"You da one that I dream about all day ay ay. You da one that I think about always..."
Sorry, that Rihanna song just jumped into my head while writing the title of this post.
ANYWAYS. Back to real estate.
After receiving a couple promising property leads (Lead #1 and Lead #2), I didn't stop there, pick one, and plop down my money. Nope. Not that fast.
While the numbers on paper for Leads #1 and #2 checked off most of my investing criteria boxes ($75k to $100k acquisition, bring in at least 1% rent at $900+), I honestly WASN'T 100% sold on the neighborhoods they were in. Remember, a huge goal of getting My Second Property, was to jump into a better neighborhood and attract a better tenant class.
So, keeping my options open and casting a wider net for leads, I reached out to an agent I met briefly last year in Indianapolis. We'd connected online and I squeezed a quick little meeting in with her right before flying home to California. Naturally, we met at a Starbucks (I don't drink coffee...haha!).
She immediately set me up with MLS alerts based on my criteria, which was amazingly helpful. And she also asked if I'd be willing to look outside of the typical 3 bed/1 or 2 bath houses that most investors were looking at. I told her I'd be flexible in house layout criteria (which later proved to be key), but I wouldn't compromise on my investment criteria.
BOOM. Within 12 hours she sent me a lead.
Email from my Realtor: I just had one that popped up this morning that looked interesting in Washington Township - west side. I see now it's a 2/1, but it's actually quite a big 2/1 at 1400 sq ft. Tenants are already in place, but the listing doesn't say what they're currently paying. Rental comps are in the $1100-$1200 range. They actually just dropped the price on it this morning as well. I used to live just north of here - pretty decent area. I would say B class.
FIRST IMPRESSIONS OF LEAD #3: Holy crap. That wood paneling is UGLY. It's only a 2 bed/1 bath...not thrilled...will there be much rental demand for it?? At least it's got good square footage (1,400) and a 2 car garage with wrap-around driveway. Rental comps are actually higher ($1,100-$1,200) than my target and the property is listed at $95,000 which is under my budget. The seller also just reduced it from $107,000, which could mean they are super motivated to sell.
You know what time it is now? Time to dig into the numbers and do some major research!
Luckily, within a couple hours, my agent confirmed the tenants are paying $1,000 per month and they're on a month-to-month lease. Confirming the actual rent is HUGE, because estimating rent range can be difficult and it's such a critical number in calculating cash flow. $1k in rent is a little less than the initial estimate of $1,100-$1,200, but I can't complain, it fits my criteria and it's confirmed.
After some quick calculations, the numbers look good! I'm VERY VERY interested. But, of course, I've got a few more questions. After all, this is the first property I've ever looked at without the help of a turnkey company. Venturing down this path of buying on my own, is completely unknown territory. I ask my agent a ton of questions:
1. How old is the roof? - Just over 1 year old. Roof and gutters replaced August 2016.
2. How old is the furnace? - It's a boiler. Great working condition. Age unknown.
3. Hold old is the water heater? - 3 years old.
4. Is it currently under a property management company? - It's self-managed by owner.
5. How long has the tenant been living there? - The tenants moved in 2014.
6. Can you send any more photos and videos? - Yes, but exact date to get into the property is unknown with tenants living there.
Lesson #1: Your agent and the selling agent won't be able to answer every question right off the bat. Many infrastructure questions will most likely have to be answered by a professional inspector.
My agent coordinates a time to check out the property, then sends over photos, videos, and shoots me a note:
All and all, nice property. The only thing I wasn’t a fan of is that it doesn’t have central air, but the list agent said the window unit does keep the whole house cool. Typically, though, that’s going to keep your rent lower than another unit with A/C. It’s on a broiler for heat as well, which I think might be better than having a furnace - probably not as energy efficient though. I don’t love that it doesn’t have a paved driveway either, but the gravel is pretty compact and if a tenant would need to shovel they shouldn’t have too much difficultly doing so.
Property has been well maintained - as I mentioned new roof and gutters 2016, and the electrical box was updated in 2014. Flooring looks in good shape, and most of the walls are paneled, so not a lot of upkeep there. Also noticed that there was no dishwasher - again, typically something that is provided at this price point along with the A/C.
Alright...so a couple little curveballs...no central AC and no dishwasher...but nothing horrible. Just a couple more questions for my agent:
1. What repairs do you think are needed? Fresh paint? New carpet? Garage windows? Anything big? - Depends on if the tenant stays or not. I would probably repaint any areas that aren't paneled and clean the carpet. It looked in pretty decent condition. Would repair the garage windows as well.
2. Any idea why they're selling? - It's the list agent's mom's property. It's the only rental property she owns, and probably sees it as a good time to sell.
NOW IT'S REALLY DECISION TIME.
Work with a new turnkey company and go after Lead #1 or #2, which are both freshly rehabbed, and would probably be an easier transaction.
Or, take matters into my own hands and go after Lead #3, which is in a better neighborhood, and would be a venture down an unknown road?