As many of you may know, I began investing in real estate a couple of years ago as a way to build money for retirement. In my “I Bought a House” series, I detailed how I bought a home, fixed it up, and flipped it for a decent profit. Now I've bought a rental property!
I just recently bought a small house in Hendersonville, Tennessee where I live. But this time, instead of fixing up the house and flipping it, I'll be renting it out.
This is the first post in a series detailing the good, the bad, and the ugly about my buy and hold real estate investment.
Flipping a House Was Stressful
With the last house, there was a lot of work to be done, some of which I hired out, some of which I did myself. This resulted in a fair amount of stress and a lot of busy weekends at the house doing repairs and upgrades.
Although I enjoy doing that kind of work, I decided that I really didn't want to do it again. It's just too much stress in addition to my normal work schedule as a dentist and my family obligations.
2 Heart Attacks Later…
Since I sold that house in October, 2012, I've had two heart attacks (with no detectable damage from each one, thank the Lord!). Because of that, my goal is to reduce my stress. So, rehabbing and flipping another house is off the table for now. It's way too much stress to have a dental practice, a family, and a house renovation all going on at the same time.
On the Hunt for a Rental Property
So after I flipped the first house, my realtor Sherrill and I started the hunt for my next real estate investment.
Over an 8 month period we looked at 30-50 potential rental properties to find just the right one.
When buying a house, it pays to be picky and get exactly what you are looking for, and that takes time. Fortunately, Sherrill was very patient with me. We would meet once every week or two and look at multiple houses each time as they came on the market.
We saw some real dogs that were in need of a major rehab, as well as a few decent homes that were worthy of investment with minimal repairs needed.
Found a Couple, But No Dice
During that search, I made offers on two houses, but got outbid both times.
Both of my offers were lowball offers because each house needed repairs. I also felt they were a little overpriced. I only had a limited amount of money to work with, so I had to make sure there was enough room to make the numbers work.
I didn't get either house, but that's a good thing. The last thing I wanted was a rental property with a poor return on investment. My goal was to get an annual return on investment of at least 10% (or more) after expenses.
Narrowing My Rental Property Focus
As time progressed, I decided to narrow down my search criteria and became more focused as to what I wanted in a rental property.
- I decided I wanted a house close to my own so I could keep a close watch on the condition of the property. Also, it would be in a better part of town than some of the areas where we had been looking.
- I wanted an investment property that would need a minimal amount of repairs in the beginning.
- I also wanted to have a property management company to manage the rental property and minimize any headaches that come with finding renters, collecting rent, and dealing with tenant issues that might arise.
Narrowing my focus made it a little harder to find just the right rental property, but in the end it was the right decision because it allowed me to buy a property that was exactly what I wanted.
My Rental House Saga Continues
In the next several installments, I'll give you some of the details on the property I bought. I'll explain why and how I bought it, the experiences that I've had hiring and dealing with my property manager, and the trials and tribulations with the renter that was occupying the house when I bought it.
Until next time…
Have you ever invested in any rental property?
Tell me about your experience in the comments.
Read the rest of the series on my rental house here
Resources:
How to Start Investing- The Ultimate Beginner's Guide
I Bought a House! (Part 3)- Work to be Done
Can’t wait to learn more and sorry about those 2 heart attacks but seems like you are in good health and spirit now so that a great thing. I am just starting to get into real estate investing myself. Learning a lot but at some point you got to dive in. I think the first few homes will be flips and then I want to go down the rental income route.
You’re right, you can only learn about it so much before you have to just dive in head first. Find yourself a good realtor who is willing to work with a first time investor and help you along the way. A good pro is worth their weight in gold!
Jason, This is great. I look forward to hearing about your investment property. I really liked learning about your last project and I’m sure this one will be great too. Nice job! Talk to you soon,
Thanks Kraig! I know you’ve been interested in doing the same thing for awhile now. My story with this investment is already starting to get interesting but needs a little more time to develop before I write another post about it. Stay tuned!
I’ve always been intrigued by the idea of flipping and also renting out houses. This have great insight to it all! Praise God you weren’t effected by the heart issues. Yes, less stress is always best. Take care of your health (which I know you do) 🙂 God bless! -Cindy Mae group 35
Stay tuned for more, I’ll be adding to the series in a couple of weeks as things unfold with my renter and the issues she’s dealing with. Thanks Cindy!
I haven’t invested in any rental properties either (yet), but this a great primer. I could imagine the flips being stressful. There’s always a lot financial unknowns, especially if it’s a big reno. Having a property management company look after your rental, also takes away some of the stress of trying to fill that space. Pardon my lack of knowledge on the subject, but do these PM companies ‘guarantee’ finding renters? Carrying two mortgages and having to pay them as well, when the space isn’t yet filled, is not what you’d want either. Looking forward to hearing the rest of your rental house saga!
I don’t know that the property manager expressly guarantees being able to get a renter. That can depend on market conditions as much as anything. Here in my area of Nashville, the rental market is strong. When you make this kind of investment, you have to make sure you have a hefty reserve fund for repairs and mortgage payments (if you have a mortgage on the house). Sometimes a house can sit empty for a couple of months, and you have to be willing and able to cover the costs for as long as possible. This is why I recommend investing with cash. The risks are lower because you don’t have to support a mortgage payment. It’s much less worry and hassle on your part because you don’t have to compromise on finding a renter just so you can cover the payment.
I have never invested in house for rentals. But it is interesting to know, How to shop and what to shop after reading your post. Great insights, like it. Glad you had overcome 2 heart attacks and taking care of yourself, health is after all wealth, Take care
Thanks, keep up with the series as it unfolds and I’ll give even more details about my investment. It gets interesting when I start dealing with the renter and property manager. Fortunately, the heart attacks were a small bump in the road and I’m back in excellent shape. Thanks for the comment Rita!
We have several rentals and really enjoy it. Shopping for the right house is real tough. I’ve been outbid so many times but I refuse to overpay. The big money in rental real estate is made at the buy when you can pick up a sweet deal. I think you made the right decision to go with a management company. That will eat in on your returns a bit but will definitely reduce your stress levels which sounds like it’s very important to you.
I agree, making a smart buy is very important. You have to know what you’re looking for and get a good deal. I also believe it’s best to pay cash for the house to reduce risk. There is no way I would want to manage that myself. I have the business ability to do an effective job, but I would be too permissive when it comes to people with a hard luck story, plus it would take more of my time than I would want to spend collecting rent and such. In the next couple of installments of my story, you’ll get to see what I’ve had to deal with right off the bat with my renter, and why choosing a property manager was a very good move for me.