Tim Montague, Green building advisor. Sales & marketing for hire (Montague Brands - sales, marketing, sustainability)

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Rainmaker
556,286
Greg Cremia
Shore Realty of the Outer Banks - Nags Head, NC

You do not want to live next door to your rental. Too easy for them to complain and you will go crazy watching them not do what you think they should.

Jul 26, 2016 08:50 PM
Rainmaker
3,988,007
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

We own several single family residences and they work well for us. My thoughts are that real estate of any type is a good investment but you won't have terrific cash flow on a single home. The upside is you can make sure it is kept in good condition and don't have far to collect rent. The downside is you will know everything your tenant does and you might not like it.

If the price is low enough I would do it. Our homes stay rented at high prices because we keep them nice and they attract good tenants. 

There is no magic formula to calculate all this. Just put it on paper and see what it looks like. We like a 25% or more monthly return but you have to calculate a buffer for repairs and the unexpected. Also you have to factor in the upfront money of getting into the property.

Jul 26, 2016 11:39 PM
Rainmaker
2,352,632
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

I would discourage you from buying your home next door - you really don't want to have your tenants living next door and I don't think it is a good idea to have two homes on the same street - you want to diversify your investments a little more than that. 

Jul 26, 2016 09:38 PM
Rainmaker
5,772,353
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Tim,

I would talk to my accountant and then make a decision.  That is where I would start the journey.  A

Jul 26, 2016 01:15 PM
Rainmaker
1,499,368
Ryan Huggins - Thousand Oaks, CA
https://HugginsHomes.com - Thousand Oaks, CA
Residential Real Estate and Investment Properties

Tim,

I own several rental single family homes and have done very well with them.  I know people who have 40-50+ homes and so much income coming in that they had to start buying shopping centers!

What I would like to know is when you say "opportunity to invest" are you one of several investors or are you the sole investor?  If you are a co-investor, how much money will you make each month and how easy are your fellow investors to get along with?  Do they share your same view on preventative maintenance, remodels to get the most "bang for the buck" and who to rent to?  All key things if you are not the only decision maker.

 

Things I consider when buying a new investment home:

  • How much is the mortgage?
  • How much can I get for rent in it's current condition?
  • Will the rent cover not just the mortgage, but taxes and insurance AND still net me enough $$ to make it worth the risk?
  • Age of the house and what repairs might be needed?
  • Will I need to update the house to get more rent?  How much will that cost and will it be worth it?
  • Can I cover the mortgage if the house goes vacant or tenant refuses to pay and for how long?
  • Can I realistically save up the profit for potential problems like a new roof, water leak, etc.

 

I am a huge fan of SFRs for real estate investments.  My family has been doing these for several decades and have never had a problem, but we are VERY careful about who we rent to.

 

I am starting to branch out into the multi-family residences now, in the 2-4 family range (in CA once you get into the 5+ unit properties a different set of rules apply that are more restrictive to the owner).  The reason for this is getting "more bang for my buck."  Each property may get less rent than a typical SFR, but as a whole should produce more than a SFR.

 

I second what Kenneth J. Jones says about risks of SFRs but I do fundamentally disagree with him on his point of SFRs not being considered "investment property" (of course, I am a residential real estate agent, which probably goes to prove his point about residential agents considering SFRs to be investment properties).  Of course, each of my rentals also have betweek $200k and $300k in equity.

 

In short, if you are "one of several" investors in this home, your risk and profit is spread amongst others, but you could have serious conflicts in philosophy with your co-investors.  If you are the sole investor, you have all the risk and all the profit, just make sure there is enough profit in there!  Also keep in mind that today's rents may not be sustainable in 5, 10 or 20 years, so make sure you aren't going to lose your shirt if the rental market drops $100.

Jul 27, 2016 03:55 AM
Ambassador
3,340,605
Kathleen Daniels, Probate & Trust Specialist
KD Realty - 408.972.1822 - San Jose, CA
Probate Real Estate Services

You have an offer of help from someone who knows ... Kenneth J. Jones - 

I would not want the home next to my residence to be an income property. Multi units is the way to go for investment. 

Jul 27, 2016 12:54 AM
Rainmaker
1,712,551
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

Lot of factors. Number of competing rental units, historic rental rates, then what do you have to put into it, finally cap rate, cash on cash, and internal rate of return analysis.

Jul 27, 2016 12:46 AM
Ambassador
2,168,918
Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Prop. Mgr, Wenatchee, WA

Great advice from Kenneth J. Jones and others.  I am a big fan of multi-family units for investment purposes.  Much easier to manage one 4--plex than 4 single families spread all over town.  

Jul 27, 2016 12:46 AM
Rainmaker
1,466,207
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Tim Montague A lot of good answers and advice here.

Jul 26, 2016 11:37 PM
Rainmaker
2,776,741
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Rent is the return on your investment. Expenses are the exposure. Jobs with decent income are important. Supply & demand for that zip code speaks too. Parking money in Real Estate works but only if you know what you are doing. Check with the city to see if any new area development is scheduled. Lastly, speak with property management pros and one more source. The local newspaper rep for placing classified ads. They can tell you how long something stays advertised, what moves and pricing feels

Jul 26, 2016 11:31 PM
Rainmaker
1,840,906
Lyn Sims
Schaumburg, IL
Real Estate Broker Retired

Too close for me & you'd run into a problem with tenants expecting an immediate fix because you are that close. 

There has to be an ROI worksheet out there for you.

