You’ve done exhaustive research on real estate, self-reflected on what you want and need in a ‘house-hackable’ property, dug through listings, visited properties, run the numbers. You find a rental property that you’re ready to buy….so, you walk up to the register and walk out with your brand new rental property, right? I wish! Now the fun begins, and it usually begins with ‘an offer.’
Challenges to Buying a Rental Property
If you’re buying a duplex, triplex, small multi-family, these are unique properties that come to market less often, but can also be harder to sell. (Not everyone has figured out the beauty of house hacking, yet!) There are often not a lot of ‘comparables’ to help gauge the market. If the place isn’t occupied, you have to make guesses at rental income. But you know what the sellers are asking, and you know ultimately what you want to pay. There can be some wiggle room in there, and you want to get the best deal you can, but there is also an opportunity cost if you miss out on closing a deal.
Make an Offer!
You’ve made an offer to buying a rental property, what else can you do to ensure your offer is accepted?
The property I ultimately ended up buying had two offers made, on the same day, for the same amount. The sellers ‘chose’ to work with us over the other party. Why?
- Quick and efficient with our assessment of the property (the other party had bothered agents and residents several times to see the property.)
- Our Realtor had a great reputation as someone who got deals done.
- Generally came off as serious and professional ‘investors.’ – Little did they know what a newb I was!
- We were prepared with financing and could offer a relatively quick close date.
Time to Celebrate!
Appreciate that you’ve taken an important step towards independence!
NOW SOBER UP…the real work begins.
Steps to Get to Closing
Home inspections, repairs, back and forth over tons of little things will occur. Now, the next month or so of your life is going to be consumed with this real estate deal. You need to make sure you’re going to have the bandwidth to give it your full attention.
The Home Inspection
Having a good home inspector is crucial. Get recommendations from friends, or if you’ve done your job with getting the right Realtor, they will have a list of people they trust. However, the problem is, who is available exactly when you need them. You have only a small window of time for the inspection. Note -home inspectors will find things that are a problem….its inevitable, its what they do. And most likely, you’re not going to get the seller to do address all of them. Deal with it. Make sure you’re catching the things that will ruin your bottom line, after that don’t be nit-picky. The process will go much better for you.
Repairs
Be sure you get your pick of person and oversee any repairs. Sellers are motivated to get repairs done cheap, not necessarily done well. Even better, just have them take off the selling price and do repairs yourself.
Appraisal/Financing
You should have financing mostly lined up, have pre-approval, maybe an interest rate locked in. But then there’s the appraisal. Again, with these small multi-family properties being more unique, with less comparable recently sold properties, the appraisals can be a bit more nail-biting. They don’t particularly care about cap rate….just because you can rent it for well above cost and expenses, they only want to know the intrinsic value of the property and structure. Somehow, it seems that appraisers always seem to come in somewhere right around the negotiated contract price, but it can be a stressful time while you await the results..
Tenants
If you’re moving into a place that already has tenants, you need to start establishing a professional landlord-tenant relationship. As part of the assessment process, you will have seen any lease agreements that are in place, and know rental amounts. But you did not pick these tenants, they don’t know how you operate as a landlord. They’ve probably just gone through a pretty terrible experience of living in a place that was for sale, and may be disgruntled. They may have lots of anxiety about what is going to happen next. Its in everybody’s best interest to get all those things out in the open. Its time to start setting yourself up as the professional property owner/landlord that you are about to become!
Summary & Helpful Links
Assuming all goes well, you don’t discover deal-breaking problems, neither party has a hissy fits and backs out, then Closing Day will come! Your last chance to take a day off. Seriously….I got my first call about a leaky toilet from a tenant on property ownership day 2!