Lawrence, Kansas, Buy and hold, Dulplexes

[Heidi Huang]

Hello, I am new to BP and would like to learn more the rental market at Lawrence, Kansas. It seems like there are many rental properties.  There are few dulplexes on the market that I like to try out. But most of them are not in good conditio, and ask for a high price.  I love to connect with other landlords and investors. How to negotiate down the price?   If the deal goes through, I also like to find a great property management companyand a reliable contractor.  Thank you!

[John M.]

First we should be realistic about property management companies. You will be charged up to 10% of rental income for their services. In general remote property management does not work well for the investor. I cannot speak specifically for Lawrence Kansas but by and large the investor experience with Property Managers across most states is not good. 

I know you want to "buy and forget" the property then just collect the rent. I would warn you to be more circumspect. 

Assuming you will also want a leasing Real Estate agent to keep the property occupied then expect another 10% or more deducted from your rental income. 

I'm sure I don't have to warn you about college student renters. Walls, doors, carpets and fences are enticing targets to "party hardy" student renters after a few beers or other intoxicating substances. 

College student renters are mobile like gypsies. You may not end up with the ones you started with. So contractually assign one student to be in charge of the entire house and the entire monthly payment. Let him/her collect from the others or make up the difference to you every month. 

Always budget time to physically inspect the property. Between semesters or quarters is a good time. Plan for larger than usual "clean up" and damage retainers. Either you or your leasing agent should take interior and exterior pictures of the property AFTER clean-up and repairs. Give a copy of the pictures to the next student in charge renter with the walk through inspection.

Put the monthly water, gas and electricity bill on the student-in-charge renter.

Now put those things aside and consider the price negotiation when or if purchasing a student rental property. The first rule is the numbers must work out, only make offers that make a profit for your budget. The second rule is (as the old joke goes) --- never forget the first rule. This rule can be modified if you are in a rapidly appreciating market, say 10% or more per year over several years. However don't completely rely on this to make the numbers work out. 

If you buy a property that needs significant repairs, as you hinted above, but the price still seems to high then go to the numbers. See what it takes to give you a positive cash flow per month (given all the other considerations above) by amortizing the repairs over 2 to 5 years at the going rental rate (plus appreciation if any, do the numbers first without any appreciation --- BTW be sure your market isn't DEPRECIATING). If you can't make the repair cost back in the 2 to 5 year period then adjust your offering price until the repair cost is recovered in the time period. 

If your offer price isn't accepted then count yourself as very lucky.

Don't be discouraged, just keep writing realistic offers and you'll get one. Remember you don't know the Seller's situation.