Correctly Buying A Rented Home?
Hi all,
I have been approached by a seller of a rented home. It may be a stupid question to the seasoned investors, but what am i looking for on the part of the seller and how should i determine whether or not to buy.
I mean should i be asking them what they pay for month on the mortgage and try to get it for that.
I need help negotiating with landlords.
Any kind of basic steps or advice you can offer for buying rented homes would be greatly appreciated.
Thanks in advance,
Verbatim[ Edited by verbatim on Date 01/23/2004 ]
How much is the rent and what are the total payments including taxes and insurance. How long have tenants been there and are they likely to stay. Are they gang members or drug dealers. Do they pay on time. Have they taken care of the place. There are a ton of questions. I like to make at least $250 per house monthly cash flow but ither investors may take less in exchange for more appreciation
Good LUCK and Thank You
Hope this helps some
Ted Jr
Whats the reason the landlord is selling. That would deffinatly be a question I would be asking, and is the answer believable. Then I would start running numbers to see if I could make them work for my www.situation.Then after that if everything was going my way I would start to haggle with the seller to see if I could get a good deal depending on his reason for selling.
Do your due dilligence on this and make it work for you.
ED
You just have to examine the property.
Is it in an area you are familiar with?
Are you comfortable holding a rental there?
Will it cash flow?
Does it need work?
Why does he want to sell it?
Will it cash flow?
Will it cash flow?
There is no reason to approach this in any fashion other than a normal rental purchase. If anything, it being rented is a plus as long as the numbers work.
[addsig]
There is some very good advice above.
When I go to buy rentals, the first thing I look at is location. Am I comfortable going there to collect rent?
Next I would question the seller for his reason for selling, about the current tenants (Pay habits, house keeping, etc.), and the taxes and insurance.
I'd find out if there is any existing financing currently on the property.
I would ask him about the condition of the property, then go see for myself.
Finally, I would ask him his asking price.
From there you go work the numbers that you are comfortable with then make him an offer. Make sure it's something you can handle if the tenants decide to vacate
Thanks to all that have responded to this question.
I greatly appreciate it. You all really help speed up the learning curve and reaffirm all the things i have read in various books.
Below i will post the input i have recieved from various individuals, just in case someone finds themself in a similar situation in the future:
look up taxes on assessor site
determine what home owners insureance would be
Next speak with a Mortgage Consultant, * make sure he/she is up front and that you get a good feel for im/her, there are too many unscrupulous ones out there. This will give you an good idea of what your payment will be with everything included (P.I-T.I and possibley PMI).
Next ask the seller what he is charging for rent and also go ask the renters. Remimber cash flow is important, but your main goal should be to have someone else building equity in the property for you!!!
Determine the ROI.
You'll need to see the lease.
Look at comps for home value and rental value
I also look at the seller Schedule E, you'll find a lot of the expenses there. Beware, the expenses may be high for tax purposes.
ask to see the financial statements for the past three years. This way I get a look at what has been replaced, what keeps breaking, how much profit is really being made, etc. In these statements, I look for opportunities to make the property more profitable for me. Look for the right things to be wrong. Excessive property management fees, high vacancy rates, getting the shaft by the contractors over-charging, bad tenants, etc. These are all problems usually related to poor property management by the owner.
If the owner balks at my request to see financial statements I assume he has something to hide such as deferred maintenance. If the owner has failed to keep financial records I assume that he/she has failed to do other things as well.
How long have tenants been there and are they likely to stay. Are they gang members or drug dealers
Do they pay on time. Have they taken care of the place
Whats the reason the landlord is selling. That would deffinatly be a question I would be asking, and is the answer believable.
Does it need work?
When I go to buy rentals, the first thing I look at is location. Am I comfortable going there to collect rent?
is any existing financing currently on the property.
Typically the buyer takes over the existing lease and the deposit. Get credit in closing for the deposit. Your possession will start the day of the sale
When I took over a rented house, I gave the exisiting tenants a break on their rent as in incentive to sign up on *my* lease. I wrote it all out beforehand, and it began on the date of sale, and ended at a mutually agreed upon date. In the event the sale didn't go through, it would be null and void after a period.
Make sure that you don't take over a house where the tenants are *NOT* on a lease. Also, strongly consider a fixed rate, long-term mortgage. Later, you'll be glad you did.
The seller might complain about you asking about the mortgage info. They usually do. Just explain to them that you need to make a reference to it in the contract and without it, you cannot proceed
I explain to them that it costs me money to buy and maintain these properties. The marketing, screening, and repairs are all factored in and yes, they all cost money. So, with that said, you EXPECT to profit...otherwise you won't be in business very long. <TELL THAT TO SELLERS
Once again, thanks to all - if i left anything out please let me know
Verb
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