I have been looking at several homes to purchase and rent, but a little scared of what type I should buy. I like the dynamics of a duplex/triplex of a higher cashflow, but I like the easy exit strategy and potentially higher calaber renters of a SFH. Any suggestions for the first rental purchase?
Hi,
It depends on your point of leverage as you can get more income for less with 2 - 4 units, but it obviously takes more cash to buy 2 - 4 single family homes when you figure down payments and closing cost's.
Since we don’t know what you have to invest, you have to figure out what will work best for your investment position and your percieved patience level for landlording?
GR
GR, thank you for the reply. I’m not as concerned about the leverage as I am about beginning as a landlord. I have some experience in flipping, however, I am looking at positioning some assets in the rental arena and creating a positive cash flow. I guess I have some questions:
- Should I start small and work my way up to a duplex? If I don’t like being a landlord, I can sell a SFH much quicker than a duplex.
- If I’m starting off being a landlord, does starting with a SFH or a duplex really matter in the scheme of things?
You need to learn your local LL/tenant laws now before you start doing this. Get smart on that and get your paperwork developed for your lease, move in/out forms, etc. For any property built before 1978, you’ll have to give the tenants an EPA form for Lead Based Paint as well as have them (and you) sign a disclosure form regarding the presence or lack thereof LBP.
You should be able to sell a SFH quicker than a duplex, but check to see if a lease remains in place if you try to sell the property. Let’s say you buy a SFH thinking you can dump it quickly if you hate being a LL, but you put someone in there on a 1 year lease. 2 months into it, you can’t take it anymore and you want out so you put the house on the market. Generally that lease will remain in effect so your potential buyer’s pool won’t be as big since no owner occupant could move in there for another 10 months. I’m pretty sure most places any lease will remain in effect so you need to think about that.
Everyone that wants to start buying properties for rentals has to start somewhere. What can you find a better deal on - SFH or duplex? That’s what I would be most concerned with going into it. If you buy it right, you’ll have cash flow as well as a way out if you have/want to sell.
Justin~ As usual, thank you for the great post. Where is the best place to get the forms? Should I talk with an attorney or is there a good site?
And where is a good place to study these laws? I know they are state specific, where would I look?
Thank you. Always willing to help where I can.
For the forms, you can probably talk to some Realtors and see if you can get a copy of a lease from them. Or do you have any friend that rent from a larger apartment complex locally? You could look at their leases. There may be certain clauses that have to be in leases where you are.
I have a sample copy of the lease we use. If you PM me with your email address, I can send it and you can see what you think. It was developed from a Realtor who’d been investing for about 25 years or so as well as some clauses I’ve hand picked from different REI books I’ve read. I feel it’s fairly thorough, but only 4 pages.
Here’s the EPA lead based paint disclosure form:
http://www.hud.gov/offices/lead/library/enforcement/selr_eng.pdf
Here’s the EPA LBP pamphlet:
http://www.hud.gov/offices/lead/library/enforcement/pyf_eng.pdf
I’ve also found that Lowe’s has the EPA pamphlets available for free in their paint section. Since I spend literally thousands of dollars per year there and they’re available to customers, I’ve grabbed a few from there. I only have to hand them out when I rent a place out so I don’t go thru that many.
I also can send you a fairly common rental application.
For the LL/tenant laws, there’s a link on the left side of your page here under “Investor Resources” for “State Property Codes.” You can start there. If the link doesn’t work, just do an internet search for your state’s landlord/tenant laws. Ultimately you want to end up on a state government website (probably your Secretary of State website) so you know you’re getting proper and current laws applicable to your location.
You can also contact your county court clerk and check on eviction costs/procedures and get any forms you might need for that.