As I suspected the old cast iron pipe had rotted out underneath the basement floor of my rental unit. My buddy Paul (who has his own plumbing company) stopped by to take a look, and after a few swings of the sledge hammer, found the bottom of an elbow joint completely corroded out to the point where the high flow rate from the spin cycle of the washing machine was forcing water out from under the foundation and back through the stone wall of the basement.

I told him to go ahead and fix the problem, as it wasn’t something I wanted to tackle myself. Twenty bucks in plumbing fittings, and a half days worth of swinging a sledge hammer ($500 in labor and mileage from a neighboring city) and the problem was fixed. Paul finished the job by re-pouring the concrete floor he took out.

Problem solved.

At this point in time I didn’t have time to do the job myself. On top of it all, I could have ripped out all the concrete and then found I was in over my head, and the tenants would have been without a kitchen sink and a washer and dryer until someone else came in and fixed the problem.

Part of being a handyman/landlord/real estate investor is knowing what you can do yourself, and knowing what your time is worth.

This is one of those cases where I’d gladly pay for a pro to come in and do the job.

Rental Property landlord, plumbing, Real Estate, rental

After my visit to the termite palace yesterday, the real estate agent told me she’d keep an eye open for more property in the area. The question then became: What is your criteria?

My first rental property ended up setting the bar very high. I bought it from a bank, put less than $10,000 into it for rehab and renovation, and rent it to students. Overall, my net cash flow is $345 per month. So I guess those traits could start the list.

1. The property must be within 3 blocks North of the local University.

Talk about narrowing the field! This is probably the most restrictive of my criteria, but I have good reason for putting it in place. The area to the South of campus is fairly worn down, crime is higher, and it’s generally just a less attractive area. By in large, this means that I couldn’t rent the same house to the South of campus that I could to the North of campus. In short, the margin is smaller.

Additionally, the campus is bordered by two main streets, one on either side. To the West of the main street are upscale neighborhoods that sell for more than $300,000. Not at all conducive to renting out, especially to students.

To the East of the opposite main street is what we call “the hood”. You can find houses for $20,000 but you better bring protection if you care to visit.

So that limits my search to about 9 square blocks.

2. Must be able to purchase for less than $60,000.

The general consensus is that a property should rent for 1% of the sale price. But that if the sales price matches the appraised price.

When you look at renting to students, look at what rent should be per room, not for the overall house. In my area, it’s not unreasonable at all for a single student to pay $300 per month for one third of a 3 bedroom house. So if you have a two bedroom house, the rent should be about $600 per month. Any premium to that should be justified by a service or resource in return.

3. The high dollar issues must have already been fixed.

This is one I’m willing to budge (a little) on.

I’m looking for a place that has already had the plumbing overhauled, electrical box and wiring replaced, and fairly new air conditioner and furnace installed.

I’m willing to foot the bill for a new air conditioner and furnace. That work would have to be hired out, but you’re not looking at a lot of labor expense, and the job can be done in a day, maybe two.

Plumbing and electrical is a major task, one I’m not up for doing myself, and not willing to pay to contract out.

However, if the price is right, I could be swayed on this rule.

4. The place must be structurally sound.

Along the lines of rule number 3, the property must not require major structural work. This translates into big money. Simple stuff like replacing deck structure I can handle, but I’m not willing to replace floor joists and certainly not willing to replace walls because termites ate them out!

5. The property must be a 3 bedroom, and 1 bath, minimum.

The fewer bedrooms, the harder it is to rent. The difference in list price between a two bedroom and a three bedroom house can not be recouped by using my $300 per room rule of thumb. Consequently, you’ll end up asking for a premium in rent for less square footage and end up having to concede more services (lawn service, laundry appliances, etc.).

6. Must be able to rent to students.

The university in the area is fairly affluent itself, and it caters to those who come from affluent families. Accordingly, paying for rent is not a large part of the overall college budget. Therefore, the students that attend this college are a bit less stingy when it comes to negotiating rent. And given the fact that there are few nice (and relatively safe) places outside of campus to live, the premium is somewhat justified.

So what do you think? Are my criteria too strict? Am I missing something?

Investing, Real Estate, Rental Property college students, investment, Real Estate, Rental Property

This afternoon I went over an looked at the property I’ve been watching for a few months. From the outside looking in, it appeared to be a rehab project that simply ran out of money. It’s typically opportunities like this that widen the margin on a deal, as most of the expensive stuff has already been taken care of by someone else.

Walking in through the front door, it was evident that the place had been lived in since the renovations took place. The carpet was dirty and stained, and there were remnants of belongings (crayons, broken pencils, etc) left in the kitchen drawers.

The walls in the front living room were cracked (as they typically are for the area) and are in need of a patch job and paint, but all in all it didn’t look too bad.

The basement reveals all.

Then I took a trip down stairs. The basement will always give you an idea of what’s really behind the walls because it provides the most access to the structure.

The plumbing had been redone fairly recently, as the new-style PEX (essentially plastic) plumbing that all the new houses are being built with today was running among the floor joists on the ceiling. The electrical had evidently been redone recently as well, as the 100 amp breaker box still shined and the wiring still looked new.

The furnace and hot water heater were new within the last couple years, so there wasn’t much risk in all the basic services and utilities.

A quick look between the joists and everything went south. About half of the joists were brand new, indicating to me that someone really did an overhaul on the major structure. It’s not easy to just replace a bunch of floor joists, especially on the lower level, as these joists typically bear the load for the rest of the structure. Replacing them is like swapping out the bottom level of blocks in Jenga. It’s a very delicate procedure that carries significant risk. The question then becomes: why were they replaced in the first place?

At first, it appeared that the sub floor was rotten. Perhaps water damage rotted the floor, and while the floor was being replaced, it was a good time to replace some joists that were over 100 years old. My curiosity kicked in, and it was while digging around in the rotten floor that I noticed that this was no water damage, this was termite damage!

Termites had turned the old sub floor to a fine dirty powder in most places, and a soft wooden sponge almost everywhere else. Yikes. I was starting to become deterred, but not completely put off. I could pull the carpet up (it needed to be replaced anyway) and replace the rest of the sub floor, no problem.

One thing about termites, though, is that if they had enough time to chew out an entire floor, chances are they didn’t just quit eating after the first coarse was through.

Back on the first level, I noticed there was a small hole in the wall in a lower bedroom. I stuck my finger in the hole to see if the lathe was still in good shape. I ended up poking at a dry spongy material inside the wall. What once was the lathe behind the plaster was now leftovers from the termite feeding that I was now standing on.

The entire structure of this house had been dissolved from the inside out by termites!

If it weren’t for the termites!

The house had so much potential. All the expensive components had been fixed, remodeled or replaced. All it needed was carpet, a few patches in the walls and a fresh coat of interior paint… and oh yeah, it needed to be gutted and rebuilt.

There is now way my conscience would let me rent this place out to college students knowing there were some major structural problems with the floors and walls, and completely re-doing the structure would not leave me with enough margin to rent.

Oh well, there are other fish in the ocean, and I can afford to be picky.

Real Estate, Rehab Projects, Rental Property investment property, Real Estate, rehab, rental, termites