Need Advice regarding Investment Property
For two years I've been bugging my oldest son to try to purchase his own place as his $ is paying the apartment owners morgage. Keep telling him he should try to get a starter condo. The housing market here on the West Coast is experiencing a boom and will continue to do so due to the Winter Olympics coming here in 2010 plus the best unemployment rate we've had in over 30 years. He has the cash for a down payment but due to his extra cautious personality he keeps hesitating but did ask me to look. I've been checking MLS listings for aprox 2 years and feel confident I know the market well in the area. Here's what happened last night. I'm scanning newspaper and see a place listed aprox 75,000 below what all other bachelors and one bedrooms are selling for. Yes....no typo...75,000!! I even called to confirm that it wasn't a typo in the paper and viewed the place today. It's right around the corner from the shopping center I use. Location, Location, location! Bus stop in front, 2 major grocery stores 1 block away, mall, dental offices..all amenities. I view the place and while the building is a bit dated , the appliances are 4 years old and the dated building only has 11 tenants. I return home and think heck if my son doesn't want it ..maybe I should buy it and rent it out. The owner is selling privately so that makes me a bit nervous but then again I viewed all the documents and everything appears in order. I called morgage broker and could get the place based on equity in my home and rent it out. What do you guys think? Have you guys ever rented out a suite, apartment you owned? What should I be concerned with? (This is all based if my son decides not to move into this place which of course then all my inner grumblings would be solved.) Marianne and the boys |
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Marianne wrote: What do you guys think? Have you guys ever rented out a suite, apartment you owned? What should I be concerned with?
Marianne and the boys The biggest concern is bad tenants. Other than that of course make sure you will make a profit when it is rented out. |
Marianne wrote: Have you guys ever rented out a suite, apartment you owned? What should I be concerned with? (This is all based if my son decides not to move into this place which of course then all my inner grumblings would be solved.)
I've owned a house with a basement rental apartment for about 10 years. I have never had a problem finding good tenants but I think that is dependent on the price point for your rental. Think about who the potential renters are for that place -- college students, service industry, skilled labor, other professionals, with or without kids. . Each type of tenant has different types of risk. You don't want to rent to law students because they love to use their new skills to haggle over the lease and ongoing maintenance and repair issues. More importantly, you need to consider whether the rent you can obtain will actually offset all of your costs (mortgage, insurance, taxes, maintenance, condo fees) or whether you think it will help you carry the place while counting on future appreciation in the value of the property. Keep in mind you might go a month or two between tenants without rent. If the rent can't cover all the costs, you had better be prepared to pay those additional expenses yourself. I would do some serious thinking about the numbers. In my case, the rent I could charge for my unit did not truly cover all of the costs if it had been a freestanding property. But because this was an attached apartment, I had the same costs whether or not I was renting the basement apartment. So the rent was an extra income stream that helped pay my mortgage but would not have been sufficient to own that apartment separate from the house. Finally, there is a reason this place is 75K below all the others. Make sure you find out what that reason is. Good luck! |
| Yes so true Elissa! Based on the experience my sister had it was a nightmare for her with bad tenants. I thought based on my contacts with numerous ESL schools and from what I've read up on the subject, foreign students are sometimes the best tenants. Most companies arrange their rentals for them (so guaranteed monthly rental) , bachelor suites close to amenities are in high demand too.
So why hesitation on my part? Well I guess because it's being sold without a agent which on one hand is keeping the price super cheap..on the other hand I hope I knew the right things to look for as that means I too wasn't dealing with an agent. I know enough to get a lawyer to look at final documents but is there something else I should be on the lookout for or have not considered? Also worry about the ole adage if something is too good to be true is usually is... The place is for sale at 75,000 while all others for that space size start at 150,000 at the cheapest ..so could be fantastic investment. Nothing has come up for 2 years on an MLS site in my area for under 150,000. Oh what to do? Marianne |
Marianne wrote: Oh what to do?
Get a home inspection and investigate the rental history. |
| We have a summer home on the beach in the Outer Banks of NC that we rent out. we bought it without an agent. In fact, we bought it by sending letters out asking if anyone wanted to sell, to let us know and someone responded! Anyway, our deal went smoothly and we got the place for about 75 grand less than the comparative properties...that was five years ago.
I will say, the rent income does not cover the whole yearly expenses. On top fo the morgage, there is utlities, home owners insurance, flood insurance, repairs, monthly maintenance, etc. But I will say we doubled our money and the house is now for sale actually. Plus we got a great write off on our taxes every year... To me, there is no better investment than real estate. Even if you don't break even, you would never save the money you will get out of it on resale. Maybe the person selling is going through a divorce and has to sell, maybe there is a health issue, maybe they need to sell quickly because they want something else...I say go for it and if it doesn't work, you can always sell it. Good luck... |
Valerie wrote: Marianne wrote: Oh what to do? Get a home inspection and investigate the rental history. Get the best inspector you can find. Talk to other people that live in the building. I'd want to know WHY it's 75K under market. |
Ashley wrote: if it doesn't work, you can always sell it.
