Should you buy a fixer and rehab it so that you can rent it out or should you buy a turnkey rental property? Here’s a run-down of the differences between the two. Which one sounds more fun to you?
Rehab a Fixer Rental Property:
1. Market and/or research to find the deal – slog through hundreds of listings, find the comparative sales for each one, drive to and walk through each one to check them out.
2. Buy it using your own money or hard money. If you’re using hard money, then you have to go through the whole process of qualifying for the hard money loan. Feel grateful that they’re lending you money at a 15% interest rate and 5 points.
3. Figure out what needs to be done to the property, being careful not to do too much or not enough.
4. Get all the utilities turned on. In some cities, you have to do this in person.
5. Make appointments with a bunch of tradespeople like painters, carpenters, electricians, plumbers, landscapers, etc. Hope they show up for the appointment. If they do, walk through the house with each one and explain what you want done. Then listen as each one gives you a completely different opinion on what the best thing to do is and why anyone else’s idea is a bad one.
6. Get the quotes, call their references, and then negotiate with each tradesperson to get the best possible price. Hire them and hope it wasn’t their sister you were talking to as a reference.
7. Show up at the property at least twice a day to make sure the work is getting done. When you get there and no one is there, start making phone calls to find out what’s going on. Listen to a story about why they aren’t there. Be firm, but don’t get nasty, and tell them your project is important and needs to get done. Show up the next day and do it all over again.
8. Deal with the unexpected issues that come up along the way. You thought the furnace was working but since the gas wasn’t turned on when you bought it, you couldn’t tell. Go back to #6. Or the bathroom floor you were going to re-tile needs a new subfloor. The price from your carpenter seems kinda high but what are you going to do, he’s already in there doing the other work. Add $5000 to the rehab budget.
9. The property is finally ready to rent. You either hire a leasing agent or market the rental yourself, which means you either pay a month’s rent to find a tenant or take a bunch of calls, spend time saying the same exact thing over and over to each prospective tenant and trotting out to the house each time someone wants to see it. You collect an application fee, run credit/eviction reports, call references (being careful about sisters again) and finally…finally…Yippee!, you now have a tenant.
10. Start collecting rent checks.
Turnkey Rental Property:
1. Buy the property.
2. Start collecting rent checks.
I’ve done both, I pick turnkey! Call me to talk some more about the differences.