We Saved Thousands!

        We were encouraged by some of our friends who own rental properties to get a home inspection before buying our house. So we did just that. Home inspections are a few hundred dollars depending on where you’re located and the age and size of the home. Because we wanted to stay within a certain budget, we researched different home inspectors online, and called a few to ask about pricing. We finally got in touch with a local inspector from the National Bureau of Home Inspectors who we liked. He was willing to work with us on the price and agreed to do the entire inspection for only $300.

Here are a couple reasons we’re glad we had an inspection:

1.       We saved thousands! Our inspector found two major issues with the house: the furnace didn’t work, and the roof was at the end of its life. So we were able to take these things back to the seller and negotiate more money out of the deal.

2.       Peace of Mind! Having an inspection allowed us to rest easy at night knowing what was and what wasn’t wrong with the property.

          One tip when looking for an inspector: Always negotiate the inspection price, especially in our current economy. Most inspectors are willing to negotiate, because they want your business. But make sure the inspector you go with is experienced and has a construction background. It never hurts to ask them about their past experience over the phone.

         Using the right inspector will help you find all the issues with the house, and if there are any issues you will have some bargaining power when it comes to negotiating with the seller.

Repairing Holes in Drywall

         Since becoming a landlord we have decided to manage the property ourselves, and with that comes the responsibility to make any needed repairs. The best time that we have found to make those repairs is during the transition period between old tenants leaving and new tenants arriving. So during this last transition we wanted to repair a few holes in the walls before painting.
         Because I'm attempting to start a YouTube Channel I would like to share this video with everyone on how to repair holes in drywall. I hope you find it useful if you ever have to fix any holes in your own walls:

Anything to Save a Buck!

So I recently called Provo City Power to talk to them about an issue with one of our electrical bills at the house. After resolving the issue the representative asked me if I had recycling cans located at our rental. I told her that I had previously opted out of having Provo’s recycling cans because they were $4.00/month, and we have three units, so that would be $12.00/month for recycling cans.

An additional incentive Provo offers to for those who have recycling cans is a $2.00/month discount on their garbage bill. A net savings of $2.00/month per recycling can. So if we were to get three cans it would be a savings of $6.00/month, but we would have to pay $12.00/month to get that savings. Either way we looked at it, we decided to opt out.

After explaining why we decided not to have recycling cans she told me that they could give us just one can for the whole house at $4.00/month, and still give us the $2.00 discount for each of the three garbage cans we pay for each month. That’s a discount of $6.00/month with the added expense of only $4.00/month.

No Brainer.

We decided to get the one recycling can delivered to our house, and we are basically getting paid $2.00/month to have it. Score!

I know it’s only two measly bucks, but it’s a savings nonetheless. Win, win, win!

Finding the Right Realtor

         When we first started looking for our house, we would just call up the #’s on for sale signs and get in touch with whatever realtor was listing the property. We visited homes with 2 or 3 different realtors before settling to work with just one of them.

Here are some of the reasons we chose the realtor that we did:

1. He was very knowledgeable of the area we were looking
2. He knew the names of all the apartment complexes and where they were located in that area
3. He knew average rents that tenants pay for certain types of properties
4. He was aware of new developments in the area that might affect tenant demand and rents
5. He was aware of other properties that recently sold in the area
6. He helped us realize all of the different expenses that we might incur from buying a property
7. He worked with us as first time home buyers to educate us on what we didn’t know
8. He was willing to work around our schedule when visiting homes
9. He was patient with our many questions
10. He was likeable and friendly

Other things we liked as we worked with him:

1. He used the electronic signing company DocuSign.com for all interactions with the seller. This made it super easy to sign documents from wherever, without having to print, sign, scan, and send paper documents.
2. He helped us get an extra $500 from the seller for a one year home warranty, and he helped us get the seller to pay all closing costs.

