But I think if it's really small home buyers will like that too because they don't have to waste space storing a mower.
2. I could go either way about the bathrooms. If it's a 3 bedroom layout then I think you only need 2-2.5 baths and a family/bonus room area would be better. For a 2 bedroom place I think the 2 baths is a great idea. In Boise I know 3 beds will sell better than 2 though.
3. This is a nice to have unless it means you could go smaller with this space and have 3 beds instead of 2.
4 & 5. I think this is a great strategy. These mid grade finishes will last longer and be more durable over time. Definitely worth it and it will help them sell/rent faster because they look better than comparable properties on the market.
Sounds like you have a great system going with the in fill properties, I like what you're doing. Keep up the good work. It's awesome that you are looking for feedback and wanting to get better too.
- Anna Strausbaugh
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Quote from @David M.:
I think while the trend is cash flow, we've had a few long threads about how cash flow isn't quite the way to go for long term wealth generation, and it isn't as nearly easy as "they make it out to be."
With social media, etc, we've had a lot of "new investors" for the past say 5 to 7 years, maybe up to 9, who can say they'd made both cash flow and appreciation... But, we've had seriously disclocated market conditions in that period. Historically, this isn't the case.
We don't have free, cheap money anymore, so getting cash flow WITH high leverage isn't going to work. Sure, some markets it may work. Sure, if an investor can source a property off market at a great deal thats always good
Remember, "you make your money when you buy, not when you sell." So, new builds are not normally in my mindset. New builds have a serious drop in value for those first number of years. So, it doesn't help my appreciation since I'm automatically taking a hit for those first several years. Plus, without transactions/movement, tough to appreciate the development.
To me and plus I have a very old market, I tried to stay no older than about 20years. Towards the end of that timeframe I can find something that that is due for an update and I can put my own quality materials in for the long haul. Earlier in that timeframe there should be limited issues and I take care of any capital expenditures late. This takes care of my maintenance issues.
Sounds like you are doing much larger homes/mansions. It all depends on the market area. For my market, making like hotel might be nice, but seriously overkill. Honestly, more things to leak and/or replace. Might be nice for those wanting to rent by room or something (again, hotel..). But for long term appreciation / wealth growth, I don't have that sort of vision to really say that people will like to hotel-style living. Obviously, you can't just have 1 full bath in a multi-bdrm home...
Remember, the point is to be more "neutral," for lack of better terms, with your assets. I want to appeal to the most number of renters possible to widen my market.
Sorry not more upbeat. Hope this helps. Happy to chat. Good luck.
where are you buying new builds where their value drops? that's ludicrous. If you buy new builds at the affordable price point and aren't buying on the upper end (buying below the median or around the median), the values don't decrease. In addition if you vet builders a little more you get more upside. We sell new builds at a discounted price per square foot as a direct general contractor and the average new build in our market appreciates by 8.65% per year over the trailing few years. Columbus OH had 10,000 less closings this year but new builds in our market increased by 10% for new deliveries. I'd love to see your support to these claims
- Robert Ellis
"Do you take into account that you shouldn't have any mainenance for at least 10 years or not really?" Dangerous assumption for a buyer to make unless the builder gives some sort of iron clad warranty/guaranty; preferably, with an escrow of some sort. Over the years, I've seen numerous new builds that developed serious problems. So "not really" gets my vote unless there is something with teeth backing up the materials and workmanship.
Quote from @Ed W.:
"Do you take into account that you shouldn't have any mainenance for at least 10 years or not really?" Dangerous assumption for a buyer to make unless the builder gives some sort of iron clad warranty/guaranty; preferably, with an escrow of some sort. Over the years, I've seen numerous new builds that developed serious problems. So "not really" gets my vote unless there is something with teeth backing up the materials and workmanship.
I have been using home warranty insurance for that. They cover certain things for different lengths of time. That way it is not dependent what the builder does or what happens when the builder goes out of business
Thank you for your thoughtful response and an alternative to consider.
I concede that insurance of that type may have some value but I'm reasonably certain (though I don't know every home warranty policy that's available) that most, if not all, do not cover every expensive mistake a builder can make (whether intentionally or unintentionally), I don't know what their fine print says and I don't know how honorable the companies are when a legitimate claim is handed to them. One company that I'm slightly familiar with charges close to $720/year for reasonably complete, but not totally complete, coverage. Based on the 10 years the original poster mentioned, that's $7,200.
Like I said, I am far from even reasonably knowledgable on this issue and I will correct or augment my post if I'm wrong. Why don't you share the company you use, the cost, the coverage, and what your claims experience has been so we can have the proper perspective and, perhaps, consider your idea as a valuable way of proceeding.
