Purchasing Our First Rental Property, Part 2

for-rent-signOnce 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.

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Purchasing Our First Rental Property, Part 1

The housing market sagged like a hammock, property values hit the ground, and we here at The Fishcreek Outfit had our hands on a small amount of liquid cash: We’d always talked about investing in a rental or two … Say hello to the FannieMae Homepath program.

Let me clairfy: a “small amount of liquid cash” for The Outfit — a married couple, no kids, both school teahcers — equals a few thousand dollars; and, of course, eyes bigger than our stomachs, we bit off more than we’d originally planned to (more on this later) … Alas, we scavenged a couple thousand more from other designated pots, and now we’re the proud, trepidatious, curious, excited owners of an 850 square-foot condo in a working class downtown neighborhood — great schools, walking distance to the park, pets under 35 lbs accepted … Need a place?

How did we begin? The FannieMae Homepath website is a catalogue of foreclosed properties across the US.  We searched through the listings in our area, visited a few, and waited patiently for a property that 1) needed minimal repairs 2) fit our projected budget 3) was in an attractive part of town and 4) inspected well.  Over the course of a year or so, we kept our eyes on the revolving properties until we found one that matched our criteria.

(Had we a bigger budget, I should say, we could have snatched up several different properties along the way; the website is full of great deals on homes that need updating and repairs.)

Once we found the property that worked for us, our realtor* put in our bid and the waiting began …

Stay tuned for Purchasing Our First Rental Property, Part 2, in which we’ll discuss the bidding process and securing a mortgage for a condo investment in the Age of Stingy Banks.

[*We highly recommend using your own realtor as opposed to the listing agent: in our area, at least, the listing agent appears to have her hands full; we wanted someone who could walk us through every step.]