All Forum Posts by: Alan Pederson

Erin,

I have been contacted by 3 different wholesalers so far and I'm on their mailing lists. We don't have the money to buy our next property yet but we should have enough in another 8-12 months depending on how life treats us. I know Arlington and Kennedale very well and I continue to see deals on a regular basis that I would jump on if I had the money. I just saw 2 last week on Realtor.com that looked pretty good. I look every couple of days just to see what is out there and what the prices are. Values keep going up and it just kills me that I don't have the means to keep buying. We kind of got beat up on the last house we bought. We bought it in August this year for $135k and I knew it needed some work. Fixed up it's worth around $155k. It wasn't until we started doing the work that we found lots of problems. There was mold in the kitchen behind the cabinets ($1,000), broken drain pipe in front yard ($1,700), electrical was not up to code ($700), carpet ($1,500), etc... The previous owner didn't have a clue how to do home repair and everything he did I had to completely redo. We are in for around $14k and all of the big stuff is done. I did most of the work. The tenants are really happy with the house but it sure was a lot of work. What I thought was a really good deal turned out to be tons of work. With the way houses are going in this price range it was nice not to have to get into a bidding war with dozens of other people. We knew the people that were selling this house so it was never on the market.

What are the rents going for in that area? You can get on Zillow or Realtor.com and look up rentals to get an idea based on the size of each unit.

I would definitely see if I could raise the rent some (maybe $25 a unit) to start with. If vacancy rates are as low as you say this shouldn't be an issue. That would make the deal look better. I would love to get into a multi-unit building like this but renting to college kids would make me nervous. I would require renters have insurance and I would also inspect them every couple of months to make sure they weren't trashing them out.

It seems a little shaky to me. I might do a deal at 9% return but it would make me nervous. I try to shoot more for 15% or greater before I move forward. Example: we bought a house for $158k, $31600 down (20%), and I think closing was $3-5k. We also spent about $10k to upgrade both bathrooms. The house is now worth $200-210k. Total in was about $47k and we were making $600 a month on it. That gave us a 15% ROI. The problem came when the tax man showed up and raised our taxes $200 a month. Now we're making only 10% ROI. I'm still glad we bought the house because it's right next door. What would you do if this happened to you? Something to think about.

The mistake I made was that I didn't start marketing the property soon enough. We bought one of our houses at the end of May 2015. I made a list of repairs and started doing all the work. When the house was finally ready about 3 weeks later, I put a sign up and started showing the house. I was trying to race to get a tenant approved and there just wasn't time to get it done in less then a week. We ended up paying another mortgage payment and waiting until August 1st to get a good tenant in there. I now start marketing the house as soon as we close on it. It's tough to be working on a house and having to stop to take calls or show the property but this has worked for me on the last 2 houses.

I also learned to get contractors lined up as early in the process as possible. Contractors are not the most reliable and if you wait to long you will regret it. I needed a new counter for a hall bathroom. I called the guy I use and I thought all was good. A week later, I didn't hear from him. I called several times and left messages but no reply. I finally got ahold of him and the counter was never cut. I finally got the counter top but I had to drive 2 hours away to pick it up and I installed it several days after my tenants had already moved in. This is not the way I like to do things. They moved in and had a remodeled bathroom with everything new except no counter or sink. They are a family of 4 so I know they needed that bathroom to be up and running asap.  

I do lots of research. I look at home prices in my target area and compare that to rent prices for the same size houses. If you do this long enough you will get a sense of what a good deal is.

If I see a 1320 sf house that sells for $145-150k. That same house can rent for $1,400 a month. If I end up with a $800-900 payment, I will make about $500 a month. You would have $30k down + $3-5k in closing. Total cost $35k with an income of $6k a year. That's a little over 17% ROI. I always do the math and if it makes sense think about moving forward on it. You also have to look at schools, crime rates, etc...

I look for anything that will bring in at least 8-10% or better. I usually shoot for 15% or higher.

We have bought 3 houses in the past 2 years and we're seeing about a 15% ROI. We stick with houses under $170k.