All Forum Posts by: Joe Hines

Hi Arreanna,

Generally, you wouldn’t want to spend more on repairs than the house is worth.  But in regard to rent, I would suggest doing a quick search on the ‘2% rule’.  There is a ton of info here covering ever conceivable question on it.  Personally, I find it is more like the 1% rule and it basically means that you’d want rent at 1% of your acquisition cost plus repairs.  Hopefully, this was less than the $40k you said the house was worth.  Assuming for the sake of answering your question, if you paid $40k, you would want to invest no more than $30k to arrive at the market rental rate of $700/month.  If you can do repairs for a cost that keeps your total investment below $40k and hit the $700/month, then you are in a sweet spot!  But I want to emphasize not investing more than the house is worth.

Assuming average insurance and taxes (which will be low considering your purchase price) and that you'll self manage, the financials are very good. You could BRRR the property and take a loan to finance your next flip or play the more conservative game that I did and get a stable foundation of several mortgage-free rentals before you take on projects with borrowed money. Search for BRRR here and you will find a wealth of information. You may also want to owner finance with a good down payment.

In any event, congratulations!  You’ve done a good job with this.  You could be in much worse shape than sitting on a debt free property in a good location! 

There is an immense amount of information on this forum and in the podcasts about buy-and-hold RE investing and also flipping.  I'd suggest hanging onto your first rental for a while and see how you like it.  There are a lot of people who get a rental, hold it for a while, never expand and decide it just isn't the business for them.  Take your time for your second rental.    Learn first, then go hunting for your second unit if you still want to take the next step.  I think most people would agree that prices in almost all markets are high right now and good deals take more effort to find, so you aren't falling behind, especially if you learn from the mistakes we've all made. 

There are also a lot of different niches in RE investing.  Some people like flipping, some buy-and-hold, others focus on apartments, many like wholesaling and there are many more specializations.  Learn all you can and see what attracts you the most.  

I might be in the minority here and I do circle back to this question from time to time when I'm reviewing costs, but I've typically included the lawn maintenance in the rent.  My rentals are in Florida and the grass grows fast.  Mowing once per week is almost required.  Put it off for three weeks and you've got a jungle.  On top of that, trees, shrubs, etc need constant pruning.  I'm afraid leaving it to the tenant would mean it would't get done at all and my properties would quickly look like a snap shot from the Amazon.  

I invest primarily in SFH in North Florida and my average tenant stays in place over 3 years. I love the stability, but it does mean I slowly fall behind on NOI as costs for landscaping, taxes, etc slowly creep up. It also sets the stage for difficult conversations when we have to talk about rent increases with clients.

This has led me to explore the idea of including an automatic 1% to 2% rent increase in my leases.  It seems low enough that clients wouldn't balk and enough to cover the inflation-driven increases.  It is also easier to understand than trying to explain a lease tied to a Cost of Living index.  Lastly, and certainly not of least importance, I don't think it would be unfair to the client, since moving out and into another rental would already have a similar increase built in.  

Does anyone else include an increase in their leases?  What has been your experience?    

Tough call to make if you've got good, reliable tenants.  Those are the ones you want to keep.  And if they're good, you want to keep them under a lease.  

The approach I've used is just to be open with them about what I'm planning.  Let them know the rents are going up a little even in the older units, offer them one of the newly remodeled units for the new rent target and perhaps give them a small incentive to move (again, for the good tenants).  Once they vacate, you can remodel the unit and put it back on the market at the new target rent.  

@Jay Hinrichsundefined

Sorry if my post was unclear.  Of course I want prices to rise after I've invested!  That's been the best part of real estate investing in the past decade!  That seemed so obvious that it was not even worth mentioning.  

My comments were focused on the market fundamentals I've experienced.  It is simply harder to find new deals that meet the numbers I'm looking for.  Not impossible, but harder.  Knowing a lot of people in the area where you invest is helpful in finding those deals.    

Hello William!  

I have been concentrating on buy-and-hold rental properties in more rural areas of North Florida and, to a lesser extent, the Ft Lauderdale area and I've seen the same thing:  Prices have risen more quickly than rents to an extent that it is difficult to find properties with the right fundamentals.  Around  2009 - 2014, I could find nice, well-kept brick ranch homes in Columbia and surrounding counties and easily rent them.  Now, the prices of those homes are 50% higher than they were before.  I've been able to continue making purchases only through private, off-market deals.  I'm now seeing a lot of potential investors stay on the sidelines, but when something good comes up, they pounce quick.  That has only helped keep the market high.    

To me, this confirmed the value of focusing on an area, building a good maintenance team and a solid network of agents and contractors.  That network has really lead to a pipeline of private, off-market deals.  It has also kept me in touch with local economic trends that look like they could evolve into new ways to capitalize on the properties I already own.  

Like you, the higher market has given me an opportunity to prune lower performers and re-invest in better deals, when  I can find them.  

@Charles Soper

Thank you for the reply.  I've not heard of them, though I did do a Google search after seeing your post.  I don't see much about them on the Internet.  Do you have a link or other information?

This will be my 6th year in the real estate investment and rental business and I'm just about to close on my 16th SFH. I'm now thinking about taking the next step and moving into multi-family. Of course, there are great resources here on BP. As I look to understand the economics of a deal I'm pursuing, I wanted to get recommendations for good multifamily insurance agents in North Florida. The complex is a total of three buildings, each with 2 townhomes for a total of 6 units.

Thanks for your thoughts and recommendations as I slowly and cautiously take the next step.