Introduction To Residential Investment Properties Part 1

Hi There,

Today I will be discussing how to get into residential investment properties.  If you do not currently own an investment property this will give you some great tips on how to avoid a mistake.  Remember, not all properties are created equally!  Age, purchase price, location, condition, and rent price should be considered before purchasing an investment property.

It's imperative that you work with a REALTOR who is an experienced property manager or has connections with one or more experienced property managers.  Since renting properties and selling properties are not always synonymous you will want the expertise of both.

The numbers I will be working with are based on cash on cash return and assuming you do not have a mortgage on your residential investment property.  There are too many variables to consider when looking a mortgaged investment properties.  I realize not everybody has the cash to purchase a residential investment property so you will need to use your numbers and the numbers I provide in this blog to decide if the risk is worth the investment.

In my local area, Colorado Springs, our average sales price is around 180,000.  This is a large investment and you will need to make serious considerations before taking the plunge.  You will want to make sure you purchase a home that will give you the best return for your money.  Please understand your rental property will take as much or more maintenance and upkeep than your personal residence.  This will need to be adjusted for when purchasing your property.  A good rule of thumb is plan to spend 2% of the homes value each year in upkeep and upgrades.  There will be years where you have no repairs, and years where the major systems will fail at approximately the same time.  2% is an average and based on my experience is a good indicator.

Many people make the mistake of believing people will maintain your rental property the same you way you maintain your personal residence.  This is a fallacy!  Although properly vetted, quality tenants do not typically abuse the property, they are not responsible for most major upkeep this is your responsibility.  Homes built before 1978 could potentially be more costly to maintain and update due to the possibility of lead paint.  In Colorado, contractors have to be certified to deal with lead based paint properties and the cost is substantially higher.  A great way to know what you are getting into is to hire a company prior to purchasing the home to thoroughly test for lead paint.  If no lead paint is found you do not have to worry about the lead based paint laws.  In our area, lead paint was used in mostly high end homes and on the exterior.  Lead paint is scarce in homes built after 1960 but all pre 1978 properties should be tested so you know for sure!

That's all for today.  This is going to be lengthy so I will break it into multiple parts!

Sincerely,

Daniel Muldoon