All Forum Posts by: Jeremy Chaser

My brother and I are both interested in purchasing rental property, and we have what appear to be very different ideas about what a good rental property purchase is. I'm curious what more seasoned investors think of these two methods for assessing rental property to make sure I'm not missing anything.

We are both looking in the same city with a lot of future growth potential. The city is currently investing mega dollars into the infrastructure to make it more desirable, and the market is very hot right now (consistent with most bigger cities currently). I think it would take an act of god for houses to not continue appreciating very solidly for the foreseeable future.

My brother only looks at houses that he would feel comfortable living in. We also admittedly come from a silver spoon background, which makes him ignore what I consider to be good rentals. The type of house he wants to buy is like this:

~200k

Located in a good neighborhood, desirable part of the city.

3 BR / 2 bath, solidly average middle-class home (no fancy counter tops, trim, etc.)

Rents of ~1,400/mo + util

I, on the other hand, tend to prefer something more like this:

~100-130k

Located in more blue-collar neighborhoods. Not crime-ridden or low class by any means, but certainly not a middle-class neighborhood.

3 BR / 2 bath. Very average homes, functional but not attractive kitchens, etc.

Rents of ~1,000-1,200/mo + util

My thought process is that these blue-collar neighborhoods, which also happen to be close to the downtown area where a lot of development is happening, have a lot of room to grow in the future. More importantly, they are priced close enough to the 1% mark that I can hold them for years and the monthly cash flow will be enough to pay for the house + a small positive income stream on top.

My brother, on the other hand, sees such tremendous growth out of the city that he thinks the houses have to be purchased in desirable neighborhoods to see massive growth out of them. My issue with his line of thinking is that if you pay 200k for a house that rents for ~$1,400/mo, you are holding a house for years on end that may just barely cover expenses, or even lose a small amount each month, in hopes for massive appreciation at the end.

Am I crazy for thinking that is a risky proposition when you can buy other homes that will earn you money each month while you wait for that hopeful massive house appreciation in 10 years?

I've been trying to purchase a rental property for the better part of a year now. It just seems like anything available on the market never works when I really look at the numbers. 

Here's an example of a current place available in my area:

140k asking price

$1,485/mo in rent

Looks to be a solid place, needs a little cleaning but otherwise it's pretty standard. If I go by the 50% rule for a rough estimate of offer price, I would need to offer them ~90k to get this place. Every place I look at runs into this problem where asking price is nowhere near where I think the numbers can work, but people buy them regardless. Is everyone else making bad investment choices or am I just being too conservative?

I've been trying to work with a realtor to get places before they hit the market but the only things I ever see are basically junk. Is this just an insider's game while I'm on the outside?

Thanks all for the suggestions. I wasn't sure if it was legal to just divide up utilities in case one person makes a stink about a high bill that they don't believe they are a part of.

Hi all,

I'm curious what more seasoned investors might think about this unit. I've been trying to find a good rental property to invest in for a while now and finally found one that I generally like - it's a fourplex, all 4 units have been renovated to a standard that I believe would make them desirable on the market, and it's in a good location. It's also priced well ($175k), and I believe could realistically bring in $600/mo per unit or $2,400 gross. If I included utilities, probably ~$800/mo or $3,200 gross.

My main concern with it is that it has one furnace to heat the entire place, one electrical panel, one water meter, etc. I'm just not comfortable paying for tenant heat and electric, especially in Minnesota where people will absolutely run an electric heater 24/7 if they don't think the landlord keeps it warm enough. I just see it as a disaster waiting to happen.

My initial thoughts are this - separate out the electrical per unit. I would need to get a quote on this, but I contacted my electrical company and they told me it could cost anywhere from $1,500 - $4,000 per unit depending on how the wiring is. I would need 5 of them, including a common area. 

I could then convert each unit to electric heating - while not ideal in terms of efficiency, this would be a very cost-effective way to separate out heat. I'm handy enough with electrical work that I could feasibly install electric heating systems for probably <$200/unit. Each unit is fairly small (500 sq ft) and could likely be heated with one fan/heater system. I could then keep the furnace as a backup to only come on in case a heating system fails or something of that nature.

My only concern then is shared water. I don't foresee this being a big issue, but I could see someone neglecting a running toilet because they aren't paying for it. Can anyone weigh in on this with their experience? Separating out the water isn't really an option because it just becomes too expensive at this point. Overall I'm hoping to negotiate with the seller to give me some kind of allowance to separate out the electrical. Thoughts? Thanks for any insight!

 That's interesting - you wouldn't buy them even just for the cash flow? I figure at 50k those kinds of houses will cash flow very positively. I have no idea how I would go about finding a house like this for 30k :S I looked at the sherriff sales around here but I don't really see much of deals for sale.

I'm itching to jump into my first real estate investment for rental property. One type of property that strikes me as a little unusual is something like:

~800-1100 sq ft

2-3 BR, 1-2 bath

Small lot, maybe a detached garage but usually not

Price of <$60,000

I'm looking in a city where the average home is about ~160k and I see a lot of these very small, apartment-like homes for sale in the 50-60k region. These seem like a gold mind to me in terms of cash flow, but I see several of them in seemingly good condition languishing on the market for months when more traditional homes in the city are under contract within days.

For example, here's one such house I'm looking at that is very common around here:

Asking price: $52,000

908 sq ft, 2 BR, 1 bath

No garage, small lot, siding/roof are <3 years old and mechanicals are <6 years old. 

I toured the house and it was shockingly clean. There were a few drab areas where it could use some new paint, but nothing too wild. It has been on the market for 3 months with price drops from 70k down to current price. I spoke with the realtor and he said it's just a difficult house to sell due to the size, which to me seems ideal for a rental. I also have pretty extensive experience in home construction and spent a solid hour touring the house and couldn't really find anything significantly wrong, like a crumbling foundation or major wood rot.

When I look at comparable rentals in the area, it's not uncommon to get $800-1,000/mo + utilities for a similar 2 BR/1 BA apartment. At this price, the mortgage and insurance would be <$300/mo (if I didn't just buy it cash), leaving $500+/mo minus vacancy, maintenance/repairs, etc. to come out ahead. For such a small investment, these seem so ideal.

And yet I see 8 of these types of homes on the market right now varying between 15 days and 6 months on the market, which is super unusual around here. Despite my desire to think I'm the only one smart enough to spot such a deal, I think that's unlikely. Why are people passing on these houses for investment purposes?

Long interest in rental ownership, and I believe I live in a great area for investing in a duplex/triplex given the strong rental market.

My concern is that I already have large mortgage on my primary residence. I make about 80k a year and have a mortgage right now for 234k / $1550 a month. This was about the maximum I was approved for when I applied, but I based my salary off of my base income (65k/year) and disregarded commission. 

I have a high credit score (~790), consistent commission earnings putting me at 80-85k/year, etc. I have about 100k in liquid funds available, approximately 80k in current home equity, 70k in retirement accounts. Overall net worth of about 250k.

My concern is cash flow. I spend about 2k/mo on my home, so that + all other life expenses doesn't really leave much for a second mortgage. The duplexes I'm looking at are in the 200-250k range. I could obviously put 20% down, but how do I go about getting financing? Are there different rules at play if I can show the house has realistic rental potential?

I'm also only late-20's so I don't have much experience or age on my side, which I believe is a negative for me when trying to obtain financing.