All Forum Posts by: Brandon Roof

@Hen Ley

In most cases, that is very much accurate. They are obligated to pay for the duration of the lease while you are obligated to actively market and search for a new tenant. Once a new tenant is secured, the previous tenant is freed from their obligation. There are a few potential caveats, like if the tenant is called for active duty in the military, where they may not be held to the same obligations, but for the most part it is true.

This all hinges on the property owner allowing you to carryout an inspection in the first place, prior to entering into an agreement. Even if they do, I would think that conducting inspections prior to placing an offer would be a very costly endeavor.  For every inspection, what percentage of the time would you not place an offer based on the results?  That will be one area where money is completely lost. Next, for the times you do decide to make an offer, how often will those offers be rejected?  This is another segment of that upfront investment that will also be lost.  If you are concerned about making an offer, then learning of some catastrophic issue that will be a significant expense that affects your offer, that is exactly what an inspection is for.  It is informational but also provides the foundation for you to renegotiate based on the findings in order to make your offer financially viable, and if the issues are a bigger headache than you want to address, you can simply pull your offer and move onto the next potential opportunity, minimizing the investment, you have made up to this point.  If you are hoping to have a better grasp what the home may require prior to making an offer, ask your agent about any disclosures the seller has made.  Also, surround yourself with people who have a great eye to identify items that may require your attention.  Do you have a friend, family member or possibly even a contractor that can provide insight and is willing to view the property with you, then by all means, bring them along.  You can also begin to learn what certain issues typically cost in the area you are seeking properties.  Go to a hardware store and see what certain flooring will cost per square foot when fully installed.  Do the same with things like hot water heaters, siding, etc.  If the hardware store doesn't provide installation services for certain items, begin to contact electricians, plumbers, roofers and HVAC technicians.  This will provide you more comfort when trying to determine what you offer should be based on the condition of the home.

If your goal is to get the greatest long-term return on a single investment, then paying down may be the way to go.  If, however, you are looking to scale by having additional, cash-flowing investments, you may decide that you can achieve a greater return by purchasing another property now, as opposed to paying off the existing property then expanding.  As @Jake S. stated, this is very much dependent on your personal comfort level with leverage and your unique goals.

I viewed a small >1000 sq/ft, 2 bed/1 bath home today with an interesting bedroom setup. One bedroom at the back of the house measured 8' x 10' while the master was at the front of the house and measured 18' x 12'. I intend to make this rental, but in doing so am seeking advice as to the best long term play.

- Keep the giant bedroom or separate it into 2 approximately 8' x 12' bedrooms?

In doing so, I would have to add a window, door, a little ductwork and a closet that would eat into the square footage of the newly created bedroom?

What kind of costs can I expect from this project and will the long term benefits outweigh the initial costs? Is 8' x 12' a little to small to chop this room up?

@Simon Obas

In addition to the comps @Karl B. mentioned, rental properties can also be valued by comps on other metrics as well, such as cap rate. Determining this will take more work and possibly some phone calls to determine as you will need to know the NOI of the property. Some listings will advertise "PRICED AT 10.5% CAP RATE" but I honestly never consider those to be valid as the current owners factor very little maintenance, no cap ex, and almost always no property management into their equation, artificially inflating their numbers. See what the units currently rent for, determine if it should be more based on similar units in the area, and then begin factoring in expenses you're likely to occur over X years. Will it require a new roof during the period you hold it? What about windows. If you can find some recent sales in the area and get their cap rates, then you can structure your offer around that. If it's in an upscale neighborhood, the cap rates may be lower, meaning you may receive a smaller return on your investment, whereas in a less favorable neighborhood your may be able to find a higher cap rate with the added risk of increased crime and again, you have to be careful with deferred maintenance. Best of luck on your potential property!

How big of a role does the age of an available property play in your decision making when deciding whether or not to proceed?  Where does it fall in importance (i.e. cash flow is more important than age but central air isn't) and do you have any parameters that you operate within (i.e. won't consider any properties over XX years old?  What would a property need to have in order for you to look beyond the age?

I am attempting to get all ducks in a row prior to purchasing my first investment property. I will be looking to self manage and I am in need of assistance identifying to the most comprehensive software option. Applications, tenant screening, signing of leases (and all other applicable forms), tenant communications, rent collection options, accounting of revenues and expenses, maintenance requests, assistance with tax filing and other required documentation, the whole deal.

Taking price into consideration, what are the best options going to be for somebody who will be managing 1-4 units with no experience and limited knowledge? Thank you to all that can provide guidance.

@Ryan Ingram

Absolutely, by limiting your overall exposure to potential liabilities and pitfalls. Outsourcing key operations allows a potential layer of added protection in areas you may not be as knowledgeable in. Thank you again for further explanation!

@Ryan Ingram

Hi Ryan! Could you potentially expand upon your second point. I do not currently own any investment properties and was wondering if by hiring a property manager that you can reduce or eliminate any insurance policies you may carry for that property as the liability now lies with them? Thank you!

@Mindy Jensen

Hi Mindy! When you say 75% of the income produced by the property, is that typically gross rents, NOI or something else?