Residential Real Estate: What is a Suitable Rental Property (Part 3)
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Residential Real Estate: What is a Suitable Rental Property (Part 3)

Most first-time home occupant/buyers as well as first-time investors want a property with a big lot. It's very appealing. Look for rentals that are close by. Avoid those that are at a distance.
            real estate renting

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Is the lot too large?

Most first-time home occupant/buyers as well as first-time investors want a property with a big lot. It's very appealing. The idea is that there's "room to roam," as real estate agents sometimes describe it in their listings and advertising. You can plant fruit trees, garden, have a patio, a place to park an RV vehicle, even a pool and spa. The big yard harkens back to an earlier agricultural and rural era that many of us fondly think of as "the good old days." Unfortunately, the good old days have no place in a modern real estate rental. A large yard simply means more maintenance. Unless it's all cement (unlikely), there's going to be a lawn to water and mow. There will be shrubs to trim and fertilize, trees to tend, and so on. And the question quickly becomes "Who's going to do the work?" If you have a small lot, often the tenant will be agreeable to doing what minor maintenance there is. But, with a large lot, most tenants, even if they initially agree, soon discover that they'd rather spend their weekends having fun than spending them tending the landlord's yard. All of which means that in addition to paying for a large water bill (which you will want to pay for to ensure the yard is green), you'll also probably have to pay for a gardener. Yes, you might be able to eke out a few more dollars in rent for a house with a gardener, nowhere near enough to justify the cost. In short, look for a rental house that has a small, not a large, lot.

Does it have a pool or spa?

Everyone wants a pool and a spa. No one wants to take care of them. If you buy a rental property that includes a pool and spa, chances are you may be able to get a small amount more in rent than you would for a similar property next door without those amenities. On the other hand, you'll need to hire a pool service to take constant care of your pool and spa. And chances are that will cost far more than your small increase in rent. Then there's the liability. If a tenant gets hurt or dies in your pool or spa, you can be sure you're going to be held financially liable. That means you'll want to carry heavy liability insurance - well into the millions of dollars. And for rentals with pools and spas, the premiums are steep. Of course, many investors figure they'll ask the tenant to take care of the pool/spa. After all, they're the ones enjoying it, aren't they? Yes, but don't count on tenants to maintain those amenities. They require constant testing of the water and adding proper chemicals, usually acid/base and chlorine. These are highly active chemicals and, if handled improperly by a tenant, can produce serious burns and other problems - another liability issue. Finally, there's the risk that the tenant may simply throw up his or her hands and stop tending the pool. If it's in a hot summer, in just a few weeks algae can develop, and depending on the type, quickly ruin an otherwise good pool. Acid washing costs several hundred dollars. If that doesn't work, replastering can cost $5,000 to $10,000. And that doesn't even add in the cost of replacing damaged filters, pumps, and heaters. In short, if you're looking for an investment rental, buy one without a pool and spa. The exception is if you're purchasing a large multifamily property. Tenants of big apartment buildings usually expect a pool/spa. Of course, with a large apartment building, you should be able to afford professional pool service, and you're going to carry heavy liability insurance coverage anyhow.

Is it close to my home?

This actually should be the first question you ask yourself. If you've got 100 units, or even 20 units, you can easily afford to hire a property management firm to look after them. They typically charge 10 to 11 percent of the gross rentals to handle management and then bill out (to you) all costs for repairs and maintenance. On the other hand, if you only have one or two rentals, then you're the maintenance guy or gal. You simply won't be able to afford to hire someone else to do it. There's not going to be enough money. And that means that you'll have to be there when it's time to show the property to prospective tenants. You're on call when there's a leak and the tenant wants it fixed in the middle of the night. If you live in another state or across the country, are you going to hop on a plane each time there's an emergency or even a vacancy? If not, plan on spending lots of bucks hiring someone close by the rental to do it for you. On the other hand, if you're no more than 30 minutes away by car, you can indeed be a "Johnny on the spot." You can run out and show the property when it's for rent. You can spend a Saturday cleaning it up. If a faucet springs a leak, you can be there in short order to replace a 20-cent washer. It all hinges on how close you are to the rental. The closer the better (although being right next door can be a pain if the tenant constantly barrages you with requests). Look for rentals that are close by. Avoid those that are at a distance.

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Comments (1)

Great points listed for consideration. I fully agree with your well detailed focuses here.