Buying our First Rental Property

[Ashley Wolfe]

I'm looking for a bit of deal analysis but more encouragement that moving forward is the right thing.  In the last week, some people close to me have said, "Wait another 12-18 months before buying a house.  There's going to be a recession then and you'll REALLY get a good deal."  So the wind has been taken a little out of my sails but I'm still going for it.

I found a 2/1 1,024 sq ft house in a small town outside of DFW (Weatherford) which is about 45 minutes away from our current residence.  The house was clearly a flip.  All the cosmetics were done and none of the big stuff like foundation, plumbing, HVAC (it only has gas lines to hook up heaters and window units), or replacing the roof with its three layers of shingles.

We made our initial offer at $76,500 and the seller countered at $77K and we accepted. ARV is $85K-$90K (especially if we put a new HVAC system and replace windows in the future).

Got it inspected and the obvious stuff came true about the need for major repairs and replacements. I made a repair request to the seller that included the replacing the sub-floor under the bathtub, fixing the foundation, updating the outlets to GFCI, replacing the roof and other small items. He agreed to all but the roof. So we terminated the contract. The reason we terminated was because I didn't feel comfortable about the spread from our purchase price to the low ARV potential.

The seller contacted my agent today and said he'd replace the roof so we reinstated the contract.  After the major repairs are finished, its practically turn-key.  We would need to do no cosmetic upgrades for it to be rent ready.

Two people in the industry have told us that the rental comps are $850-$950 a month. We'd go with conventional financing for 80% of the $77K which puts our monthly PITI around $580 on the high end.

Question 1)  Does this sound like a good rental property deal to you?  Are there any glaring red flags that I am missing?

Question 2) Other than reading books on renting properties and attending the Lifestyles Unlimited 2-day course and being a FFP member, we are so new at this that we don't really know where to start regarding marketing our rental property to get a healthy number of applicants.  I'm mainly concerned about not understanding all the legal nuances of landlording in Texas.  How do we screen tenants?  I've heard of a company called NTN.  Any others more comprehensive?  How do we collect application fees?  Do we have an open house for a rental?  Are there any books you suggest that could give us good information on this subject?

Question 3) For current SFH landlords: other than screening tenants, what is the most important thing that I need to know in keeping my resident(s) happy where they stay and pay?

Thanks everyone!

[John D.]

@Richard Fields net cap rate?

I would not expect a significant drop in prices in the next year or two, there's nothing to wait for.  With that said, an $77k purchase price that rents for $850 is not much of a deal. And a cosmetic rehab without the fundamentals done does not sound like a good buy-and-hold.