Trying to figure out which house to make my first offer on

4 Replies

This is my first potential investment and I'm trying to figure out which house to make an offer on. Perhaps someone here has some feedback for me or questions to consider.

1st house

asking $129k. Hoping I could get it for $115-$120 cash

rental income $1200

taxes $1100/yr

likely renters would be single military guys

3 bdrm house. It's a great neighborhood but the block is not as nice as others around it.

2nd house

asking $139k. Hoping I could get it for $125-130k cash

rental income $1300

taxes $1200/year

It's a nice looking but small  3bdrm house in a great neighborhood on a quiet street.

Renters would likely be a family with kids

I'm not sure which one to focus on. Both houses are in good shape. What other angles should I be looking at? 

Thanks!

Hi Heather,

Interesting question. In each case, your monthly rental income is approximately 1% of your expected purchase price, and in each case, the annual taxes are slightly less than 1% of your expected purchase price. So I'd say both houses tie on those metrics.

Both neighborhoods are nice, so that would appear to be another tie, but it looks like you may have a slight preference towards the neighborhood the second house is in- so let's say the second house gets a point for that.

But here's the main distinction, and why I'd probably go for the second house, if all else is equal(and let's be honest with ourselves, when is all else ever equal?) 

If you're correct in that the second house is likely to attract families, and the first house will be more likely to attract single military guys, which type of tenant would offer less turnover? I think families tend to keep one residence for quite awhile longer than single military guys, who may ship off at a moment's notice. High turnover can be a killer to your ROI- imagine having to repaint the house once every year(with frequent move-outs,) versus once every four to six years? And every time there's a turnover, you'll have to re-rent it(either by showing it yourself or paying someone else to do the showings.) Plus, frequent turnover leads to higher vacancy rates.

That's my two cents, good luck and hope you close successfully!

Michael

Thank you @Michael Gansberg ! I should have added that the 2nd house would rent to a military family most likely but even if one spouse is military, it's true that a family is likely to stay longer as long as they are stationed at this base. Good point and yes it makes me lean towards #2.

@Heather Ippolito   From just your description, of the two, I would probably prefer the latter since it is in a nicer neighborhood on a quiet street.

One thing also to consider is the age of the houses and their systems e.g. roof, HVAC, etc. 

I'm sure you will get lots of good advice from others here on this topic. I wish you much success in your investments!      

@Heather Ippolito  I don't think there is enough information here to give you a good recommendation either way.  If you were just going with what was written then House #2 would fit my buy and hold strategy better just due to the nicer neighborhood and family renters.  However, a lot more information is needed.  If you haven't built yourself a property analysis tool using excel or some other system, use the BP calculator to see how each deal stacks up.  

Some of the things that aren't in your post are insurance, is one house cheaper than the other to insure? What about the big ticket items and age of mechanicals? Roof, HVAC, plumbing, electrical, or just age of the homes in general. What about condition, which one will need less work? How long do the homes in those two areas take to get rented out? Is one of the areas full of rentals and the other harder to find them? There are a lot of things that go into the analysis when you really sit down and look at the numbers. I start with a rule of thumb but then when I narrow down to specific properties I get much more detailed to see which one would provide me with the better ROI and see if it is even a deal at all. Once you put in all the numbers, the offer price is the result. Not the other way around...

Good luck and let us know what you decide.

Medium blackjack real estate squareWilliam Allen, Blackjack Real Estate, LLC | [email protected] | 850‑483‑1761 | http://www.blackjackre.com/blog | FL Agent # SL3330247 | Podcast Guest on Show #163