Home Buying in Akron>Question Details

Robin, Other/Just Looking in Akron, OH

I'm interested in buying my first rental property...

Asked by Robin, Akron, OH Mon Feb 4, 2008

... which I will have to finance. Is it better to buy a dirt cheap property in a so-so neighborhood and fix it up or a more moderately priced property in a nicer neighborhood?

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I have 6 rental properties. I used to have 8. I also used to have money saved for retirement. Not anymore. Think about today's level of morality and how likely someone else is to take care of something they don't own. I have had properties trashed more times than I care to count. I have one property that I bought for $16,000.00 and now owe $108,000.00 on it due to how many times I've had to rebuild it. I cashed in my retirement because going bankrupt would have meant that I would have ended up homeless. The courts don't side with the landlords or do much to help us recuperate what they do award us. The tenants just move on and leave you with the water bill. Scratch off lottery tickets would probably be a better investment ... and you'll probably live a lot longer due to less stress if you don't invest in rentals. There are renters out there that are geniuses at playing the system. Unless you have a drill sergeant mentality and the time to want your properties constantly ... or are extremely lucky, I would caution you against investing in rental properties!

David Hayes
2 votes Thank Flag Link Tue Feb 12, 2008
We have 9 single family rental homes and have rented for more than 20 years. Whatever you buy, do it in a good neighborhood where you will attract good tenants. Advise you look for a home that needs TLC. Buying in a "so-so" neighborhood will not only give you so-so tenants but your home will not appreciate as much so your overall return will be less no matter if the rent is the same.
1 vote Thank Flag Link Sat Mar 1, 2008
The trend with many investors from California has been to buy in Tennessee, new construction single family homes or duplexes. Price range should afford you a rent rate that will give you a positive cash flow for the area. The reason behind buying new construction is very low maintenace costs for the first year because of the first year builder's warranty required by state law.
1 vote Thank Flag Link Tue Feb 12, 2008
I understand your gut feelings. I had a man ask if there was any problem with him firing off his guns on the property and suddenly his credit didn't look very good to me either. But I did have a good feeling when I rented to my church's organist's son. He only did $10,000.00 damage to my property before moving out. The court didn't give me a dime because the damage was mainly to landscaping -- plants that he removed. The judge said that he "didn't care about lawns and wouldn't allow them to be discussed in his courtroom."

In Canton, Ohio where the majority of my rentals are now located, one in 3 houses are vacant or for sle. Many houses are offered for zero down payment. My one house has a replacement value of $160,000.00 but the market value is currently $21,000.00 and I have spent about $110,000.00 to buy, restore then repair it time and again. Ninety percent of the people living in Canton rent the places they live. They are the majority and the courts sympathize with them. A few years ago, a school levy passed and in return, the government rebuilt every public school in the city. They are beautiful! I hoped that it would make a difference. Now 3 of the brand new schools are being closed. I guess what they always said about realty is true: The three most important things are location, location and location.

I am looking to buy a place closer to work and found a nice place, but the second time I went to look at it, I would have needed a boat to get within a mile of it!

Maybe our friend in Akron who is looking into buying rental property should buy one in Chicago!

Take Care,

David hayes
1 vote Thank Flag Link Tue Feb 12, 2008
PS. I recently showed up at an absolute auction in Akron near the Highland Square area and no one else showed up to bid. I could have owned 3 duplexes that were on the same street --two of them next to each other and one a few houses down. I could have named my price. I walked away. I knew that houses weren't selling And people don't want to buy a house as a home if it has been a rental. I would have to either rent them or heat them myself. I didn't want to get caught in a loop that I couldn't get out of short of bankruptcy. For me, it was the right decision. What shocked me was that no one renting the units bought them either. They already lived there and a hundred bucks could have meant an end to paying rent. If you really want to get into the rental business, just watch the auctions and wait for the opportunity. You can get into the business for a lot less than it will cost me to get out of it.
1 vote Thank Flag Link Tue Feb 12, 2008
If you do decide to go ahead with this, here is something to consider. The property's purpose is income. When we got into it, my wife thought about the mortgage the way she thought about one for our own home -- pay it off as quickly as possible. But with a rental, the important thing is the difference between your monthly expenses and the gross income. The smallest mortgage payment means the biggest income. What does it matter if the property never gets paid off as long as it generates the monthly income you need or want. Also, the income during the good months (while rented and no major expenses like furnaces, roofs, water heaters, etc ....) and the lower monthly expense while it's not rented keep you from diverting money from other sources of income to support the rental.

Maybe you can get $1200.00 a month rental income in some areas of Akron, but many people could buy in this area for $600.00 a month if they chose to do so ... and when faced with paying $1200.00 to rent or $600.00 to buy .... I'm just saying that the higher rents make it harder to find people that will rent for you. Especially when you are competing with the people that are willing to rent for much less and paid off their mortgages years ago.

Going with a Section 8 renter guarantees you a portion of the rent each month even if the renter stops paying, but they don't do much to protect you from a bad renter. The security deposit dioes not go far when someone simply leaving a faucett on when they leave the property can generate a $600.00 water bill which the landlord is responsible for. How much do you value your time? When a tenant plasters stickers all over the doors and walls for their child's enjoyment, it is a time consuming prospect to remove the all and remove the sticky residue so you can prep and re-paint.

