My wife and I are considering becoming [s]slumlords[/s]landlords.  We have our eye on a house that is currently being rented, and is going up for sale at auction.

I understand that they seek 10% down if you win the auction, with the balance in about 30 days. How does one normally go about securing financing on this type of transaction?

I am familiar with a regular mortgage on a primary residence, but this is new territory for me.

The place needs some serious work, but I am adept at plumbing, electrical and carpentry.  I figure that I can do all repairs and maintenance, and charge enough in rent to cover the costs, plus a little for a rainy day.  My profit will be in the property's appreciation over time.

Any suggestions on financing?  How does this usually work?

Thanks.

Go and buy Robert Allen's "Creating Wealth"  it is an excellent read and tells you the 'formula' for develpoing a cookie cutter money making machine and lots of great info on this topic.  Or just stop by barnes and noble and flip through it.  Great book.  I'd send ya mine, but I'm only 1/2 way through it now...

You can get financing as an investor, quick to get, but it will be at a high interest rate. Best to just get a normal mortgage.

Another thing to consider, Though you say you can do the repairs yourself, does your community allow it? I know here a person may only do repairs (plumbing, electrical, heating) without a license on his/her primary residence.

We have about 65 rental properties (many multi unit), this is one of the best way to lose your shirt, known to man, other than just giving your money away.  

Owning and maintiaing rental property works, but you really need to have the economy of scale working for you, having one or a half dozen properties will eventually break you, if at any one time your unit is not rentable (which will happen often) due to renter neglect/abuse, or an act of god or something as simple as a downturn in the economy, then you are still going to have to cover that mortgage, and in your case, without an economy of scale, with your own money, do that for three or four months out of the year and you will see all of your profits dry up and yourself in the red.

Unless the property is adjacent to the property that you now own and occupy, it will become a nightmare.

YMMV, but it is one of the few things I know about in this world and would counsel against it unless you were able to pick up 15 to 25 units. (and all of those should be initially rented out).

Good luck!

One other thing, you say you will be looking at the appreciation of the properties value over time as your compensation, in fact rental property does not appreciate in value (it *usually* maintains cost of living adjustments...but not always)  Rental property only appreciates in value in accordance with the amount of rent you can squeeze out of the tenants.  It is in no way related to private family homes when it comes time to compare appreciation schedules.  That is why you will find mortgages for rental units much more expensive than a single family home with owner occupation.

[b]hielo[/b] is correct. Owning rent houses is a great way to make a small amount of income or a great way to come see me about personal bankruptcy as well!

I have done it, off and on, for 20 years, and I''m lucky to have gotten out with my shirt!

Always, always, own ''slums'' and ''ramshackle'' properties. They are always the easiest to keep occupied, and when the tenant calls you on Christmas Eve to tell you of a plumbing problem, you can tell him that it will be the New Year before he sees you, so better get that leak fixed pretty quick on your own!

Try telling someone paying you big bucks$$$$ that it will be a week or two before you fix their commode!

Eric The(RepresentingSlumlordsFor23Years)Hun[>]:)]

Ditto on what Heilo said. Tweet and I did a deal a while back and we finally got out of it at a break even. I thought real estate might be a good place to dump cash I was generating on the market slide with lots of foreclosures coming from the layoffs. The only way I would get into real estate as an investment again would be new home community development and I don't have the time to manage that large scale of a project.

One way to try to work your existing deal is to do some due diligence on the existing tenant. If they are a candidate for home ownership but can't afford a down payment, quite possibly you could use the auction situation to roll the deal for a land contract with them. You can buy the house on the cheap and use the gap between purchase price and appraisal value to assist the existing folks in actually purchasing the property under contract. Essentially you would roll out of the mortgage once they have paid the difference and can represent their "equity" in the property for their own financing. But this is a highly risky proposition since you are still on the hook for the primary mortgage while they are paying you and they also have no guarantee to be in a position to secure their own financing once they have crossed the threshold.

It might be worth a trip to the local monthly Real Estate Investor's Association meeting for some fact finding before you jump in feet first.

Thanks, everyone.  This is beginning to look like a "no go".

The property is near a local university (same town that I live in), and attracts the usual college renters (ie. large security deposit will be needed).  Not much in the way of ups and downs in this market, as it is driven by the university.

Having said that, based on your observations, it will probably be more trouble than it is worth.

If I do anything with real estate it will probably wind up being "fix and sell" rather than "buy and rent".

Pitfalls with "fix and sell" other than choosing the wrong house in the wrong neighborhood at the wrong time?

"Fix and sell" works well in growing middle income neighborhoods.

If you buy in a run down neighborhood, you fix it, but you can still only get a run down neighborhood price. The state of the economy matters for sales.

If you buy in an up scale neighborhood, buyers will be picky, they are usually not in a hurry to buy, and your financial risk is considerable. The state of the economy matters for sales.


Pick growing neighborhoods with good schools, fix it cheap but nice, and you will always have buyers. The state of the economy [b]does not matter as much[/b] for sales.

I had rental property for 7 years before I got out of it. It was to much of a pain in the ass. The housing stock in the next town over where I had houses was 100 years or older. All the houses needed everything done to them. None of them were insulated. They had chipped and peeling lead based paint, needed wiring (all old knob and tube) new plumbing (All old galvanized pipe). You name it, it was needed. I can fix all these things and did on my rental houses. It got to hard to find any good tenants. The people had no morals, and would try to get away with anything and everything they could. I now buy houses in the upper middle class neighborhoods. I do a quick rehab and resell them. I won't rehab a house for under $20,000-$25,000 profit. If I was lucky when I was a landlord I'd get $2,500 a year profit per rental house. When you compare these two avenues of real estate investing its pretty cut and dryed to me.[;)]

It is true, the only money to be made is in the low end of rentals, poor peopl ehave to have a place to live, and they keep moving around (usually to run out on your rent).  Invest as little as possible to get it past title 8 inspection and then just keep cycling the people through, the state pays and you can make some money.

Anything other than that is a real losing proposition.