So this last month I tried to buy a new rental property: twice! It didn’t quite work out as I planned. I had such a good experience with my property manager that I had decided it would be a good idea to buy another rental.
Using a property manager has made everything easy – I don’t have to find the tenants or deal with any maintenance issues. I can focus my energy on getting and changing the financing as needed and looking for new deals. I think the 8% that I pay my current property manager is worth every penny.
The first property I tried to buy was priced at only about $125,000. The great thing about it was that it had three bedrooms and an updated kitchen. It was a townhouse style condo in a decent neighborhood – but not great.
It was also within sight of a major road that you could hear from the house. The estimated rent on the property was $1,500 a month. There were some strange things about the property with regard to the way the seller was acting and the speed that they seemed to want the deal to close. I understand a seller wanting to close relatively quickly but not immediately. It kind of made the think there was something wrong with the property or the neighbors.
I put in an offer which included 20% down and promise to settle within 30 days. It was a good offer – I didn’t even ask for help with closing costs.
The seller had another offer which wasn’t as good as my offer but was a “cash” offer. They had such an urgency to leave that they decided to take the cash offer rather than my offer which was higher. That didn’t make much sense to me but who knows?
I decided that there was probably something sketchy about that property and that I would probably find a better property elsewhere.
So I went to a totally different neighborhood and price range the next time I looked at properties. This time we went to a nicer neighborhood about 10 minutes closer to the city. The houses here are still townhouses but they range in price from $180,000 to $250,000.
The first two houses we looked at were distressed properties. Having said that, they were still in decent shape. One was beautiful on the main floor and basement but had some obvious water damage on the roof and on the ceilings of the front bedrooms. No thanks!
The other property was nice upstairs. It had a master bedroom with a loft which had a fireplace in it. This house had a fish pond in the back yard that looked like it was in major disrepair. The kitchen also wasn’t too great. Because it was bank owned and had a few serious issues with it I wasn’t too excited about it.
But we decided to use the time we had and look at a house close by listed for $225,000. There was nothing wrong at all with this house. In fact it was a four story garage townhouse with a completely renovated kitchen including granite counter tops. The carpet and paint were new as well. It really was all ready to go. I could have walked away from closing on it and given the keys to a property manager to rent it out.
So I figured I should come in close to full price. I decided to offer $220,000 with 3% closing help. This was a slightly aggressive offer but since I was offering 20% down and have strong finances, I figured my offer would be considered strong.
We quickly heard back that there were two other offers on the property. We kept waiting and waiting to hear back from the seller and I eventually figured they had decided against my offer. So when my agent called at 9pm I was pretty sure the answer was no.
But the seller had actually said that even though my offer wasn’t quite the highest, they wanted to work with me because my financial situation was stronger. I was surprised at that! I would have thought the higher offers would always trump other considerations. Maybe it was clear that those other offers were not that serious.
The downside was that even though they “wanted to work with me” they didn’t want to pay any closing costs. I didn’t think that made a lot of sense – to go from 3% to nothing. But I also didn’t know what the other offers were. In hindsight they were probably trying to get my offer to match an offer they already had. I’m assuming they had a higher offer from a less creditworthy buyer and wanted to have me match that offer so they could work with me.
I didn’t think it was worth budging that much as I’d have to commit much more to the property than I originally intended.
The key to succeeding will be making multiple offers until I find the right property and the right seller. I intend to own this rental for the next 30-40 years and I don’t intend to overpay or rush into doing something that I will regret later.
Do I regret not getting the houses? Sure; a little bit. But I know from past experience that I would regret paying more than I originally intended even more. Being patient and disciplined will eventually bring the best result.
Do you have any interesting experiences with buying rental properties?