Home Buying in 95376>Question Details

lmc, Home Buyer in Tracy, CA

What type of home is best for a rental property?

Asked by lmc, Tracy, CA Wed Sep 10, 2008

My husband and I are wanting to buy our 1st rental property. Is it smarter to buy a lower priced home in an older neighborhood (homes built in the 70's) or spend more money and get a newer home?

Help the community by answering this question:


First consider what will happen if your tenant stops paying rent or gives a notice to vacate.
Every month the house is vacant is an EXPENSE to your budget. So how to you make money off of a rental when you need to make MONTHLY timely mortgage payments and property tax payments/

You do what the big banks do. YOU PAY CASH> Also when you pay cash you pay much less for real estate so you can afford to LOWER the minimum rent so you can be competitive with your local competition....all other similar properties that are for rent in your market.

On the surface it looks like an investment/property manager would make more profit on a higher monthly rent. But if you look at the possibilities as a prospective tenant you are looking for maximum rental value with the lowest amount of rent costs.

Never having to worry about QUICKLY finding good and honest tenants saves TONS of aggravation.
How do you find good tenants? You do NOT find them by over charging on monthly rent . It can help, all things being equal, that tenant LOYALTY should also be a goal. A LOYAL tenant will pay on time and not cause trouble. How do I find a loyal tenant? Run the same tenant credit checks, interviews etc but remember THEY are thing about how much the rent will be as number one or number two priority. Once you make a proper tenant selection, THEY WILL BE FORCED TO BE LOYAL to you because of you comparatively LOW RENT. Once a tenant gets comfortable they will start spending money which will pout them in debt. Your biggest threat from good on time loyal tenants is when they start looking for a house to buy. If they have low rent and spend money on "toys:" you will have a continuing loyal tenant who is stuck paying you as their number one debt.
1 vote Thank Flag Link Sun Feb 2, 2014
Hi Ligia,

The object to purchasing a rental property is to make money. You should look at the expenses involved, i.e. mortgage, taxes/insurance - and insurance will be higher because it will be non-owner occupied, maintenance costs through out the year i.e. dishwasher breaks down, garbabe disposal stops working etc. - you should have funds set aside to handle the unexpected - property management fees if you are not going to personally manage the property etc.

All things being equal, the newer home might have less maintenance issues.

Location will always have an impact on your rent value as you can own the largest home in the world and if it's in a bad neighborhood, you couldn't rent it at a profit. It's best if you can rent at a profit and enjoy the benefit of someone paying off your investment for you, the tax write-offs afforded you and hopefully property appreciation.
1 vote Thank Flag Link Wed Sep 10, 2008
We found that rentals were best for us when they were based on a seasonal rental approach as opposed to an annual rental. Especially when located in a recognzed vacation area like, Florida Cape Cod, The Hamptons, Mertle Beach etc. These locations have huge visitor appeal and lend themselves to considerably higher rental rates. They also allow owners to get in periodically to check on condition, make repairs, and use the property for their personal needs.

With this said, the location is likely a bigger concern than the type of property.

0 votes Thank Flag Link Mon Dec 16, 2013
Hi there- Is there a way to pull out equity from a Rental home in which the Title is under the LLC's name?
0 votes Thank Flag Link Mon Dec 16, 2013
@Imc...I have a customer that looks for old rentals at the foreclosure auctions, He bought two of this types of homes that were converted to apartment units, One is in Vallejo, Ca which he bought for 90k and rents each unit for like $900 and one in Antioch, but of course he is very handy and does most of the work himself but he seems to be doing good, and you can get loans for these types of investments.
0 votes Thank Flag Link Sun Nov 10, 2013
Dear Rental Home Buyer,
You have a valid question that need to be examined very closely as the object of a rental property is to generate a positive cash flow for the short term and possibly in the long term as well. When considering to buy a rental property- in addition to the age of the property, it might be wise to look at the following factors: The size of the property..smaller and medium sized family homes up to 1900 sq ft, might be a better choice as the large one's cost more money to buy and are difficult to rent at a higher amount. It is best to get a large pool of renters for your property. Seek the advice of a property manager to find out the average rent price in the area that you plan to buy. Location should also be a top consideration,... as you are generating income, you also do not want to lose value down the road. You should want a property in a relatively desirable location for a variety of reasons. The other important factor should be the condition of the home...you should look for a property that does not need any major repairs for the next 20 or 30 years. Start with the roof, plumbing, fencing, paint, flooring and an easy maintenance yard. Last but not least, you want to take a close look at the numbers-the mortgage on the house versus what the rent is bringing, minus expenses. Do not overlook expenses...there are going to be some unavoidable expenses. There are certain periods in the economic cycle where rentals make financial sense in relative to other investment opportunities for your money. I think, the next five years or so are going to be financially lucrative times to own a rental property if you do it right.
0 votes Thank Flag Link Wed Mar 16, 2011
Hi Mrs Cothren,

If your thinking of a property here in Tracy or San Joaquin County I would suggest a property that was older lets says 80s . The fact is you will have better cash flow ROI, need less cash up front lower rent scale=easier to rent less turnover. I have access to professional investment property analysis databases ,I'm a Realtor with Keller Williams in Tracy .Here is an example that is a great candidate for rental investment:

2061 Village Dr

Type RSFR Bed 4 Bath 2.0 Units Bldgs Stories 1 Parking 2 Year Built 1985 Zoning resi Lot Sqft 5663 Bldg Sqft 1312
Price $159,999 Diamond in the rough! Needs TLC, great investment opportunity, plenty of potential. Perfect before and after home! Close to school and park. NO MELLO ROOS

Investment Summary
1 Year 2 Year 3 Year 4 Year 5 Year
Sale Value $159,999 $125,599 $98,595 $77,397 $60,757
Rents $22,200 $23,155 $24,150 $25,189 $26,272
Cashflow Before Taxes $4,939 $5,684 $6,460 $7,270 $8,115
Cash-on-Cash Return 15.43% 17.76% 20.19% 22.72% 25.36%
Capitalization Rate 9.47% 12.66% 16.92% 22.60% 30.18%

Al Mora
Keller Williams Realty Tracy

I can send you by email analysis of any property to see cash flow ROI scenarios.
0 votes Thank Flag Link Fri Sep 12, 2008

Location, location, location............................consider an appealing vacation area with warm winter weather and a high demand for rental properties.

We would love to share some possible options.

Good luck,
The "Eckler Team"
Michael Saunders & Company
0 votes Thank Flag Link Wed Sep 10, 2008
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