My 3rd property had been successfully renovated and rented. I had payed cash, using my father’s line of credit, and once all the repairs were completed, I was able to acquire a mortgage for the property. This allowed me to pay off my father’s line of credit.
In the spring of 2013, I felt it was time to use this strategy again. I stuck to my script and began looking at 3 bed / 1 bath properties. With minimal searching, I was able to purchase a property for $43,500. Unlike my other properties which had all been vacant when they were purchased, this house came with tenants. They have an odd taste in home decor, which I believe helped to lower the purchase price.
Since this property was already occupied, I didn’t do much renovating initially. The only major work was replacing the windows, which I contracted out. This cost me an additional $4,600. Instead of the normal renovation issues that I had grown accustomed to, this property had a new set of obstacles for me to learn.
My first lesson occurred when I attempted to set up my homeowners insurance policy. I faxed my agent a copy of the property listing, which contained a few notes I had written for myself when I had viewed the property. “Caution Pitbull,” read my note. Little did I know, this dog was more then just a bite risk. My insurance company would not insure the property because of the dog. They set up a policy with another company, and I watched my premiums go from $425 per year up to $912. Also, this increased rate didn’t cover anything relating to the dog.
I approached the tenant with an option, either get rid of the dog, or I would need to increase the rent by $50 per month in order to cover my costs. This was way to generous an offer on my part. The rent on this property when purchased, was $600 per month, but its fair market value is around $850. The tenant agreed to the increase, however the property rent is still around $200 lower then it should be. As a landlord, I try to guide my judgments, not only by dollars and cents, but also by my moral principals, and I didn’t feel raising the rent by $200 per month was the moral thing to do (Feel free to agree or disagree with this point).
Over time, this tenant has proven to be reliable and drama free. Her rent is always paid in a timely manner, and I’m always reimbursed for the water bills immediately. She almost never calls, and when she does, its always in an apologetic tone, and I’m provided with ample time and flexibility to resolve the issue. This trait is why her rent is still below market value.
Sometime, this winter, the dog passed away, allowing me to add this property to my other insurance policies, and cut my premium back to normal. I also, have in fact raised the rent, beginning June 1st, 2017 to $700 per month. Its still to low, but I felt the increase was modest and reasonable given the current market conditions. If I raised the rent and this forced the tenant to leave, I would need to make some updates to the bathroom, along with the upstairs flooring. Then entire house would need painted as well. Overall, this is a steady, minimal effort property that is gradually increasing in value.