Quote from @Ed W.:
Thank you for your thoughtful response and an alternative to consider.
I concede that insurance of that type may have some value but I'm reasonably certain (though I don't know every home warranty policy that's available) that most, if not all, do not cover every expensive mistake a builder can make (whether intentionally or unintentionally), I don't know what their fine print says and I don't know how honorable the companies are when a legitimate claim is handed to them. One company that I'm slightly familiar with charges close to $720/year for reasonably complete, but not totally complete, coverage. Based on the 10 years the original poster mentioned, that's $7,200.
Like I said, I am far from even reasonably knowledgable on this issue and I will correct or augment my post if I'm wrong. Why don't you share the company you use, the cost, the coverage, and what your claims experience has been so we can have the proper perspective and, perhaps, consider your idea as a valuable way of proceeding.
Here is a link to an article if you like to check options:
Best Home Warranty For A New Construction (2024) (architecturaldigest.com)
I've seen those warranties before. The sub-link to their site won't seem to let me download the warranty fine print. All the ones that I've seen with those only cover "ancillary" parts of the appliances. Client experiences have been pretty poor throughout my brokerage as the warranty company's "repairman" just comes to see what the problem is, then says they can't do it or cover it, then calls the appliance's authorized repairer in which the client is charged.
Quote from @David M.:
I've seen those warranties before. The sub-link to their site won't seem to let me download the warranty fine print. All the ones that I've seen with those only cover "ancillary" parts of the appliances. Client experiences have been pretty poor throughout my brokerage as the warranty company's "repairman" just comes to see what the problem is, then says they can't do it or cover it, then calls the appliance's authorized repairer in which the c point.
Yeah, sorry, I forgot to mention one important point;
I always ask the builders to get the maximum warranty on anything that is put into the house. I actually once ran an experiment a few years ago with Lowes. I pretended to be a builder and we created a list of all the big items, i.e. furnace, water heater, A/C, as well as smaller stuff like faucets, oven, Microwave, dishwasher, fridge, light fixtures, etc. Then I asked them to put the maximum warranty on everything we had on the list. Thos max warranties run from 3 years to 12 years depending on items. For a full 3 bedroom/2 bath house the total cost was $2000. Obviously this is not going to show as a monthly expense or anything because it is rolled into the purchase. The house basically comes with a huge binder holding all the purchase receipts and the warranty docs.
If you feel that's not enough, then you can add the insurance policy.
Depending on purchase price, if the property appraises you pay for it upfront and roll it into financing. That way your tenants basically pay for all that and will appreciate it, together with PM, whenever something breaks to never get pushback from the owners.
I know its an extra effort but something that's worth it.
Thank you for the very helpful reply. It provides an important step in the right direction.
From First American's site: "First American Home Warranty offers homeowners protection against costly repairs or replacements on their home’s covered essential systems and appliances through service provided by a large network of pre-screened contractors and qualified technicians. Founded in 1984, we are a leading provider of home warranties with the experience and strength of an industry leader."
How they define "essential systems" and appliances becomes critical and the need for truly understanding the fine print necessary. For example (and this will no doubt describe the problem incorrectly because I never purchased a property with the problem but general nature of what I'm describing is correct), maybe 15 or 20 years ago there was a new plumbing system available and went into a lot of new construction including homes in the mid and high end prices of homes in our area. The system had an inherent flaw and, if I remember correctly, a lot of the connections where various pipes were joined failed. To me, that sounds like a failure that First American would/should cover and, I'm speculating, does cover. However, do they also cover the substantial damage to drywall, flooring, perhaps ceilings, electrical, etc. that are the direct result of the inherent flaw of the plumbing system? My thinking says it should but no one from First American has ever called me for my opinion. :)
How do they define the plumbing system? Here is something that is part of the plumbing system that I believe should not necessarily be covered. My guess is that they are talking about the system within the house. A friendly competitor did some new construction. The general contractor tied the plumbing systems into neighbors lines, not into the city's lines. Neighbors bills roughly doubled and the new properties got no bills. VERY expensive to remediate but only a small part of the problem was within the footprint of the house. That same contractor installed something in every bathroom upside down or in the opposite direction it was designed to go relative to the water flow. I'm assuming that should be covered - but not enough info on First American's site to know for sure.