One thing we did not like:

1. We wished he would have been more aggressive with negotiating the price of the home. We were newbies in the real estate negotiating department, and the only home buying experience we had was from watching HGTV’s House Hunters. We felt like we should have come in a little lower with the initial offer, but he felt like we shouldn’t go so low. We naively listened to him, and the seller stuck to their guns with the asking price. Dumb! It was still an alright deal, but looking back we feel like we could have negotiated that better. In all reality, realtors have a conflict of interest when working with buyers. Realtors get paid more if the house sells for more, so we quickly learned that we will never let a realtor influence how we negotiate the price of a home. We will stick to our guns next time!

Pre-Approved vs. Pre-Qualified

As a student going to BYU, I wanted to get into real estate, but my income while attending school was far from being sufficient to buy a home the conventional way by applying for a loan. So I had to wait until I graduated in 2011 and got a full-time job to be able to get serious about buying my first rental.

...Now, I realize there are other creative methods out there to buy a home, and I am constantly trying to learn more about these methods, but the one I understood the most when I graduated was to apply for a loan through a mortgage company. And that’s the road we took.

So in the process of applying for a loan and finding the right house to buy, we learned that we had to know the difference between Pre-Approval and Pre-Qualification.

Pre-Qualification: A verbal statement from your loan officer telling you how big of a loan you can qualify for based on how much debt you have and how much income you make. The loan officer will ask you for ALL of your monthly expenses, as well as how much money you bring in each month. The lower your debt/income ratio, the more you will “verbally” be approved for.

Pre-Approval: A physical statement from your loan officer saying how big of a loan you actually qualify for based on your actual debt and actual income determined from a credit check. The loan officer will ask you for your social security # and run a credit check. This way he will determine exactly how much of a house you can buy. The lower your debt/income ratio, the more you will “actually” be approved for.

This information was helpful for us to know when started searching for homes. I would say it's okay to just go with the Pre-Qualification in the beginning, but as you start to get more serious about finding the right home for you then you have to go through the Pre-Approval process. I was a little hesitant at first to go through the credit check, because this was my first time going through the whole home buying process, but to tell you the truth...it was pretty painless. It was also helpful for our realtor to know that we could "actually" be approved for a loan if we ended up finding a house we liked. The last thing a realtor wants to do is waste his or her time showing homes we can't buy.

One Square Mile, Then Zero in!

                Whenever people ask us about our triplex they always want to know how we found it. We actually just happen to come across this house while driving around one day. The house was in a row of three houses all for sale by the same real estate company. By this point we were working with a real estate agent so we gave him a call and had him look up one of the homes on the MLS that caught our eye.

                I wish I could say that this was all of the work that we did to find the house, because it really was just as simple as driving around and noticing a for sale sign stuck in the grass. But, you never know which method of finding is going to produce a diamond in the ruff, so it is important to use as many methods as possible. We used the following methods to find our house, and to speak truthfully my wife did pretty much all of the finding.

               

1.       We first narrowed our search to all of the real estate within one square mile, and tried to become the property experts in that area. This is an ongoing process because the market is always changing and new houses are being listed all the time.

2.       We drove around several neighborhoods looking for houses for sale

3.       My wife searched on Craigslist and other local online classifieds like ksl.com every day for about 6 months. Eventually we started seeing the same houses posted over and over again, but we looked through several hundreds of house listings.

4.       We visited properties with our realtor that he found for us and ones that we found online. But out of the hundreds my wife found online, we only visited about a dozen of them.

5.       One of my favorite things that we did was just walk around neighborhoods in the evenings. We noticed a lot more walking around like this than we did when driving. And it’s fun to just get out and take a stroll while admiring houses.

         I have no idea if these are the best ways to hunt for that perfect house, but these are the things that we did, and it seemed to work alright. If anyone knows of better ways (and I’m sure there are) to find real estate I would love to hear those ideas. We are always looking.

We Have to Pay For That!?

