Purchasing an investment rental property is not as easy as you would think. I am learning the hard way (although it is an exciting venture). Here’s what investors, agents or websites don’t tell you. You can choose from purchasing single-family homes, multi-unit buildings, or a townhome as an investment property. There’s other real estate investment options, but the above is most popular for a beginner.
Most of the listed investment properties are actually listed “sold-as-is”. This means you are responsible for any repairs or violations based on the existing condition of the home. I couldn’t understand this as I was combing through neighborhoods online. I sense many investors just want to offload or sell their property to reduce repair expense cost. Foregoing any expense towards home repairs and updates in order to receive the most return at time of closing. Most have existing city or code violations that they are looking to pass on to the new owner.
So what should you do? I’m on this journey right now and let me tell you I have learned so much. Just by researching and viewing homes, but here’s what you want to be mindful of:
3 Key Investment Tips
- Sold-As-Is:If a home is Sold-As-Is, read through any upfront disclosures that are available in the listing. This discloses the condition of the property, gives leverage for negotiation, or offers a glimpse into improvement cost. If there’s a chance you have to invest let’s say $20k for repairs before you can put the home on market for rent or to sell on top of providing a down payment, but the area only demands a certain amount that can be charged for rent or for selling a home, it may or may not be a good investment.
- You also want to make sure you know the condition of the electric, plumbing, appliances, i.e. furnace and water heater, and roof. If any of those are in bad shape that means more money out of your pocket, higher expenses and a long road possibly to recover those cost especially when buying a rental property.
- Real Estate Agents: Although your real estate agent represent you, it’s wise to ask questions and request as much information as possible. From my experience I have met interesting real estate agents who tell me that a certain property looks good to purchase and after viewing the property their eager to know if you are going to make an offer even if the numbers may not seem right to you. So my advice is don’t waiver, know what you are looking for and stick to it.
- Operating Expenses: It amazes me that when I shop for a rental property and have my agent ask the owner for a copy of operating expenses no one seems to have this prepared. But this is key to determining if the property you are buying is a good deal or not.
- When viewing the property see if there’s separate heaters and water tanks or if they have a boiler. When a property has a boiler you will have to pay for heat. I don’t care how much you might charge for rent, when a tenant is not responsible, your bill could be enormous. Leaving your income not enough to cover the expenses.
- Determine the rent amount charged for each tenant.
- Understand the total price paid for heating and water – essentially the utilities (your tenant should pay for this not you) year after year.
- There’s other expenses most owners won’t disclose such as: city or garbage stickers, garbage pick-up, water/sewage cost, insurance, and if you live in a place like Chicago – snow removal.
And then there’s property management. I haven’t acquired one for my current rental property but my thoughts are you need as much visibility to what is going on with your property instead of pushing it off to someone else.
Funny story when I viewed a 3 multi-unit property in Stony Island, South Chicago the real estate agent showing us the property who may or may have not been working with the property management company had no idea that one of the tenants up and left. Not Good! All the lights were off, clothes left scattered everywhere – what a sight to see. Property management can be helpful in the sense of having you time but it reduces your income from the amount they charge monthly. But again, picking up some of the responsibility yourself can allow you more knowledge on what to do and how to handle your property and tenants for any situation.
OMG always view a property in-person and don’t go off the pictures you see online. Why? Because they are DECEPTIVE! I visited homes where I thought, this is the one. This is the home I’ve been looking for and now I can focus on building my income. Not so fast. I’ve seen homes quickly “slapped” together, but listed as recently remodeled and upgraded. All thi despite pipes missing for a gas stove, or the neighborhood looking unkept.
My point is you have to do your research and this is just a snippet of what I have learned based on my own experience and I plan to provide more knowledge as I endure this on my journey so you can be aware or reduce the chances of making mistakes that could cost you in the long run.