As I mentioned in the first post, I’ve just finished up acquiring my first rental property. I’ve been intrigued by the real estate business for a number of years, but finally got up the nerves to just go out and buy one. I developed a game plan:

1. Buy houses next to a university. This will insure a continuous tenant pool.
2. Look for three bedroom, one bath (or more) houses that can be occupied by three unrelated people.
3. Buy the house significantly below what it is worth. (I have yet to quantify this statement)
4. Buy houses which most of the rehab/upgrade work can be done myself.
5. Always look for 100% financing. Use as little of my own money as possible.
6. If I must use my own money for the rehab, use the cash flow to get my money back in two years or less.
7. Screen the heck out of potential tenants.

With these “rules” in mind, I started driving around the local university. I found a few houses that were in decent shape, but needed things like paint, carpet, appliances. All fairly easy fixes in my book, and I could handle everything but the carpet.

The first house I went through was rejected almost immediately. The one bathroom was only publicly accessible from two of the three bedrooms. The person in the third bedroom, or any guest, would have to walk through one bedroom to get to the bathroom. Not an ideal living situation for three unrelated people. In addition, I found mold growing in one kitchen cabinet, obviously from water running down the wall from a leak in the roof. Price tag: $75,000.

While driving through the neighborhood waiting on my realtor to take me through a house, another agent pulled up along side of me, and put a “For Sale” sign in the yard of a property I was parked next to. I asked her to take me through it. Nice little place, with a publicly accessible bathroom, three good sized bed rooms, newer kitchen remodel, no appliances, needs paint and carpet. Definitely a candidate. Price tag: $60,000 and a bank owns it.

After looking at that house, I met my realtor at another she had picked out. Same type of house, not a lot of work needed. Obviously someone was evicted, because they left a good portion of their “stuff” behind. Only drawback: there was an obvious leak in the roof over the kitchen that had yet to be fixed. Price tag: $75,000 and owned by a bank.

All three houses were located less than 100 yards from the campus. A big plus all around. The choice was pretty easy. House number two was the best value, with the least amount of contractor work required.

Let’s make an offer. I quickly learned that when a bank lists a property for sale, the least they want to do is get their money back. So your offer better be at least what it’s listed for. It’s called a bidding process, and much like eBay, the listed price is the “Reserve Price”. So I offered $60,000 the day after it was put on the market and they accepted right away.

Great! Now I have to buy a house!

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