Is buying rentals in Iowa City a good investment these days?

Question

So my dear old Dad just passed away and left me some money. rip..  My wife was taking care of him and now needs a job. I'm considering buying a rental property to generate income and keep my wife employed managing the property since she doesn't have allot of formal education. My son works for a G.C. who is very reasonable and takes care of other properties.  Either that or send her to school with the money.  We are in our mid 40's

Iowa City is a college town and I found these for sale by owner close to campus.
http://www.buxhouses.com/
They are all priced well over assessed value but have been recently updated. I could afford a 300K down payment.. But Iv got cold feet..Can anyone recommend a book which would give us a better understanding of being a landlord? 
 Would buying rentals in Iowa City a good investment these days for someone who has never done it?

Thanks before hand.

Bradley Glaves · Answer

If you are going to invest in residential rental markets you must either become an effective property manager or hire one.  I suggest hiring one before you look for a property...you must interview at least 3 of his current owners he handles properties for and 2 that he is no longer managing for. Don't just decide on the rate they charge.  Look at their ads etc.  Call on one to see what kind of response you get over the phone...
Take the landlord to the property you are going to buy and have them critique it (what needs to be done to get it rented and for how much). Don't listen too or get caught up with a company that says they will handle your investment turnkey when it comes to SF rentals...I have a number of clients that have fallen prey to these slick sales people and they have lost 10's of thousands. [SOLICITATION REMOVED]
Good luck!  Brad

Raymond B. · Answer

Hello Mike,
First, do NOT ever reveal the amount of money you have to invest.
Scam artists are looking for that info.

I suggest that you spend some time in the following forum:
http://www.biggerpockets.com/forums/52-rental-property-questions-landlording-issues

Here is the link to the 50%, 2% rule to use as a guide:
http://www.biggerpockets.com/forums/52/topics/18371-help-me-understand-this-deal-and-5-2-rule

If you have any more questions, feel free to ask them.

Raymond

Wes S. · Answer

Its up to your trust level and risk tolerance but biggest things I can see is its your money/ass on the line.  Some stuff they will do won't be worth 50% of the deal and other people do not value your money...they will spend your money like water on a materials/tools they wouldn't spend if they were financing it, ect

I would recommend being outside of the deal so to speak, but with a close eye on it, similar to a banks perspective:
(Look into 'Hard Money Lending')

Your son & GC could run their own flip or rental business.  Flips - They invest certain %$ down so they have skin in the game or what you're comfy with and then pay you a good interest rate of 6-20% for a certain lenght of time 1-6 Months.  You have to be paid off when deal is complete or their able to refinance with bank (which is tuff so that is why your success is determined on the 'Buy' end of the deal) If its a successful flip, they make money and so do you.  If it fails, they lost money, you lost money but you'll atleast have the actual asset to take over and hopefully recover losses.

If their rental properties, you carry the note.

All in all, either route, you want to be involved to make sure YOUR money is invested into something that is worth it, but not too involved that you get the shaft.

PS: I'm in a smaller town and have been buying pretty cheap as well.

Account Closed · Answer

Bienes right..Its a start and she's never worked full time. Or should I say, she's never been employed full time.  Even though my dads gone, she's still busy with his and our families needs. Home cooking.. Taxi service for my daughter etc etc.. My dad had a cattle operation going before he passed and there's allot of loose ends still. Im busy with a bathroom remodel and other repairs.  But things should slow down here. And then she can shift gears.

Honestly..  I don't trust anyone..  Iv been screwed over by friends.. Let alone a property manager. I have to be hands on.

Yea.  I think that might be the best goal if I do.  In fact Im working on a pre-nod at the moment but the owner is in denial I think.

I mentioned my son works for a GC named Tim. I like Tim since he gave my son a job he can actually learn and grow from.  The CG's brother purchased a Single Family home in muscatine iowa which is a hour away for 13K, fixed it up, and doubled his money. Tim wants to do the same and wants me to be the bank.  If I finance the project, what's that worth?  I thought 50% 50%.  I finance the project. Tim and my son will do all the work and then we split the profit when he's done.  Am I way out of bounds with the 50/50?

