Thread: Help! thinking rental property

The fundamentals of you plan seem solid: buy a distressed home in a down market, fix it up, have some one else pay the mortgage while you ride out the market.

The biggest downfall I see is the partnership. What if you or your partner want or need to get out early? What if it doesn't rent for several months, can you afford that? What if prices don't go up 30% in 4 years?

Overall I think it is a good plan, those are just some questions I thought of.

money is going to be needed in having them rental ready?

Have you ever been a landlord? Know the rules of Ma about eviction and deposits you collect.

Thoroughly do background and credit checks. Verify that the renters pay the rent on time and have not destroyed homes they have rented.

Do you have cash flow to cover if some tenants don't pay on time?

I think you have a chance to make 30% with no problem in 3-5years. Just plan for the worst and if you have it covered than everything will work out.

Do you plan to get financing, or is the a cash purchase? How much would you put down if it is being financed?

As far as the partnership goes, I suggest having a written business plan, no matter how simple. Decide what happens if someone wants out. What if one wants to sell early and just cash out? Think about all of that, write it down, and sign it.

Landlording is tough.. I have three rentals and have been at it since early 2000. Be prepared to mow the lawns when your guy doesn't show up; find a new handyman when your handyman is not available; get up in the middle of the night to manage a tree being pulled out of the road after a storm; handle HVAC calls in the dead of summer; and on an on... it's a long-haul business; you can't be in it for a quick money hit. You have to picture retirement with your properties paid off and you collecting that rent money for your pocket, your salary. I wouldn't trade it for the world... consider section 8; pros and cons with Sec. 8, but worth the regular checks, you no. Go for it! Nothing venture, nothing gain.

Foreclosure Cleanup

Personally whenever I take on a partner for real estate I insert "the God clause" into our agreement. I typically am the one who is directly involved on the real estate side and am the one who deals with all the headache issues. Leaks, chasing rent checks, demo etc.. but I typically prefer to have a partner with cash or who is set up to get a quick and easy mortgage. I feel it is fair going 50/50 but if we have an issue or disagreement that can not be worked out then I will have the final say. Typically things get worked out but recently we had a design issue. My partner loved the large kitchen. I wanted to add a study or small second bed/guest room. We couldn't agree so I finally had to lay down the law. The office was built and we got a higher rent then expected.

/All good responses to far, but one additional thing -

While it seems like your potential property that has a lot of built in equity, don't forget to calculate your holding costs before you buy. Think about things like the cost of insurance, (higher than typical homeowners insurance when put on an investment property), taxes, utilities, closing costs, etc.

Also very important - make sure you factor in the cost of money (for both the purchase and the rehab), and consider how long you'll be paying on the property before you'll start seeing any of that money come back. How long will the rehab take? How many months of vacancy do you anticipate before you find a renter?

It's little things like these that can really suck your cash flow down the drain if you don't consider them in advance.

Also, don't forget to figure in closing costs and commissions for when you sell the property. You should also have a back up plan for in case the economy goes into a "Great Depression" type of era. We all like to be optimistic and think things will recover, but we need to plan for the worst in our investment strategies. I would do it! Good Luck!

Hiring a property manager would be a good idea, especially with your lack of experience. I'm not sure where you live, but in my area 12% is usually what management co's charge.

If you can't afford a property manager, I would suggest you go to your local Real Estate Investors Club, for advice, It's been my experience most investors are a good group and love to share their experiences and advice to folks just getting in to the business. If you don't have a Investors club in your area try your local board of Realtors, I'm sure there are some folks there that could steer you in the right direction.

I'm not a real big fan of partnerships, More ofter than not there isn't a happy ending, usually one party does all of the work for half the benefits. If you have to go with a partner, make sure everything, I mean everything is spelled out on what roles each of you are to assume.

Good Luck

I have rentals and they make for a nice cash flow every month. But, I think you should really be carefully making your plan designed around appreciation. This could be a long drawn out decline. Think cash flow first and at least a 10 year holding period. If things work out so that you can take your profit in 3-4 years aint it great. If you assure cash flow you will be set to hold indefinitively.