As I accumulated more and more money it became necessary to diversify my investments and one of those roads led to me real estate rental properties. My first rental property was actually a bit of an accident. I had been offered a job in a different state and they offered a relocation package that included home buying benefits and I wanted to maximize the benefits so I took advantage of it.
The Accidental Landlord
My plan was to move to the new state, buy a house or condo and eventually rent out our old house. Our old house had been paid off so it had no mortgage and all the rental income would go toward funding our new home.
Unfortunately, I didn’t like the job very much and within a year I left the company and state but was left with a condo I had purchased that I thought would be our home for a few years. I hired a property manager to rent out and take care of everything and so far over the past few years my tenants have been paying all the expenses & mortgage and I get a couple of hundred bucks in profit each month. Within 10 years, the mortgage should be paid off and all the rental income minus some expenses will be pure profit and hopefully it will appreciate in value over those ten years.
The Standard Home Buying Due Diligence
When I bought my first condo I performed the standard due diligence that you would expect. I looked for something in the right price range, the right square footage, the right location which was a few minutes from the office I would be working, and then the standard inspections, comps, and esoteric things like style, color, shape, etc.
But one thing I did not do was perform due diligence as a real estate investor that had planned on renting out the property. By dumb luck, my rental property ended up being priced right to rent out since I am generating a profit from it every month I’ve owned it. I also locked in a low mortgage rate at 3 percent so its definitely a keeper.
The Rental Property Due Diligence
Rather than spend a lengthy amount of time to tell you how I do due diligence now, it’s best to find resources and tools on the internet that will do the bulk of the work for you. What I learned to do is no different than many of the resources on the internet. The YouTube channel BiggerPockets recently had a wonderful video and live demo of their tool on assessing a potential rental property. I highly recommend you take a look.
I am in the process now of buying another rental property and will hopefully write about that in a future post.