It’s been two years. Two years since I bought my first home. I currently live in it as primary residence but have been searching for a second – either as a new primary or purely an investment. We’ll the day has finally come that I found a house worth buying. I’m buying a second house!
I’m not sure if my requirements for a new house were too strict or the market isn’t as good as it used to be. This home needed to meet a few requirements.
Requirements for the Second Home:
1. Rent should meet the 1% rule. This rule states that, at a minimum, a property should rent for 1% of it’s purchase price (plus any expenses to bring it to rent condition). For a simple scenario: if a house is purchased for $90,000 and needs $10,000 in closing costs/upgrades then the house should rent for $1,000/month to be profitable. This is obviously a broad rule, but has seemed to hold in most of the potential properties I’ve come across.
2. Location. The property should be located in a easily rentable area and/or in a convenient place for me to move. My current home is in a decent school district and located close to the interstate, so it has always been an option for me to move to a second home and rent my current.
3. Minimal upkeep. This has been an important piece of information learned from my first home. The front yard is a small yet extremely steep hill. I’m young and consider myself in decent shape, so I can cut it myself. My other roommates are a bit larger and not in shape. They have each cut the yard once – and nearly died. I don’t believe I could expect a tenant to maintain that yard when it’s so tiring for us youngsters.
Below is a screenshot of how estimate the value of a property.
I use this worksheet to evaluate each property I’m considering. A few have been close but this one seemed very good for a few reasons.
Why I’m buying this house:
1. It meets the 1% rule. You’ll notice above that I ran the numbers with $1200 rent and 10% vacancy, but the house was purchased for $136k (Acquisition price). I plan to ask $1300 in rent, but I’m estimating on the low side to be prepared.
2. Quality of home. It is a typical builder grade home – nothing fancy. Yet, it’s a slightly higher quality for me to ask slightly higher rent. Tile, laminate, and carpet. Granite countertop. Generally low maintenance construction. The quality of the home leads me to believe it will be easier to find the tenants who will take pride in their living space – or so I hope.
3. Location. It’s located near the local university. This could lead to easy rent, but could also contradict what I’m hoping in the above statement. We’ll just have to see what happens.
Keep following to see how this process goes. I plan to keep you updated as it progresses through the closing process. Do you own investment properties? How to you evaluate your investments? This is my first, so any knowledge you have could help!