Follow Me as I Invest in a Rental Property – Part 2

CLOSING on my new rental property early next week.  I will explain how I got to this point and the steps it took to figure out the best way of purchasing this property.  This property is zoned both residential and commercial with 3 beds and 1.5 baths.  I will be converting it to a long term residential home since affordable rental housing is scarce in this area.


1.)  Research:  The town in which I purchased I have been watching for several years.  By watching I mean reading about developments, scanning Realtor Apps watching for homes sell, and at what costs.  I also have literally been in/out town seeing its growth over the past 10 years.   This Northern Tahoe City has ski resorts, hiking, biking, running, and a major airport only 40 minutes away.  Plus they just built two new grocery stores…which means demand is building.  All of these things are important to those wanting to escape the high cost of big cities in California.

2.)  Timing:  Watching the home markets and understanding that our economy is unstable at times with the extreme ups and downs, I knew if something big was to happen that would affect home pricing.  Well, we got ourselves a Pandemic and people froze just long enough to panic sell and that is how I picked up a 3 bedroom home downtown right next to stores, bars, and restaurants.  Location, location, location is actually a real thing when it comes to properties.

3.)  Tracking:  Doing some quick history via Zillow I could see that first the price was dropped on the home from $595,000 to $550,000.  Expensive…yes but this is California and that is actually affordable.  Once I contacted a realtor about the property they stated it was under contract.  Keeping close tabs because of the COVID panic, that sale fell through and that is when I offered $510,000 cash with a quick close.  Sold!

4.)  Cash:  In the past, I have written about how cash is king!  After years of work, investing, and saving I have the ability to pull half a million dollars in cash when needed.  How?  I do a lot of long-term investing and was able to use a Margin Loan to purchase.  Basically I am taking a loan from my investment bank against my portfolio.  The process is I use cash to close the sale and then go back and take a mortgage on the property paying back the Margin Loan. 

5.)  Interest Rates:  Right now I am in a really good position because the Margin loan is 2.5% which is lower than existing mortgage rates of around 3.7%.  So I have done the pre-approval paperwork for the mortgage and will now wait for the rates to fall further taking advantage of the faltering economy.  Your thinking…the economy is not faltering??  Well, high unemployment, pandemic, protests, and honestly a President that will literally print money to make himself not look bad.  If you don’t think our economy is built like a house of cards, look to the history books for future results. 

6.) Rehab Estimates:  So now that the paperwork is done and financials in place, I am starting to interview contractors for the approx. $30-$60k worth of work that will be needed to be done ASAP.  Those renovation costs will bring the property up to par resulting in getting the best rental rate.  Rent should be approx $3000 or higher once I get it on market no later than August.  I am not a slumlord and actually take pride in the units I rent.  To keep ahead of new shiny condo’s and apartments, I have to make my rentals standout making them attractive to rent at a higher cost.

Note a couple of things that you will read repeatedly in these posts.  I always purchase where I know the area.  I always monitor multiple areas, checking realtor apps for trends.  I always purchase according to location.  And last, I always purchase knowing that if something bad was to happen financially that I could sell the property at a minimum of breaking even.  This particular property I know with some quick upgrades will be worth over $600k and as this town continues to grow and develop the value will only go up further.  That is my safety blanket for taking the risk.

CarterW.

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