House next door for sale -- should I buy as investment?

[Mr._Graybeard]

Well, it's actually two doors down, on a rural dead-end road. It's a 1972 ranch, all pretty much original except for the roof, which is maybe 20 years old. Furnace is also newer but age unknown. Previous owners, who lived on the property for more than 20 years, lost it to foreclosure. Lot is 2-plus acres with fantastic 20-mile views. Well/septic.

It's one of five homes on the road, kind of a self-contained cluster at the edge of a metropolitan exurb. Working farms all around, but residential development encroaching quickly. Two cities of about 20,000 within 10 miles.

The house is cosmetically well maintained but dated. Previous owners were struggling through the 2000s financially, so I fear some major maintenance (like septic $$$) might be in the future. But the price is hard to pass up, $149K. That's $50K-$75K less than similar properties in the area.

I don't aspire to be a landlord, but I'm uneasy at the prospect of new neighbors in the cheapest house on the street. I could get $1200/month rent, I'm sure.

My wife is embracing this idea. I'm ambivalent, but I think it could be a solid investment albeit a non-passive one.

Any gut reactions to this scenario from those seasoned in residential real estate? Thanks in advance!

 

[papadad111]

How handy are you? Doing the maintenance and remodel work yourself may make it a viable rental or flip.

Either way be prepared to spend some cash on maintenance and upgrades to make it live able space.

What unknown surprises lurk? For example, upgrades to kitchen bathrooms and carpet/windows/roof are easy to estimate. What unknowns may be more difficult to estimate... Are you ready and able to handle that possible risk?

For a flip to work, don't forget carrying costs , taxes and insurance before flipped, real estate agent listing commissions and fees, and of course the unknowns of a remodel in maintenance and upgrades noted above.

Can the acreage be subdivided and sold off? Possibly increases the ROI

Every scenario is different. Run and rerun the numbers. Hard to get good comps in rural / suburb location as u describe too. Be careful.

We were going to flip my moms house - needed major interior upgrades but bones were good etc - did the math and the house buyers in the area are at a totally different margin point and cost structure than a small guy like me would be at and so i couldn't get our numbers to really work - Mom Sold as-is to flipper instead and we did as well as I would have done doing remodel myself and reduced overall risk a lot.
Turned out to need some major system upgrades beyond cosmetics that I was not fully considering - hvac and some plumbing / electrical.

As for new neighbors and uneasy- being a landlord brings you new neighbors regularly. And new neighbors come with a successful flip too ... You'll need to get over that aspect of it either way.

 

[wolf]

Do you have the "mentality " to be a Landlord?

Are you handy. Do the repairs your self?

Will the rental income, cover all expenses. (Vacancies, and capital improvements).

If yes, go for it. Enjoy.

 

[Bamaman]

I'd be hard pressed to pay $149K for a house and have to spend another $30-40K to get it up to rental standards. And that's too much money for a property that's only going to return $1,200 per month.

I bought my daughter a $105K house with a 16' x 40' den, 20' x 24' playroom and 14' x 31' living/dining room--2 blocks from an elementary school. I spent $10K repainting and reconditioning the house. That's the pricepoint where $1,200 a month would give some ROE.

 

[Mr._Graybeard]

Thanks for the replies. Good info, especially on the adequacy of a$1200/mo rental return.

The house just was listed a day or two ago, and there's been an endless stream of pickup trucks and other landlord-type vehicles in the driveway. There isn't even a "for sale" sign posted yet.

 

[RunningBum]

I don't aspire to be a landlord, but I'm uneasy at the prospect of new neighbors in the cheapest house on the street. I could get $1200/month rent, I'm sure.

If you're uneasy about new neighbors in the cheapest house, how do you feel about having them as tenants you'd have to deal with? I suppose that could give you the power to hopefully weed out the bad renters and throw them out if you fail, but it'd be a real headache and expense to do so.

 

[ziggy29]

There are certainly downsides to doing it, but one real positive that shouldn't be dismissed is that you have the ability to choose your neighbors, and (within the law) the ability to get rid of them if they aren't good neighbors (that said, it could be expensive and require getting lawyers involved). Having had neighbors I wished would go away, I can relate to this.

 

[Mr._Graybeard]

Well, we took a good look at the place this afternoon and found a real deal-killer: an underground fuel oil tank. I don't want anything to do with that.

Thanks again for offering your thoughts.

 

[unno2002]

Get two people involved: Qualified home inspector, and a rental management agent.

You need to know how good/bad the condition really is, and if it will rent, what the current actual market for tenants is.

Paying them for their time could save a LOT of your time and money later, or it could confirm you've found a great deal.

 

[Nunthewiser]

I just faced a similar prospect and passed on the opportunity. So far I am glad I did, but it's a very different scenario. The "house" next door was used as a marijuana grow house. You can imagine the shape it was in. My new neighbors bought it for $60K and have been working their a$$e$ off. They seem like very nice folks to have as neighbors, so looks like a good deal for me . Time will tell...