They mention leaking roofs. Do they cover faulty installation or just normal wear and tear? What about joists incorrectly installed, floors that weren't leveled correctly, flashing installed incorrectly, electric panel boxes that are faulty, driveways installed without expansion joints (I bought a house that had a foundation that was shifted the first summer because of the driveway expanding. Big cracks in the driveway and garage floor, what had been nice brickwork was left full of step cracks around 3 sides of the house, significant steel beam in basement shifted but not enough to lose its integrity but what if it had moved enough to lose its integrity and a good portion of the floor above it just sank a few feet. Are sump pumps covered? If so, if they fail is the water damage to a finished basement covered or just the pump replacement? What if it's got a battery back up. If the battery is dead and the pump fails, is that covered differently than a pump without a battery?
These things I've described are real things I've personally encountered and are only the ones that quickly come to mind.
My point in all of this is that repairs can be hugely expensive and how the insurer defines it coverage - in the fine print - matters a heck of a lot. Alex, do you have a policy I could read through? If it could be posted somehow that would be great but you could also send it directly to me.
Quote from @Ed W.:
Thank you for the very helpful reply. It provides an important step in the right direction.
From First American's site: "First American Home Warranty offers homeowners protection against costly repairs or replacements on their home’s covered essential systems and appliances through service provided by a large network of pre-screened contractors and qualified technicians. Founded in 1984, we are a leading provider of home warranties with the experience and strength of an industry leader."
How they define "essential systems" and appliances becomes critical and the need for truly understanding the fine print necessary. For example (and this will no doubt describe the problem incorrectly because I never purchased a property with the problem but general nature of what I'm describing is correct), maybe 15 or 20 years ago there was a new plumbing system available and went into a lot of new construction including homes in the mid and high end prices of homes in our area. The system had an inherent flaw and, if I remember correctly, a lot of the connections where various pipes were joined failed. To me, that sounds like a failure that First American would/should cover and, I'm speculating, does cover. However, do they also cover the substantial damage to drywall, flooring, perhaps ceilings, electrical, etc. that are the direct result of the inherent flaw of the plumbing system? My thinking says it should but no one from First American has ever called me for my opinion. :)
How do they define the plumbing system? Here is something that is part of the plumbing system that I believe should not necessarily be covered. My guess is that they are talking about the system within the house. A friendly competitor did some new construction. The general contractor tied the plumbing systems into neighbors lines, not into the city's lines. Neighbors bills roughly doubled and the new properties got no bills. VERY expensive to remediate but only a small part of the problem was within the footprint of the house. That same contractor installed something in every bathroom upside down or in the opposite direction it was designed to go relative to the water flow. I'm assuming that should be covered - but not enough info on First American's site to know for sure.
They mention leaking roofs. Do they cover faulty installation or just normal wear and tear? What about joists incorrectly installed, floors that weren't leveled correctly, flashing installed incorrectly, electric panel boxes that are faulty, driveways installed without expansion joints (I bought a house that had a foundation that was shifted the first summer because of the driveway expanding. Big cracks in the driveway and garage floor, what had been nice brickwork was left full of step cracks around 3 sides of the house, significant steel beam in basement shifted but not enough to lose its integrity but what if it had moved enough to lose its integrity and a good portion of the floor above it just sank a few feet. Are sump pumps covered? If so, if they fail is the water damage to a finished basement covered or just the pump replacement? What if it's got a battery back up. If the battery is dead and the pump fails, is that covered differently than a pump without a battery?
These things I've described are real things I've personally encountered and are only the ones that quickly come to mind.
My point in all of this is that repairs can be hugely expensive and how the insurer defines it coverage - in the fine print - matters a heck of a lot. Alex, do you have a policy I could read through? If it could be posted somehow that would be great but you could also send it directly to me.
Ed, I hear your points and I am sure they are all very valid.
A few things should be kept in mind, IMHO:
You probably heard about the term "chain of custody". I believe something similar exists and I would call a "chain of liability". I am not a lawyer.
1. We were talking about built-to-rent properties. A brand new home will only get permits for building, pass inspections and ultimately receive a permit to occupy if it was built to current building codes. That's the assumption. Are there builders who violate codes, possible. But, if they made a massive error, like your plumbing system example, I would put liability on them first, especially as long as the house is new. Most builders give 1 year or 2 years warranty on their work.
2. Let's say the builder used a system as required but the system itself fails. I had this happen in a house where a floor heating system was installed. After a few years, it was found that the plastic pipes had a chemical reaction with concrete and started disintegrating. A lawsuit was filed against the manufacturer of that system. I as the owner of the house had two choices: a) rip up all the floors and replace the bad system with a new one or B), get the most massive, modern, A/C heating system I could have never afforded. I chose option B because while all renovation costs were covered, the rent I would lose was not. We disconnected the floor heating, got this massive system installed on the roof, installed all new vents for heating and cooling, connected to all utilities, got a small solar system to cover electricity costs to run the new system, all paid for by the vendor of the original heating system. That is one level of liability down from the builder.
