I bought a house.
Actually a second one – we already own the house we live in. And it isn’t strictly speaking true that I bought it – my wife and I bought it. Also, as of this writing, we’re only buying the house; it’s under contract. Still
I’ve been looking at picking up an investment property for a while. Years ago we did some landlording and it was both kind of fun and profitable. Like a fifty-five year old partner with a sad marriage, I like a little side action, only amount money. So, with this year’s bonus, I put some of it into a downpayment on a rental house.
Here are some of the details.
The house is in North Carolina. I do not live in North Carolina.
I haven’t really spent a lot of time in North Carolina. But where I live, there are plenty of independent coffee shops and craft breweries, and we have the property values to match it. Buying a rental around here would take a big chunk of cash.
That worries me for two reasons.
First, I’m know I’m going to make mistakes. This is my first time buying a house to take straight to rental – the others we’ve owned started as our primary residence then went rental later. So, since I haven’t done this before, even though I’m being as careful as I can, I know I’m going to step in it somewhere. I accept that. I expect that. It’ll cost me some money and I see that as tuition – I’ll learn from it. I would just rather learn from it with a small amount of money than a large amount of money.
Second, the rents here don’t seem to have kept pace with the home values. I want to go single family for a whole lot of reasons, and when you compare the rent to price ratio you find in this big East Coast city, they’re just out of whack compared to the ones in North Carolina. So, in North Carolina I can find a house that’s cash flow positive. Here, I probably can, but not as easily.
I’ve never seen the house (except through Google Street View).
I bought the house through Roofstock. I think it’s a remarkably cool service. I spent a decent amount of time talking to the folks there and doing due diligence. There are a few other remote real estate investment operations that were interesting, but Roofstock had the combination of transparency, fees, and service level that suited me. They charge half a percent to the buyer (the first house is only $99 though) and 2.5% to the seller.
Roofstock does a lot of the leg work before you buy – you can see an inspection report, an appraisal, a title search, and get an insurance quote. It lets you do the math on the project in advance so, with some assumptions, it lets you figure out your return on the property.
They also only sell houses that already have a tenant in them, which is really nice for risk mitigation. I think my ROI on the whole thing, if I sell in five years (which I won’t), and the assumptions hold will be around 15%.
The backend process, so far, has been amazing. Once I reached a price with the seller, Roofstock called within about an hour.
They’re handling the inspection, lining up insurance, and getting me in touch with a property manager. It would be hard to be more impressed.
I’ll keep you posted.
I also bought a rental property (also long distance) not too long ago. It has gone okay but there have been hiccups with a couple of maintenance issues. I learned about Roofstock recently and was interested as well. One issue I’ve noticed is that the prices listed are often higher than the Zillow estimate as well as the comps/appraisal in the due diligence vault. When I was looking at turnkey properties, I expected to pay market value or slightly higher (since the properties were supposedly completely renovated). Not sure it makes sense to pay above market value when this is not the case here. And many of the prices are way above the comps and don’t fit into the “1% rule” How is it going so far and did you have any issues with the property not appraising?
Thanks for the comment!
Your post is really timely – we’re closing tomorrow and I plan to post about the process and how it’s gone the next day.
I found a property that beats the 1% rule by a good bit. Right now, I’m still running on assumptions, but assuming no hiccups I should be ok. One thing I did, that I will be more aggressive with in the future, is I negotiated a fair bit on price. The system lets you do that pretty easily. But you’re right that there are a lot of them that seem like kind of silly investments; I just ignore those. (though it does say something about the viability of Roofstock as a marketplace)
I may buy another one with them, or I may look to a different market that Roofstock doesn’t serve. Either way, I think I’d make much more aggressive low offers and see what happens.
I do think their inspection reports are tremendously useful, and go along way to making it seem close-ish to a renovated property. I like that I know what I’m getting into with repairs.
But I’ll update it more soon!