miko

If this belongs in the finance section, feel free to move it.

Anyway.... I'm interested in buying a house to rent it out to supplement income and to eventually by another, and another, and....
It just seems a bit daunting as far as paperwork, and getting financed, and dealing with the tenants, etc. But people do this all the time so it shouldn't be that bad, right? I figure there must be ways to do things right the first time around to avoid certain bad situations. Anyone have experience with this type of thing?
The property value in my area of town has been doing nothing but rising drastically over the past 10 years and shows no sign of stopping anytime soon. And add to that the super low mortgage rates it seems like a really good time to get started. I own a house now that has some equity, but other than that I will definitely need to borrow the money for the rent house.
So some questions off the top of my head are...
How do i find a rent house?
What do i look for?
How do i find a tenant?
Again, what do i look for?
What about paperwork to protect me/the house?
Do i need a lawyer?
Anything else?

Thanks!

Cynthetiq

I've been working with rental properties since I was a youth.

I have my own rental property now in Las Vegas and I live in NYC.

I hope to purchase another rental property later this year.

My Las Vegas property is brand new when I purchased it. I looked in the paper and also found a real property manager. They manage my property for 10% of the rental amount. They are responsible for getting tenants and evicting them if needed.

When prospecting for the property, I looked at location to airport and strip (which is where a majority of the jobs are located) I also wanted to allow for equity gain, I found a property in an area that was being built up. I did not need a lawyer to complete this transaction but when I do a NY property I will. For the NY property, I am looking for something structurely sound where the only issues are cosmetic where some blinds, paint, and carpet will make it look nice. I don't want to have to buy a new boiler the frist 5 years I own the place.

I just go to the mail box and collect a check from them every month.

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miko

Oh ya, i forgot to ask about the property manager! So they take care of everything? Do you ever have to deal with the tenant directly? They even find the tenants for you? That's pretty cool, and 10% isn't bad at all.

Thanks!

Cynthetiq

I found a property manager that deals with everything from finding the tenant to evicting them.

They will do everything including having plumbers and other repair people fix things. They have authorization to fix anything up to $200 without contacting me. Above that the need my authorization.

I do not deal with my tenants directly at all. I have done it in the past, and if I live close enough I will do it directly again because the cost whil 10% isn't that much, it does add up, my cost per year is $900.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

NoSoup

What do i look for?

Look for a property that will appeal to the largest variety of potential tenants/buyers. Generally, you'll want a "plain" house, one without elaborate banisters, trendy painting, ect. with low maintenence Also, the size of the house, more specifically the number of bedrooms, will be in important factor as well. It is illegal for you to discriminate on a variety of factors when choosing tenants, but if you buy a home with 3 or less bedrooms, you are more likely to have someone living there with few to no children. The reason that it matters is because statistically, homes with no children suffer a fraction of damage/disrepair than a home with 2+ children.

How do i find a tenant?

Well, as having friends/family become your tenant can become extremely sticky, frustrating, irritable situation, I would suggest taking out an ad in the local newspaper/web site, as well as puting a "For Rent" sign up. You'd probably either want to rent to either a stranger or someone who is just an aquintence. When rent come due and you are banging down their door to get it, hard feelings will do nothing but complicate the situation.

Again, what do i look for?

You'll want to pull your potential tenants credit, to see if they have issues paying their bills on time or not. Even if they do, there isn't any guarentee that they will pay you rent on time, but I would imagine that it would be a lot more likely with someone that has good credit. As far as other charactoristics go, make sure that they are they type of people that you want living in your rental. Stability, Cleanliness, previous rental history, criminal record, ect should all be looked into.

What about paperwork to protect me/the house?

Well, you'll need to do the obvious like get Homeowner's insurance on the new home, you'd more than likely want an inspection when you purchase the rental to see if there are any problems with it.

However, you said that you were interested in aquiring more and more properties. One thing I would suggest if forming a Limited Liability Company (LLC). You would have to contact a lawyer to draw up the paperwork, but the grand or two that it takes to get it set up could potentially save everything that you own if a rental goes incredibly wrong. It protects you from being liable from the company... A lawyer would be able to tell you many more benefits of forming one.

Do i need a lawyer?

See above

Anything else?

When you do purchase properties, make sure that you have enough down or the rent is high enough to have a positive cash flow. If you are only going to be picking up 1-2 properties, it won't be that big of an issue, but if you plan on aquiring many of them, you'll want a positive cash flow to help fortify you against any larger expenses that will happen down the road. Also, it is easy to jump in over your head, make sure you start off with a property that you can sustain for a while, just in case you are unable to find a renter immediately.

miko

Thank you!

I've decided to take some realestate classes (reading another thread below this one) to become better educated about the whole business. I may not use the realestate license to become an agent, but i figure it can only benefit me having the background knowledge.

NoSoup

Excellent Idea, everywhere, knowledge is power, but it especially applies in the real estate/mortgage business...

Rodney

I have to say that in large areas of this country -- often in the areas where houses have appreciated most quickly -- it is pretty difficult to have a positive cash flow from day 1 unless you put down a great deal of money, much more than 20 percent. This is especially true in most parts of California; here, you expect to lose at least some money for a few years, but rentals are still attractive to high-income investors who like the tax benefits (actual losses plus depreciation) while they wait for the housing and/or rental prices to rise.

I owned a couple of pieces of income property for a few years when I was at peak wages (I'll probably never make that much again), and although I "lost" nearly every year when depreciation was figured in, I was a happy boy come tax time. And while I didn't make huge profits when selling them -- I bought in a low-cost area that was not especially desirable, my mistake -- I made enough from the first sale to make a big down on the house I live in now, and the proceeds from the second are helping to support me while I retain for a new career. So, no regrets whatsoever.

viejo gringo

I used a realator that had connections with the bank, and got me some good deals on repos.

If you are not handy and know how to fix things, it will cost you a fortune to maintain.

Make renters fill out an application and check them out ...

I did 4 houses and doubled my money when I sold them.