What to look for when walking through potential rental properties?

Question

Newbie checking out 7 potential rental properties this week.  I'm wondering what I should be focusing on when checking them out.  Carpet and paint are easy to identify and estimate and I've checked the county permit site to estimate roof and A/C age when available.  What else do you focus on?

One of the properties has a garage converted to a BR, which was permitted and another is on a pond.  Should either of these things concern me from even a liability standpoint?

Just trying not to miss to much my first time out.  Nervously excited about beginning this chapter in my life.

Simon Campbell · Answer

Try not to focus on finishes (carpet, paint, trim) as these can be easily fixed.  Look beyond ugly and focus on the quality of construction, functionality and life expectancy.

First, make sure you do not have any structural problems.  Examine the foundation for cracks. Bring a marble to see if the floors are level. (This can be easily overlooked but can either cost you now or prevent buyers in the future.)

Second, look at the layout. Try to find 3 BR/2 BA for the best rental and resale values. Now look at the kitchen and baths for function and style. Newly updated KT and BA command a higher rent and have greater appeal.

Third, check out the life expectancy of the roof, flooring, furnace, water heater etc.  If these items are relatively new then there will be less immediate expenses.

But, when it really comes down to investment properties, it is not so much the condition but rather the cash flow. If you can get a good cash flow property, even if it is run down but has a good long-term tenant, then that is your cash cow.

Dawn Anastasi · Answer

I just wrote a long blog post on this the other day:
http://www.biggerpockets.com/blogs/3789/blog_posts/27329-post-for-4-12

Simon Campbell · Answer

To inspect a roof, bring a set of binoculars and look for missing shingles or worn areas.

If most homes are built on a slab the the marble idea is unnecessary.

If you are worried about condition or missing something, then I would make a satisfactory home inspection a contingency of your purchase agreement. Then pay to have the property inspected by a licensed home inspector. That way, if anything is missed, it is his fault (and his liability) rather than yours. If you follow him around and ask lots of questions, you will get some valuable training too.

Raymond B. · Answer

Stefan Kooistra,
Have you spent anytime in the Landlord & Rental Property Questions forum?

If not, here is the link: https://www.biggerpockets.com/forums/52-rental-property-questions-landlording-issues

I suggest that you read the first four "stickies."

Raymond

Stefan K. · Answer

Dawn A. thanks for the link.  I checked out your blog post before heading out this afternoon.  So true about squirrels - we've had a couple blow up transformers at work.

Thanks everyone else for the advice.

Here's how it went:

House 1 - Homepath - Everything looked good until I hit the enclosed sunroom, which had sever cracking throughout the one side with signs of water damage.  Looked like the sunroom was basically breaking away from the house.  There was also the tell tale stair step cracks on the outside of the same room.  Everything else was cosmetic.

House 2 - Private sale - Had some nice touches to it - things I would be looking for in a home, but not necessary for a low cost rental house.  There were also a lot of enclosed rooms not showing up in the sq ftg.  Was asking more than I was willing to pay and made it clear he's not negotiating and feels investors are comparing apples and oranges.

House 3 - REO - Loved it.  Tomorrow would have been day 16, but they accepted an offer from an owner occupant.

House 4 - Short sale - This is the one still on my list (spoiler alert for House 5).  I'll transfer this over to the deal analysis section tomorrow.

House 5 - Short sale - 2BR/1BA on a lake.  Walked in and it had a strong mildew smell.  Both BRs were small, but the one was rediculously small.

That was day one of rental property house hunting.

Andrea M. · Answer

The basic things of paint, carpet are basic cosmetics. on the inside: I look at flooring stability, electrical panel, plumbing ( look underneath the sinks) for visible pipes or lack thereof,  HVAC (heating/cooling units) roof, siding, check for signs of visible leaks in the ceilings, possible evidence of mold/mildew under windows .  I also check to see if there is a meter still installed on the outside of the property, any visible signs of leaks by the windows/doors and the same if the garage is on the property. Kitchen functionality and size. 
Take a lot of your own notes and maybe some pictures for reference.

Stefan K. · Answer

Simon Campbell thanks for the tips!  I like the marble idea, hope my daughter has one I can grab on my way out this afternoon.

I know the A/C units have dates on them (if you can read them), do you have any tips on evaluating a roof?  Half of the houses had permits for reroofing, so I have a gauge on when it was last done.  But not sure how to address the ones without permits.  On short sales, I can ask, but on REOs I assume the answer is they don't know.

I feel good about my cash flow projections.  Tried to keep the projected rent on the conservative side to give me a little padding.  I'm worried about wasting my time because of inspection issues or the house won't finance because of something I should have seen up front but I missed.

I don't know what I don't know, I worry about what I should have known and didn't see.

Kelly N. · Answer

Hi Stefan,

On the upgrades- In that type of price range, I wouldn't pay more for any upgrades that might have been done unless you think you can get more rent because of them.

On the flooring- landlords hate carpet.  So, in your area, all things being equal, you'd be better off to buy a house that is all tile than one that has carpet in the bedrooms.  Their isn't as much wear and tear in the bedrooms as in a living room, but carpet still has to be replaced eventually, and it is a lot easier to clean up tile between tenants.

Kelly

Stefan K. · Answer

Kelly N. Thanks!  I'll get a pic up soon.

These are SFR, all but one is empty - a short sale with current residents.  These are block homes outside of Tampa in the $35K - $60K range.  Most won't have any fancy updates/upgrades done due to the price range.

The biggest deal breaker I can see in this area is sinkholes - so I know to look for cracking and other settlement issues and spots where it looks like these types of things have been given some lipstick to cover them up.

Windows is a good note.  I'm bringing my wife with me too.  I was excited that she wanted to be part of the process, plus I know she's good at some of the things you mentioned like layout, closets, parking, etc.

On flooring - a lot of these homes have ceramic tile in the common areas and carpet in the bedrooms.  Is there a preference for keeping down longer term costs?  Is tile throughout better or more expensive to fix?

So many thoughts/questions and I know there will be more once I walk through.

Thanks for your help!

Kelly N. · Answer

Hi Stefan,

Welcome to BP!  Post a picture when you get a chance, we're a friendly community and like to see who we're talking to :)

What sort of properties are you looking at?  I am assuming single family...

Here's what I'd look for:

Number of bedrooms, bathrooms
Overall layout- does it make sense or is it kind of choppy?
Size of rooms/ closet space
What has been updated- granite counter tops, custom work?  
Flooring types- wood, tile, laminate, carpet
Is their ample parking?  Garage? carport?
Check on the big ticket things- you mentioned the roof and AC already, also take a look at the windows, siding, see if there is any obvious foundation trouble.

I'd take notes during or right after each showing, and keep your notes.  For our first purchase we looked at about 10 houses, ended up purchasing our 3rd favorite, which at the time I wasn't even considering.

If they are currently rented out, check to see how the current tenants are keeping the place.

Hope that helps,
Kelly

What to look for when walking through potential rental properties?

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