Hello! My wife and I are preparing to buy our first rental property for investment purposes. I'll detail the ongoing process here in this thread so others can follow along and see what it's like for a fellow first time investor. You'll learn from us what goes well and what doesn't. Others on this website have been CRITICAL to helping us learn important information about real estate investing. We'd like to give back.
BACKGROUND: my wife and I are both health care professionals. We have no prior real estate experience other than owning our home. Neither of us is particularly handy. Her dad is a part time general contractor.
I've been planning to invest in real estate for over 5 years. When I met and married my wife, she became interested too. I've been reading and talking to investors for years, but the last one year has been very intense and had been the major "crunch time" to make this all come together. I'm 39 now and I had a life goal to have the business established with one rental up and going by the time I turn 40 in September. We are on track for that.
We read several books but the best was REAL ESTATE INVESTING FOR DUMMIES. It had the best overall information in one book. I recommend it. I also spent a ton of time here on BIGGER POCKETS reading everything I could about our target market and first time investing. In particukar , I'd like to thank Lisa Philips here on BP for her excellent advice on investing in urban areas for under 30k. we also talked to several landlords that we know personally and learned about what they're doing right and what could be improved on. Without a doubt, the number one piece of advice we get from those landlords is: CAREFULLY SCREEN TENANTS.
We have a very specific plan to buy a property in the metro Buffalo NY area and rent to Section 8 tenants. We expect to spend under 50k total for the property and any needed renovations. We have a team of people we are working with, including a Realtor, tax accountant and a real estate attorney. We will be funding the project through a loan from our retirement funds. We believe that we can create a passive income stream over the next 10 years that will outperform our stock investments. For those who worry about this, in our case we can handle a 100% loss of the invested funds. We don't expect that, but even in a worst case scenario, we would not be financially ruined. We are using money we can afford to lose.
We have contacted the section 8 program here in Buffalo and based on their literature and the experience of landlords we know, it seems like section 8 will pay 50-75% more than market rent in our areas. For example, most 3 BR units in the city here run about $500/month but section 8 pays $750-900/month. I cant argue with what the section 8 supervisor tells me personally, what their literature says, and what my Realtor and other landlords tell me is true. But those numbers seem unbelievable and likely may be optimistically overinflated. For our budgeting purposes we will assume the low end of $750/month.
We are also factoring in the following things into our anticipated annual profit numbers: two months lost rent due to tenant problems, two months rent lost to save for repairs, subtracting water,sewer, trash, & taxes. Even with all that, we anticipate about $10k profit a year.
I think that's most of the background information, feel free to post in the thread and discuss anything you want or ask questions. I'll be posing updates every few days as things develop.
We begin looking at properties on Tuesday May 27, 2014. There are only a few properties that meet our requirements on the market right now (in the neighborhoods we are looking at). We will go see them and decide if we will want to put in an offer or not. We are prepared to wait and not buy anything if we can't get a good deal. I'll keep you all posted.
Congratulations, but either I'm missing something, or you had a misprint. I assume you're talking about a single family home. At $750/mo, your Gross possible total income is $9,000 before any expenses, vacancies, taxes, ins, etc.
Duplex, lots of 6 BR duplex in Buffalo.
The methodology you describe does in fact work in buffalo but we don't quite do it the same way. Congrats though !
@michael sherwood what do you do differently?
Originally posted by @George Kalkowsky :
@michael sherwood what do you do differently?
We try to stay out of downtown buffalo. I mean there a lot of tired landlords in those areas you can pick up properties from. We tend to stick to the suburbs areas. With that said we do own a few properties in Cheektowaga and South buffalo but those areas are changing for the worse. I agree you can make decent money with section 8 tenants we have just not had good luck with them in the past. It is my understanding if the tenants ' don't follow the rules' they can lose their vouchers but there are ways folks get around that. I just usually try to target a different group of clientele but not saying this strategy won't work.
who is your agent you are working with ?
We are working with Rob Karp and his new associate Kiersten Minnick at MJ PETERSON.
Thanks for verifying that we aren't wrong in our planning, Mike.
And yes, we are planning on either a 3/3 duplex or a 3/2 duplex to start.
DAY 1: We go looking at properties: we saw 3 properties.
The first one had the signs (and smells) of a rodent infestation in the basement and the upper unit was in need of complete rehab. Overall, this place was more than we wanted to bite off.
The second place had broken crack vials outside and, when the realtor bravely opened the front door to the lower unit to announce our arrival, the was a line of cocaine and a razor blade on the small table right inside the door. We promptly left.
The third property seemed the most favorable. It needs a lot of cosmetic renovations but, although it needs a lot of work, the seller is motivated to sell and seems willing to negotiate the repair costs into the deal. We are going back tomorrow with a contractor to get a detailed list of repairs needed and the costs to complete them. Assuming the contractor doesn't find some deal breaker problem, we are likely to make an offer.
Of note, all three properties were significantly overpriced by the listing agent. I mean, I don't know who would buy any of these properties at full retail price. Certainly, I'd never do so.
I was pleasantly surprised how much I learned just doing those two walkthroughs. I felt comfortable assessing the properties for problems. Hopefully, the contractor won't point out obvious things that I missed.
I was also surprised that I don't feel anxious about the property or the potential deal. I feel strangely calm. Either it works or it doesn't. There are more properties out there. I'm willing to wait until the right situation develops.
Caveat: I have no sec 8 tenants.
But it seems to me that if section 8 will really pay 50% over market (and I suggest you look into the utilities carefully) then section 8 tenants will have a great number of choices available to them. How will you attract them to your unit? High end finishes, best school districts or ????
As Someone who's owned and Manages properties in the City and Surrounding areas my advice is to own a property free and clear. No liens or mortgages. You're going to get amazing CAP rates in WNY but you're going to have major headaches. You're best bet is to find an "OFF Market" Deal - don't do the listing. You want to have a MAJOR reserve for the problems that always arrive. They're two TYPE of SECTION 8 tenants in WNY. You have the BELMONT housing and RAC(Rental Assistance Corp). Both are run differently and both have their Strengths and Weaknesses. You're also have to be LEAD certified for most of the painting that needs to be to pass if any of your TENANTS have children under 5. You have to understand that background search process for tenants. Alot of TENANTS are "Professional" and a lot of landlords know what that means. When looking for a potential rental property try to locate the HIGH capacity BED/BATH ratio Houses. 4/1 is an example. Those type of houses generate aprox $750 to $800 price range per month. Locate a house with a SOLID ROOF that doesn't need replacement. The rest is always cheaper, but a RIPOFF is a costly expense. There's a lot to LEARN when it comes to owning a rental property and I can go on and on but these are a few recommendations.
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