Twelve Things To Consider When Purchasing A Rental House

Image of a house that exemplifies a rental houseAlthough the United States is in the midst of an economic downturn and real-estate prices have plummeted in many parts of the country, housing rental is still a good way to make money. Unlike the 1990s when you could purchase nearly any kind of house, fix it up, and rent it, in this decade, landlords must be extremely cautious in order to avoid getting burned. The following twelve suggestions will help you turn a profit in the housing-rental business:

1. Choose a stable neighborhood.

Selecting the right location means finding deals in areas of town that are stable and where the houses are priced appropriately for repair and rental. Solid middle-income neighborhoods where most of the homes are owner-occupied are your best bets.

2. Find property near your home.

The distance you must travel to reach your rental unit is crucial. Avoid purchasing property that you cannot oversee effectively. You need to be able to visit with your renters, inspect the property, make minor repairs, and generally monitor your business.

3. Select small houses.

Remodeling big houses is labor intensive, and the cost of materials for such projects is also burdensome. The better plan is to purchase dwellings that are adequate for families of four. A living room, dinette, kitchen, bathroom, and three bedrooms are sufficient for many families, and such houses are in plentiful supply in nearly every town.

4. Avoid houses with additions.

Add-on bedrooms, recreation rooms, garages, and carports are unsightly and problematic. Often, the roofs are badly joined to the main structure, and leaks are prevalent. Some home additions lack duct work, and electricity is iffy. Sticking with single-family homes with a modicum of amenities and no jury-rigging is a solid approach that you will appreciate later.

5. Avoid common driveways.

Owning property in common with the neighbors is a formula for disaster. Shared driveways are sources of disputes over parking, snow removal, and repairs. If your real-estate agent suggests a house with anything owned or used in common with a neighbor, just say you prefer to look at the next property on the list.

6. Insist on three-bedroom homes.

Steer clear of two-bedroom houses. Often, they are listed at temptingly low prices, but you’ll find them hard to rent and even harder to sell. Houses with more than three bedrooms are too big and fit under point #3 above. Stick with three-bedroom houses, and you’ll be glad you did.

7. Prefer a garage or two.

Houses with garages are easier to rent than ones without, but frankly, I’ve had no problems renting houses with no garages, as long as they had three bedrooms and some attic space. Houses with one or two-car garages, however, are clearly better, and they should be your preference.

8. Inspect the foundation.

Give a wide berth to houses with large cracks in their foundations or that show structural movement. Inspecting the basement walls (inside and out) will tell you a lot about the house, and as you walk around inside the dwelling, be aware of irregularities in the floor. Soft places, sagging, and uneven flooring are indications that you should investigate further.

9. Examine the roof.

Once you identify a small, three-bedroom house for possible purchase, examination of the roof is a snap. If the roof sags, you’ll need to enter the attic to see what fixing it will require. Roofs on single-story houses are often repairable with little effort and money. Being aware of the problem will allow you to take into account the repair costs when you construct your bid for the property.

10. Assume replacement of the furnace.

Although the furnace in an older house may be good for a few more years, the best practice is to assume in your bid that you will have to replace it. The same thing goes for the water heater. If the house has an air conditioner, leave it for the renter to use, but when it stops working, do not replace it. From then on, the renter can purchase and use a window unit.

11. Check out the electricity and plumbing.

The electrical panels in older homes are likely to be outdated, and in most cases, you’ll need to replace them. A 100-amp panel is sufficient for many small homes, but electrical-power requirements are increasing, so staying abreast of state and local building codes is important.

Plumbing materials have changed dramatically over the past decade, and some wonderful new gadgets are available that make plumbers’ lives easier. If you stick with houses with one bathroom and a small kitchen, you’ll find updating the plumbing system to be a cinch.

12. Make a rental-management plan.

If you live too far from the property to inspect and repair it, you may decide that you need to employ a property-management company. Finding a good manager, however, is easier said than done.

Many rental-management agencies do little other than collect their fees, and they are not effective at solving serious problems. If you need professional management, I suggest testing the rental agency’s competence on a single unit and not getting locked into a long-term management contract.

You may find it challenging to locate houses with all of the characteristics mentioned above, but don’t despair. Take your time, and refrain from signing on the dotted line until the right unit becomes available.

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