Is your investment property the “passive” investment that you thought it would be? Or are you the one taking the calls at 3AM or dealing with a property management company that’s causing more trouble than it’s worth? We buy a lot of properties from “tired landlords” that are sick of dealing with bad tenants and houses that are breaking down.
If you’re investing in an income property for the first time, it can be a bit tricky. The first thing you need to do before you dive into buying a house as an investment is to analyze the property thoroughly to ensure that you’re actually going to make money on it. Here are some steps to take to make sure that happens
Typically, when you buy a house as an investment property, it has maintenance issues that haven’t been taken care of yet. All these tasks must be done to keep the property in good repair. You have to do them when you buy the house and then keep them done as long as you own it. Here are just a few of the entries on a house maintenance checklist from Heights Library:
Oil the garage door
Drain sediment from your hot water heater
Patch cracks in concrete of your drive, patio, and paths Clean carpets
As you can see, you have a lot of work to do, especially if the home hasn’t been kept up when you get it. If that’s the case, your investment house will be worth less when you get it and continue to lose value until you complete the repairs and delayed maintenance. You’ll also have more trouble finding renters if the property is in bad repair.
When you bought your investment property, did you find out if it needed a roof? You could lose a lot of income if you have to replace it. Suppose a new roof costs you $5,000. That’s a pretty normal price to put a roof on an average house. Now, consider how many months you’ll have to put the payments you get from your tenants into covering that cost. Say the house rents for $600. Your tenants would have to pay you for 9 months just to pay for the roof!
In the meantime, you still have to pay taxes and interest. You’ll have to invest more money into maintaining the property during that time, because all the payments will be sucked up paying for the roof. By the time the roof is paid for, you’ll be out a hefty sum that will take even longer to recover from the rent payments. People buying the houses to rent out have to anticipate these costs on the front end, otherwise it’s an investment destined for negative returns. Oh, and don’t forget, if it looks like it needs a new roof, but you’re hoping to squeeze a few more years out of it, just be warned that all the new paint, flooring, and dry wall could be damaged during one bad storm. Wouldn’t it stink to have that new rehab go to waste?
Objective of this section, anticipate capital expenditures in the amount of 30-50% each year and put this money into a different account so aren’t tempted to spend it!
Property management is a necessary evil if you are seeking passive income. However, is it really passive if the Property Management company still has to call to get approval to send out a plumber? When you rent out a house, having a good property manager is a part of the property expense that ensures your house is well-maintained and the renters are happy enough to stay.
Just know that you will need to account for a property management company and that it will eat up some of the profits you hope to make. They may want a portion of the first month’s rent on top of their 10% to 15% of the monthly rent. You could choose to skip a property manager, but that would put a lot of work and worry on your shoulders. Even if you plan to self-manage, it is better to anticipate the added cost prior to buying.
When you get to the bottom line, what will the profit really be? Considering all the expenses associated with repairing, maintaining and managing the property, it might not be the money- maker you’d hoped it would be.
The good news is that you can get out of the deal quickly by selling the investment property quickly and for a fair price. A house buying company can make it happen and get you out from under a property deal that’s going nowhere.
We are a professional house buying company buying houses in Indianapolis. If you’re ready to sell your investment property, we can complete the transaction in just a few days. Within 24 hours of contact, we give you a fast, no-obligation quote. We guarantee you’ll love our offer or you can turn us down. Although we are real estate professionals, you never have to pay a real estate fee when you sell to us.
We’d love to talk to you about your house and learn how we can help you in your situation. Even if you don’t sell to us, we are still happy to help!