Jul 26, 2016 11:21 PM
Rainmaker
987,652
Jennifer Mackay
Counts Real Estate Group, Inc. - Panama City, FL
Your Bay County Florida Realtor 850.774.6582

I don't do sgl family homes for my investment due to the high risk and low return. My preference is multi units - so here's some things I consider:

ROI, Leverage (loan from bank or cash), long term or short consideration, Cash flow (biggest one for me here), rental market value vs current lease (is it under rented or at rente market value)

That should start you off

Jul 26, 2016 11:09 PM
Rainmaker
4,858,349
Richard Weeks
Dallas, TX
REALTOR®, Broker

Apparently you like the area since you live next door.  Calculate the cap rate and determine is the ROI works for you.  Since you live next door if you do buy the property hire a property manager.

Jul 26, 2016 10:17 PM
Rainmaker
909,328
Jeff Pearl
RE/MAX Distinctive / LIC in VA - Lovettsville, VA
Full Service Full Time Realtor

Not many people want to live next door to their landlord. Investors usually only pay 65-70% of fair market value for investment properties. I would assume the current owners want to maximize their net on the sale.

Jul 26, 2016 10:04 PM
Rainmaker
3,415,644
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

Living next door to yuor rent opens you up to frequent visits from your tenant for any and everything. Buy further away... On any investment it should be under market value and the rent more than cover the expenses by 25%

Jul 26, 2016 09:50 PM
Rainmaker
1,723,426
Sandy Padula & Norm Padula, JD, GRI
HomeSmart Realty West & Florida Realty Investments - , CA
Presence, Persistence & Perseverance

Too much to review and consider here in Q & A. Ron and Alexandra Seigel gave you excellent advice.

Jul 26, 2016 09:17 PM
Rainmaker
7,799,079
Roy Kelley
Retired - Gaithersburg, MD

Get advice from an experienced invesor in your community. A good time for a lunch meeting as your treat.

Jul 26, 2016 09:02 PM
Rainmaker
634,482
Kathleen Luiten
Resort and Second-Home Specialist - Princeville, HI
Kauai Luxury Ocean Home Sales

It should rent for at least 120% of what you project will be your expenses. Include taxes, a repair budget, and assume it will not be rented 12 month every year. Count at least one month with zero income yearly just for safety as yu figure your expenses.

Jul 26, 2016 06:04 PM
Rainmaker
1,771,867
Noah Seidenberg
Coldwell Banker - Evanston, IL
Chicagoland and Suburbs (800) 858-7917

Is there a positive cash flow? Is it easy to rent and maintain?

Jul 26, 2016 02:15 PM
Rainer
27,112
Tim Montague
Montague Brands - sales, marketing, sustainability - Urbana, IL
Green building advisor. Sales & marketing for hire

 Thanks for the overwhelming response everyone. It's great that a pretty clean signal emerged here. We'll see if the multi-family market is appealing...much appreciate all the thoughtful responses. Thank you Rainers! - Tim 

Jul 27, 2016 12:47 PM
Rainmaker
2,224,473
Debbie Laity
Cedaredge Land Company - Cedaredge, CO
Your Real Estate Resource for Delta County, CO

I would think twice about living next door to your rental property. First of all you are right there when the refrigerator stops working at midnight, or the water heater goes out on Christmas morning. I have also heard tenants say they don't want to live next to their landlord. I wouldn't either if I was a tenant. 

Jul 27, 2016 11:28 AM
Ambassador
3,727,581
Patricia Kennedy
RLAH@Properties - Washington, DC
Home in the Capital

There is an old saying that the best investment property is one you can see from looking out the window of your house!

Jul 27, 2016 11:16 AM
Rainmaker
3,986,196
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

Basically, figurre out your expenses annd then how much profit a  month you want and don't forget about repairs...that would give you some idea if it iw worth your trouble

Jul 27, 2016 08:04 AM
Rainmaker
4,800,082
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Look at the bottom line.  What will it cost to maintain as opposed to your estimated returns.

Jul 27, 2016 05:30 AM
Rainmaker
898,368
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

Tim - I think Kenneth J. Jones gave you some good advice. But, if you want to run some numbers, it would be a good exercise. First, you need to be convinced you can rent.  Then, for how much and do the cash flow projection based on expected income and expenses. Also, the numbers have to make sense given what you're paying for it based on the expected rent. It's easy, but you can ask your accountant for help. I used to do this for a developer with whom I worked.  After that - good luck with reliable tenants! 

Jul 27, 2016 03:27 AM
Rainmaker
4,557,986
Michael Jacobs
Pasadena, CA
Pasadena And Southern California 818.516.4393

I might ask do you want to be a landlord of the house next door?   

Jul 27, 2016 01:14 AM
Rainmaker
5,583,178
Barbara Todaro
RE/MAX Executive Realty - Happily Retired - Franklin, MA
Previously Affiliated with The Todaro Team

I hope the numbers work for you....I have a single family investment property  3 homes away from mine....I use it for family ONLY..... have had it for many years.....

Jul 26, 2016 10:51 PM
Rainmaker
3,071,489
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

Kenneth J. Jones nailed this one!

Jul 26, 2016 10:36 PM
Rainmaker
969,548
Frank Rubi
Frank Rubi Real Estate, LLC - Metairie, LA
FrankRubiRealEstate.com

So many factor to consider. My first question - What do similar properties in the area rent for. Second question Do you have experience in dealing with rentals. This is just a start. 

Jul 26, 2016 09:24 PM
Rainmaker
4,434,127
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Talk to your accountan.

Jul 26, 2016 09:08 PM
Ambassador
6,362,404
Bob Crane
Woodland Management Service / Woodland Real Estate, KW Diversified - Stevens Point, WI
Forestland Experts! 715-204-9671

There are a lot of things to consider, with the cap rate being one that you should know for sure.

Check out this link for some more tips

http://www.investopedia.com/financial-edge/0511/8-must-have-numbers-for-evaluating-a-real-estate-investment.aspx

Jul 26, 2016 05:33 PM