The next level down in my view is the extended warranty approach for everything. In that case the equipment is covered including related repairs to drywall, etc. but probably not everything you mention in your examples.
The insurance to pay for costs not covered by other liabilities and warranties is next, although I am sure you are right that some issues to fix a system might not be 100% covered. In this case, the question is: How did the issue arise? If it wasn't a manufacturer's fault and it wasn't the builder's fault, and it wasn't equipment fault (covered by warranty), that leaves the tenant. For that, I always have renter's insurance and the wording in the lease agreement about the proper use of all equipment and systems provided. I would call that Tenant Liability.
Ultimately there is our own reserve . We are basically the last link in that chain. We want to keep our property in good working shape and if all other levels fail, we might have to tap into our reserves. My goal on that is always to focus on CAPEX-level issues and avoid all maintenance-level issues. It's not 100% possible, but a lot can be covered in a new house.
If you take that chain of liability and aim to put as much of the cost into the purchase price, your loan/mortgage that is paid for by your tenant covers almost all issues.
I am writing this as a strategic approach. I know that the reality is always different but when going after BTR projects I suggest trying to get as close as possible to this approach to avoid nasty surprises. On the flip side of that coin, you sit at home and don't take any action, don't make any investments because many many things could happen. I feel we want to take action, have great strategies, and deal with unforeseen issues as they arise.
If we prepare as best we can, the cases where you end up holding the bill should be rare.
@Axel Meierhoefer I think there is inherent value, even good value, to your general logic about tiers of protection; though, in Central Ohio, I'm not aware of there being or having ever been any requirement of inspection specifically for rentals except for those related to Section 8. I've never encountered that in over 40 years nor have my friendly competitors who have hundreds of units. That particular protection is not universal.
As much value as I see in your overall logic and methodology, that still doesn't address the central question of what home warranties are providing by way of coverage. To rely on a home warranty for protection but not know what it really covers is relying upon hope, not reality as the insurer defines it. The only way to know that is to carefully read the policies - fine print and all - of the particular policies you are considering. My offer still holds - I am happy to carefully read what ever policy you provide me by way of a general post on BP or via email directly to me and provide my lay, but experienced, opinion relating to it/them.
At the end of the day, this is supposed to be a discussion related to the original posters question which I've quoted below. The only way to consider a home warranty as part of the 10 year time frame he uses is to know what those warranties really cover and how much they cost to get that particular package of protections. His assumption that a new home is free of maintenance for 10 years is faulty. How faulty it is depends upon a lot of factors (inherent build quality, tenant quality, weather, types of animals and insects in the area, etc.) and what you can do and should do to mitigate the need for maintenance.
" How do you value new construction as opposed to an older home that may look nice, but still older? Do you take into account that you have any mainenance for at least 10 years or not really?"
Quote from @Ed W.:
@Axel Meierhoefer I think there is inherent value, even good value, to your general logic about tiers of protection; though, in Central Ohio, I'm not aware of there being or having ever been any requirement of inspection specifically for rentals except for those related to Section 8. I've never encountered that in over 40 years nor have my friendly competitors who have hundreds of units. That particular protection is not universal.
As much value as I see in your overall logic and methodology, that still doesn't address the central question of what home warranties are providing by way of coverage. To rely on a home warranty for protection but not know what it really covers is relying upon hope, not reality as the insurer defines it. The only way to know that is to carefully read the policies - fine print and all - of the particular policies you are considering. My offer still holds - I am happy to carefully read what ever policy you provide me by way of a general post on BP or via email directly to me and provide my lay, but experienced, opinion relating to it/them.
At the end of the day, this is supposed to be a discussion related to the original posters question which I've quoted below. The only way to consider a home warranty as part of the 10 year time frame he uses is to know what those warranties really cover and how much they cost to get that particular package of protections. His assumption that a new home is free of maintenance for 10 years is faulty. How faulty it is depends upon a lot of factors (inherent build quality, tenant quality, weather, types of animals and insects in the area, etc.) and what you can do and should do to mitigate the need for maintenance.
" How do you value new construction as opposed to an older home that may look nice, but still older? Do you take into account that you have any mainenance for at least 10 years or not really?"
Agreed EW and I have posted to Zach with my answer.
As for your point abut the fine print, I have a membership in Leal Shield for more than a decade. I have it both for private and business and all documents are reviewed by them. I really like that, especially as the monthly fee is really low.
@axe
If the attorney who reviewed your insurance policy is, at a minimum, very knowledgeable about new construction and the potential problems that can be associated with it, it sounds like you're covered.