Well you hope you can sell it but it could be an undesirable property for any number of reasons and you could get stuck with many unexpected months of bills. And you might lose money on the sale. So I would urge caution. If it sounds too good to be true. . . |
| Hi Everyone..update.
Val sorry I missed your response as I was typing my stuff at the same time. LOL Thanks for all the wonderful info and I feel confident now regarding what I've learned in here and speaking to my morgage broker who is also a licensed realator. He told me to ask for Form B which comes from strata council and shows no liens on property. He also asked me to get two years of strata council mins which would then show if building is going to undergo major improvements which would cost me possibly thousands. Lastly my son said YES!!! he wants the place and the morgage broker calculated the cost would be a mere 316 per month in rent with his down payment compared to the 700 (the going rate for 1 bedroom) he's paying now. I have been approved for financing even tho it's late Sunday night I already had my stuff on file when I tried to buy Island property a couple years ago. That was just in case my son whom has not got his paperwork in order takes too long and may possibly lose out. Too good to be true? Well maybe, as the seller is going to take first come people first....they are waiting to see if pets are allowed in the building ...if strata says yes..they expressed interest in buying it first. I'm not that lucky and while I don't wish any ill on anyone I am hoping that she can't get financing...then we get dibs. Wish us luck. Marianne |
| Would they allow you to make an offer even though others are interested?
That would really show interest. Have the other people made an offer to buy yet? |
offer $1000 more  |
I tried that 
The owner said she is sorta promised it to the first viewer if all things turned out..(shows she had ethics and morals so that's good). So now I just have to hang tight. Groan my youngest made the appt for viewing at 2:30 pm, shoulda done it for 9 am..and we would have been first. I went half heartedly at the time, thinking no way could that place be even worth looking at, thinking it was probably a dump at that price. I even told the woman I'd consider offering a bit more than the other buyers and was willing to even meet her last night. Still a small part of me is pleased as she said she promised to give first viewer until Tues to sort out her finances. Again shows she an honest person as she's honoring her promise.I'm waiting in the wings crossing my fingers. 
Marianne and the boys |
| I kept a house once (ONCE) for investment puposes. Rented it out to a "nice young couple" thinking I was making a smart business decision.
BOY WAS I WRONG, turned into the tenants from hell. One of them lost their job, they had a baby, TRASHED the place and were 7 months behind on their rent before I got them out. It was a nightmare. Laws protect the tenant, in NYS at least, and offer no recourse for the landlord. Never ever EVER would I do that again. I promptly sold the house at a loss and chalked it up to expereince. Some landlords make out very well, the problem is it is soooooo difficult to know for sure what you are getting in to. I agree with Val, if it sounds too good to be true...... |
| Not only have the building inspected before making an offer, also have the financial books gone over. I don't know if you can do that with apartments, but with shopping centers/strip malls you can.
For that much off, I'm thinking there's something stinky here.......why haven't the bigger investors jumped on this. What do they know? Building condition, tennant problems (nothing like having a meth lab in an apartment and having to move all the tennants out while the building is decontaminated) city rezoning...etc. If you were seriously interested in rental property, I'd go thru a rental real estate person. Also, I know it's hard caring for adult children, but sometimes you've got to let them fly their own course. If that means apartment living all their life, their loss. He's probably waiting for you to pass on and leave him your wealth  |
| Hi,
You're so right Sheepie Boss about some tenants can be a nightmare. A few months ago I wrote about my sisters experience with hers. Shudders!! Thanks too for reminder about the cons as there are some to consider. I realize I'm not the landlord type so wouldn't rent to anyone other than foreign students and that's through contacts with the ESL schools I occasionally teach at. There are companies that arrange the students home stays or find them places and they pay the cost to homeowner and student pays the agency. I agree too regarding adult kids, my older son I trust 100% with being financially responsible....lol unlike the younger one whom I told him I wouldn't even rent to him. The older one banked all his money since he started working at 16, bought himself a used car after 2 years of saving and then gave it to me when my car died. After that, he continued to save his money and banks it all. I would love for him to get the place so he'd have something to show for his hard work. Turns out he does want the place so my idea of renting it out is no longer a consideration. Good suggesion too regarding who the neighbors are - I can find out some basic info through the strata council mins and just hanging around the parking lot as I live a few blocks away. I'm also going to check city hall records tomorrow to see if the road in front is being considered for expansion as gasp then he'd have a road just below his place. Lots of things to consider but now just have to wait to see if we can even put in an offer. Thanks for all the input everyone Marianne |
| Hi Marianne,
I sent you a PM but then it occurred to me that your computer may not be able to access it. So if your computer allows check your pm. |
 Thanks very much for the note LVSL!!
Marianne |
 Marianne: I have no advise to give, but I wanted to wish you and your son best of luck in which ever way this pans out for you. You are a very sweet lady and I only hope the best for you.
Good Luck! |
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