          During the process of buying this house we discovered many extra costs that we didn’t even think about. We obviously had to factor in the mortgage, taxes, and insurance, but many other charges make up the total monthly cost of owning a rental:

1.       Mortgage Insurance! So apparently if you make a down payment less than 20% of the loan then you have to pay this pesky mortgage insurance. I know...Lame! If you want to get into real estate and you don’t have this much to put down then expect to pay .05% - 1.0% of the entire loan amount on an annual basis. You must pay this premium every month until the Loan to Value ratio is below 20%. In many case this may take around 9 years to achieve if you just make normal monthly payments.

2.       Mortgage Insurance Premium!  Yep, that’s right, more insurance! If you take the less than 20% down payment road, then the day you close on the loan you have to pay a premium. This premium is usually around 1.5% of the loan value. Outrageous! But if the income from the rental outweighs the extra costs that mortgage insurance brings, then by all means...Buy!

3.       Repairs. The older and more rundown your house is the higher this expense will be each month. So buyers beware of money pits. We’ve lucked out on this one so far.

4.       Garbage, Sewer, Water, etc. These expenses depend on whether you make your tenants pay for them or not. As an extra benefit of living in our house, we don’t make the tenants pay for these items. They only have to cover electric and gas.

5.       HOA Fees. (If applicable) Usually if you own a condo or townhome you will have HOA fees that cover many things like exterior maintenance, grounds keeping, garbage, internet, etc. Every complex is different, so you will have to verify what is covered under HOA.

6.       Management Company Fees. In our case we manage our own property, but eventually we may pay a management company when we move out of state. This cost varies by area and to what extent you want the company to control your property.

          Other costs may exist depending on where you live, but these are the costs we have seen in the Provo area and with our own house. We searched for months before finding a property where the total costs were far enough below the potential rents.

          If you’ve seen additional costs with owning a rental I would love to hear about them. 

Researching Rents

Along with location, researching rents is also important when looking for the right house. Once we knew we wanted to find a house close to campus (within a five block radius), we started looking at rent prices. Because we both had lived in Provo for a few years already going to school, we had a pretty good understanding of what rents were for different apartments, but we still followed a couple tips for researching rents:

1.       When visiting homes for sale be sure to ask the current tenants what they pay for rent.

2.       Look for apartment listings in the local online classifieds. You will want to compare what similar apartments in the same area are charging for rent.

3.       And if you are really serious, you can try listing the house for rent long before you buy just to get a feel for the demand at certain rent price points.

Once you have a feel for the rents certain types of apartments can fetch, you will be armed with good information for determining if a house is a good buy. After our research in Provo, we found that about $600/month was a good asking price for a one bedroom apartment within five blocks of campus. Now, many factors go into that price, but if the apartment is nice, clean, has good amenities (like a washer/dryer included), and is close to campus $600/month is a competitive asking price. The more you know about rents in your particular area of interest the better prepared you’ll be as a landlord.

Location, Location, Location!

            Location is very important when it comes to investment properties. So my wife and I wanted to find a house as close to Brigham Young University as possible. The University is an anchor for stability when it comes to keeping any rental property full with tenants. As long as BYU is around, and I imagine it will be around for a long time, we will have renters willing to pay to live in our house. This same principal holds true for any location around the world. As long as your rental is near a main hub that consistently attracts people to stay for a prolonged period of time, then you will always find potential renters. That being said, universities make a great hub to attract prospective tenants if you are looking for a good location to buy a house. The demand is constant for housing in these areas.

             What other hubs have you seen that make great locations for rental properties?

We bought a rental!

Now what? ...Well...make it make money of course!


This site will be all about the ups and downs of owning a rental property, and the things we've learned along the way. It's an exciting ride! So strap in and enjoy it with us!

Our first rental property in Provo, Utah

Rentals - Rental Property - Investment Property - Passive Income - Rental Income - Landlords - Real Estate - Property Management - Property Owner - Home Owner - Investor - Utah Real Estate - Tenants - Home Repairs - Fixing Homes - Home Maintenance - How To - Tenant Occupancy