I'm still very green at this and haven't done a deal yet so bear with me and my limited info at the moment, but I wanted to get some initial thoughts on these numbers. My realtor told me this one a day after we first talked, so I'm a little overwhelmed and wondering what questions I should be asking.
Numbers are $165k 2br2ba in a pretty good location of Central Texas, currently rents for $1700 (1% rule) "it needs some work or can keep the tenant. Homes that size typically sell between $275-300k in that area." This rent is $400 higher than the median for the area.
At first I like the idea of keeping the tenant - I'm not sure I'm 100% prepared yet to do a reno, but I think I could make it happen, probably just scared. I live about 20 minutes away, I know a really good and cheap carpenter who also knows a bunch of contractors.
So obviously wondering about the price tag for the reno work. What questions would you guys have for the realtor?
Residential Real Estate Broker · College Station, TX · Member since 2013 · 1k+ posts · 969 votes
8y
@KYLE W. Welcome to BP. Everyone is a "newbie" at some point, so just dive in and you'll find plenty of folks ready to give back.
I'm personally a little adverse to 2/2 SFR (you didn't mention type of property) unless there is a potential to make it a 3/2.
If you have a viable tenant and all your numbers make sense, I would advise NOT doing a Rehab until this Tenant leaves. Don't immediately jump into pushing out the tenant for a Rehab, while you have someone in the place that seems perfectly happy with the place in it's current condition.
1. I would want to know what the difference is between the $275K - $300K properties and this one.
2. Is there more repairs/updating required than you think?
I agree with @Jim Cummings. If the property currently meets your Cash Flow criteria and has a good tenant it might be best to keep the status quo. If you put it under contract have it inspected to determine the current condition and life expectancy of all major components and appliances. That will let you know what really needs fixing up front and what can be deferred.
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
8y
I would keep the tenant if you buy this property. If the rent is already $400 over the median value and the property would require a lot of work to rent to a new tenant, you are not going to be able to get back your renovation costs in small rent increases for years. It does not seem that you can raise the rent by much if you renovate because you are already high for your area.
I would find out with a good inspection how much work will need to be done so that you can be prepared to do the work when the current tenant decides to leave.
Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
I agree, at first glance, it looks like a good deal! At 1%, you should be cashflowing decently on day one.
You'll want to see what needs to be done when the tenant does move out. Is it just a cleanup, and refresh to get a bit more rent? Or does it need a full rehab to be re-rentable?
@Jim Cummings Thank you for the kind welcome, Sir. And your comments make sense. I will see what I can find out Monday. We drove by the place yesterday, looks like central air might be an issue. Also looks like current renters are buried under a mountain of stuff, including an old classic car, which tells me they're not wanting to leave anytime soon.