Wes S. · Answer

Mike:  The rental market in general is wild in Iowa City.  Big demand, huge rents and huge prices as a result.  Tough to find a deal around there, like any college town, I've looked at a lot of deals and you have to have a sharp pencil.

Your doing the right thing by researching, talking to people and looking at some deals though.

Depending on your goals, maybe you should look at some Single Family homes (REO's), be patient to get a good deal, fix it up, start with 1 house, see how that goes and then continue to expand up to your desired goal or tolerance.  I think you'll do a few things by this:  1)Lock in unbelievable rates right now bc of your down payment/cash on hand (which you won't need it all) 2) May catch some appreciation more-so in homes rather than Multi's 3) Potential higher quality/long term tenants 4) Easier exit strategy if you find Landlording is not for you.

Just my 2 cents.  Go Hawkeyes

Bienes Raices · Answer

I don't want to put words in the OP's mouth, but I read it as she had the time and inclination to do it, not that it would provide full time employment for her.

George P. · Answer

I don't follow your reasoning - you think that one rental property is going to keep your wife so busy, it will be an equivalent of her working full-time?

Tyson S. · Answer

If Iowa City is anything like Ames, then finding rentals that are good deals are nearly impossible.  Enrollment at the colleges has gone up so fast that anything with 4 walls and a roof is getting bought up at razor thin profitability.

Jon Holdman · Answer

There are places where you can just find something on the MLS and have a good rental.  Denver's certainly one of them.  You want a good deal, you have to work for it.  You kick over a lot of stones and kiss a lot of frogs.  This business is not terrible complex, but it is hard.  Finding a good deal is hard, much harder than just looking on the MLS.

Forget tax assessments as any sort of indicator of values.  Maybe they are, probably they're not.

Many, many areas are over priced as far as rentals.  You have to find an area that's not.  The houses in my neighborhood are very similar to the houses in one of my rental areas.  All built in the late 40's with similar construction and floor plans.  And they rent for about the same.  But they're much cheaper in the rental area.  Research values in your area and you may find an area that works.  I did 30 seconds searching and found a house listed at $99,000 that rentometer says will rent for $1150.  Still not a great deal in my book, but closer than these other alternatives.  What about Des Moines, Cedar Rapids, Waterloo, or Davenport?  Are there areas there that have better rent/price ratios?

Can you find deals that need work?  REO's or short sales or other distressed sellers?  These turnkey, rent-ready deals may be convenient, but they're rarely a good deal.  Some are terrible deals, shoddily fixed up, over priced, over hyped and sold to out of state investors that look at the deals through their local glasses.  You're right there.  Learn values, research areas and find something that works.

Don't get too hung up on the 2% rule.  It works well if rents are around $500.  If rents are $1000, you don't have to have such a good ratio to still rake off a profit each month.  The 50% rule, OTOH, seems pretty solid.  That simply states that expenses, vacancy and capital will eat 50% of the gross scheduled rents. Of course any particular property in any particular year may vary quite a bit, especially on the bad side.  And if you're doing the property management yourself, you can earn the PM's chunk, with is 10-15% out of that 50%.  In other words, if you manage yourself and do a good job and don't count your own time, then you should be able to hold actual expenses, capital (e.g., roofs or furnaces), and vacancy to 35-40%.  If you goal is to "buy a job" for your wife, that may make sense.

Account Closed · Answer

We never had a bubble here, but prices flattened out while assessed values continued to climb since the state's just about broke.

That 1.5% combined with paying in cash, maybe. Lets see..

My home, assessed at 209k, is a prime candidate for rental since its close to the university hospital.  The house across the street
http://beacon.schneidercorp.com/Application.aspx?AppID=86&LayerID=841&PageTypeID=1&PageID=1483&KeyValue=1017411013 
rents for $1900 and its assessed at $250K.  At 1.5%.. My home would be worth 127K? :lol: After I paid 150k 11 years ago?  I think not.

Sorry to sound so negative but this renting property deal sounds like your just breaking even around here if you have a good renter.

Is buying rentals in Iowa City a good investment these days?

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