Also, if you use your gut instinct about who to rent to, better have some other reason to not rent to someone. "Without reason" translates as discrimination. If you do go through Akron Metropolitan Housing Authority to get renters, specify that your house is for a specified number of occupants and for a specific amount. Families that have 6 kids tend to wear the property down more than a family of 5 or less.

Take Care,

David Hayes
1 vote Thank Flag Link Tue Feb 12, 2008
Both are good, if selected and analyzed correctly. The Fix-up likely is greater risk-reward, the moderate one is less risk-reward, generally. You should learn about CAP rates, Gross Rent Multipliers, and NOI. Some examples should be chosen, spreadsheets done to compare. Your tolerance for risk should be assessed. Some examples should be studied. Use an Investment Realtor to help you search. This is usually free for you.
1 vote Thank Flag Link Tue Feb 5, 2008
Well congratulations on taking a step to building wealth.

Rental property is about the ability to collect rent more than anything else.

IF you are talking about a single family home, then you want to get the not so nice house in a decent area and clean it up.

If you are talking about multiple units then it is purely an income minus expenses divided by sales price. I added a link that explains income property. I have an updated spreadsheet that has not been uploaded. I will do that in a couple of days.
1 vote Thank Flag Link Mon Feb 4, 2008
It really depends on your budget but with rental property it's vacancy and maintenance that will get you. The most important criteria is to purchase something within your budget that is in very good condition and that is easy to rent to someone credit worthy and who will take care of the property.

I can't speak for Akron but can for Hilton Head Island, SC - have you thought about resort rental property? That way you can rent it out and still vacation in it two weeks out of the year.

If you want to stay local, your best bet is to hire a buyers agent who knows rental property in your area - if you want to explore resort rental property, call me and I will try to help as best I can.
Web Reference: http://www.toonpawley.com
1 vote Thank Flag Link Mon Feb 4, 2008
This depends on what you want from the property. If you are looking in the Akron Ohio area, there are two factors. First, what type of cash flow do you need and second, how much hassles do you want?

In other areas of the country you may want to buy low and sell high later. In depressed areas, such as Ohio East Ohio, this is silly. It is going to sell what it sells for later, if this is higher great, but you should not plan on making money on the sell later. After all, this is what got this country in trouble to begin with.

So the primary issue is the amount of cash flow versus the amount of headache you want with the property. My suggestion is to make money on the buy and get the highest cash flow with the least amount of headache. Whether single family or multifamily is the better option depends on your situation.

I own several rentals in the area. You want to work with an agent who actually owns rental property as we have the actual experience regarding who to call and what to do, once you own rentals. Best Wishes,

Deb Wheeler
0 votes Thank Flag Link Tue Aug 4, 2009
It is your choice but obviously the lower the price the better the return on your investment so I would buy something under 30000.Also you can contact me anytime if you would like me to email you those listings in whatever area you are looking in.Thanks
http://www.youtube.com/mrseeley1978
0 votes Thank Flag Link Wed Jun 3, 2009
Man, that sounds like a real bad area and maybe Akron is not that much better. I don't know those markets.
0 votes Thank Flag Link Tue Feb 12, 2008
David,
It Appears that you own rentals in an area that does not make since to have rentals when you can buy for the same amount. My rentals are in high rental area like Chicago and CA where people can't afford the down payment on a home and are stuck renting.

As for the gut feeling, I hope you didn't think that I turn down possible renters based on that. I always fall back on the old "Your credit worthiness does not meet my criteria". The only legal way I know to turn down a rental application is by discriminating on the financial's provided by the renter.
What I meant was don't just follow the credit check to make your decision...use common sense (Gut feeling).

Again, sorry to hear about your rental situation. I guess I am lucky that the high rents and high deposits have protected my investments.
0 votes Thank Flag Link Tue Feb 12, 2008
Wow, David, sorry to hear about your land lording experience.

I too, have several rentals and have had success on all of them. Oh, I have had some crazy renters that have left the place a mess but that's what the security deposit is all about.

Most importantly Robin, is to run a complete credit and background check on any potential renter. Credit history will tell you a lot about an individual. Reports don't tell you 100% about all potential renters so that's where a gut check comes in. I have had renters with great credit but I had a bad gut feeling about them and sure as heck they were always late payers. Not to say I'm an expert on picking out good renters from bad renters but body language usually give away nervous potential renters.

Finding a good renter can prove challenging at times. I have found that the higher rental markets tend to keep the common problem renters away since they can't afford the higher rents. This is generally rental properties that are $1200 (Give or take) and above.

As for finding a rental property, well that's where you will probably will get a lot of different opinions here on Trulia. But here is what has been successful for me. Buy a rental that you would move into if you had to rent. The cheap places are not always a great deal if you can't get the rental amount that you need to be profitable.

Lastly, educate your renters what is acceptable and what is not i.e. No, you will not come over at 2 am to unplug a toilet. That can wait until morning. If a water pipe burst then yes, CALL.

Good luck on your first investment rental. It can be rewarding!
0 votes Thank Flag Link Tue Feb 12, 2008
Hi Robin - good for you!! I would suggest a neighborhood close to your home, and make sure any fixing up you do includes the plumbing - reasonable tenants will let a lot of things go until morning, but not many will live with a backed up toilet. Those are the worst calls to deal with and a long drive with a plunger at 2 am is not a happy drive. You are likely to be more successful finding tenants in the nicer neighborhood - if both are equidistant. Best wishes on your search! Stacey
0 votes Thank Flag Link Mon Feb 4, 2008
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