Once we found a property we liked on the Fannie Mae Homepath website, our realtor put in our bid (only licensed realtors can submit bids). Like I said in Purchasing Our First Rental Property, Part 1, we’d been window shopping the website for at least a year before we found a property that was right for us.
What we liked about this property:
- Bang for the buck: at the asking price of $51,000, this property would be affordable for us to finance; at this price, we could carry the mortgage during unoccupied times.
- Move-in condition: this property was move-in ready; we only needed to add a stove and fridge and clean up the floors.
- Condo unit: as a single unit in a small condominium complex (14 total units), we liked that the exterior — lawn, roof, sidewalks, etc. — would not be ours or our tenants responsibility. Plus, the HOA fees are only $50 a month (less than a lawn service if we purchased a house).
- Condition of the exterior of the building: brand new roof, brand new paint, well maintained common areas and parking lot.
- City schools: location, location location — where we live, the county schools are overcrowded, underfunded, and notoriously low achieving. The city schools, however, are the complete opposite: great reputation, well funded, and high achieving. From the front door of this unit, you can toss a tennis ball onto the city high school courts.
- 850 square feet, concrete subfloors, top corner position: at 850 square feet, routine maintenance — new carpet, new paint, new countertops and the like — won’t break the bank. Also, the subfloors of the unit are poured concrete — hard to screw that up, even with a blown water heater. And finally, this is a top corner unit, attractive to tenants because of the low noise exposure from neighbors.
Our bidding strategy, recommended by our realtor, was a bit counterintuitive from the normal house-buying techniques. Rather than lowball the offer, our realtor suggested we offer $51,110. As a property investor himself, his feeling was that several offers would be extended on this property, especially since it was priced so low, in a great building, and move-in ready. The extra $110 would put our offer, we hoped, at the top of the heap.
Was his strategy right? We have no way to know, but our offer was accepted and a closing date set. Fannie Mae also wanted to set a date one week before closing on which we’d provide proof of secured financing. No problem, right? Our mortgage broker, who’s handled all our home financing, is a buddy — we played high school basketball together — so I assumed I could just call him up and set the ball rolling. Our credit is excellent; we have plenty of equity in our home; and we have enough in our retirement portfolios to pay off the property should we ever get stuck between a rock and a foreclosure.
We all know, though — don’t we? — what assuming does …
Stay tuned for Purchasing Our First Rental Property, Part 3, in which we get into securing financing for an investment condo … which local banks, at least in our area, won’t do these days.