Owning real estate is a dream that my wife and I had since we first got married. In fact, we believed that it might not be possible to earn enough money ourselves to put all of our children (currently, we have three) through college and fund a long and joyous retirement without some form of passive income, like rental properties.
Right now, we only have one property, and we’ve rented it out for the past 18 months with no vacancy period. I believe that our simple method for picking and preparing this home is the reason we have been successful so far.
A Rental Property Can Start as a Residence
We did not have the money to go out and buy a rental property initially, but we did get into a position where we were ready to own our first home.
As mortgage people will do, ours approved us for about $200,000. Personally, I felt that this was reckless, but in 2007, that was the name of the game. That lender went out of business about a month after we closed on our home.
We started looking for homes that were less than $100,000 and ended up buying one for $113,000. It was a little 900 sq. ft., 3 bed, 1.5 bath home on half an acre with a privacy fence and a screened-in jacuzzi.
One thing we liked was that it was found to be sound by an inspector, and while the people we bought it from thought to spend thousands on the fence and jacuzzi, they left the original medicine cabinets from 1978 in the bathrooms.
Location Counts in Real Estate Investing
We bought this house in Jacksonville, North Carolina, where half the people who live there rent due to the many US Marines and sailors stationed at Camp Lejeune. While some bases come and go, it is unlikely Camp Lejeune is going to get smaller any time soon.
After living in this town for three years, we knew the elementary schools and which areas were better than the others.
The next step was to prepare the home to rent quickly.
Real Estate is a Serious Investment
Like I said, the people who owned the home didn’t do much on the inside. Each morning, the sun would rise over the backyard and heat up the home via the sliding glass door and master bedroom window. It was nice in the winter and not so nice in the summer.
We had Sears Home Improvement put in their best door and picture window, which was a pain and expensive, but definitely worth it. It cost $4,600.
Next, I had the trim wrapped in aluminum so that it wouldn’t rot. This aluminum was then guttered. Total cost: $700.
The week I was leaving and going to have it put on the market, I had the kitchen and bedrooms painted ($700); the bathrooms got new medicine cabinets and lights ($300); the bedrooms had brand new, badly needed, carpets ($800); the kitchen and laundry room linoleum was replaced ($800); new blinds were installed on all the windows and sliding glass door ($910); and a landscaper power washed the driveway, cut and edged the grass, and placed half a scoop of river rock into the flower beds in front of the house ($450).
$9,260 later, the only question was, could I actually rent it?
Property Managers are Worth the Cost
Before I did most of this work, I interviewed two property managers. The first was an independent real estate guy who managed 5 properties and only wanted a few more so as to give them his full attention. The next was a woman from Re/Max. She and her partner managed 80 homes.
Overall, they both had the same advice. I ignored some of it, making the house nicer than they advised, and was able to rent it for $900 (my mortgage was $778) in two weeks. They both suggested $800-850, which would have left me at a small loss each month, guaranteed.
But, I love my property managers. They scrutinized the tenant and made him come up with a double deposit because he had a few dings on his credit report. And I don’t have to negotiate with anyone for the rent to be paid. My seasoned property manager deals with it all.
There are so many headaches that I don’t deal with because of them, and they do it all for 9% of the rent. For $81 each month, they’ve had to track down and deal with our tenant who has been late more than half the time. I don’t mind, because most of the time I don’t find out until I get my check and it has an extra $22.50 from the $45 he was penalized for being delinquent.
Summary for Owning a Rental Property
For those looking to own a rental, my advice would be to find a starter home. This is the kind of home you wouldn’t care to live in when you’re in your 40′s, but would be thrilled to own in your 20′s.
Then, make it as nice as you can without making it luxurious:
- Fresh paint
- Nice flooring
- Semi-updated and clean looking details
- Landcaped lawn
Doing this will make prospective tenants come in and feel at home, which is precisely how you want them to feel so that they’ll come and stay, and have a nice place to live while you fulfill your dreams of becoming a true real estate investor.
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