Profile picture for newguy66

buying rental property

I am 24 years old, just finished my bachelors degree and looking for investment opportunities.  I have been putting serious thought into buying rental properties.  I need some advice on how to go about picking my first property.  I want to hear some cons of owning rentals besides the renter not paying.

  • April 05 2009 - Waverly
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Answers (7)

off the top of my head...

1)  How much reserves do you have?  You should have significant reserves because of potential vacancy risks. 
2) condition of property.  see item 1, depending on condition you will need necessary reserves to keep property habitable.
3) What are the laws for evicting a tenant in your State?  Depending on the laws it could be favorable or near impossible.
4) What is the job outlook in your area?  If you are going to be seeing significant cuts you will need to reevaluate your current rental market and project more conservatively.
5) ROI

A bunch of things to consider.  On one side you need to consider the actual purchase of the property.  Rent vs. Buy.  Potential rental income versus Operating expenses and vacancy factor.

On the other hand you need to consider issues with the operation of a rental and the responsibilities that come with that... Tenant/Landlord relationship.

etc...


etc...
  • April 05 2009
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Been there, done that--both personally and professionally.  The economy of scale is an important idea to understand.  Simply, and in the case of owning rental property, the more tenants you have, the more viable is your business.  Having one rental property can spell lots of problems with cash flow.  We all have to start somewhere, but be very aware of the down side.

1) Heating is a very major expense to you if you include heat in your rent structure.  It will eat your budget alive and cause you a loss at today's prices.  Natural gas, fuel oil, propane, and electric are very high in price and will continue to remain so.

2) If your tenant pays the heating bill and fails to do so, your plumbing could freeze up and break pipes causing major problems and loss of revenue.

3) Damage resulting from abuse and misuse could cost thousands that a simple security deposit often does not cover.

4) If you cannot make repairs yourself, your maintenance expenses can be frequent and high. 

5) You must always prepare for the unexpected, emergency calls at all hours, late rent payments, no rent payments, eviction eventualities, and other areas where your profit and equity go south quickly.

There are more factors to consider.  This is not a definitive list of the down side to owning residential rental property.

John Kavaller
  • April 07 2009
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Profile picture for natewolf
Buy a duplex or triplex or fourplex. You can move into one of the units and get a better financing rate/mortgage. This is because the lenders will consider it an "owner occupied property" and if it is 4-units or less, it will qualify as a regular mortgage!


If the units are already rented, the income they produce can actually help you qualify for your mortgage. So, you might actually be able to qualify for a more expensive property since the rents collected are added to your income for qualifying for your mortgage.
  • April 07 2009
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Profile picture for natewolf
Be prepared to move into one of the units-- at least for a while. IF  you are willing to do this, it can be considered your primary residence, and you will get a better loan.
  • April 07 2009
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Profile picture for natewolf
In New York specifically there are "squatters rights." So even if someone cannot pay you, you may not be able to evict them!
  • April 07 2009
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Profile picture for natewolf
Plus, even if they cant pay the rent, you cannot cut off their heat or power! So they literally would be a leach on you. You would be supporting them.


You could choose to get a larger home / apartment and then rent out ROOMS instead of the whole property. If you live in the same home, then you have MANY MORE RIGHTS to kick somebody out. Owner occupied property is handled differently from a legal perspective in this regard.
  • April 07 2009
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Profile picture for lucho975
Buy a 2 family to start so you can get the feel for it.  Dont rush, being a landlord is not the easiest thing, lots of headaches.
  • April 12 2009
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