The Landlord Lens - Choosing the Perfect Investment Property

Episode Date: February 8, 2024

Seamus Nally, the CEO of TurboTenant, recently added a new rental property to his portfolio. Krista chats with Seamus about everything that went into his decision to purchase this property in this week's episode of Be A Better Landlord.

Hi, I'm Krista, this is Seamus, and we're here to help you be a better landlord. So, Seamus, when we get together, usually you are asking me questions, but today we're actually going to flip the script. I have a bunch of questions for you because you just purchased a property. Is that true? Yes, I didn't purchase a rental recently to add to my portfolio. That is thrilling. I'm super excited. So can you tell us first where you were looking and why? Yeah, absolutely. So first I was looking, and just really opportunistically, in the state of one. Wyoming. Where I live in Fort Collins, we're about an hour away from Cheyenne, Wyoming, which means there's an awesome opportunity for us to look at rentals up there. The market up there

is definitely softer than Northern Colorado, which has seen a lot of increases in price. And so we were looking up there to try to understand what would be available for us. Brilliant. That makes a lot of sense. But I know that you didn't end up going with somewhere in Wyoming. Tell us about that. How did you pivot to your current property? Yeah. So despite the fact that Wyoming had cheaper rental properties and has more friendly landlord-tenant laws up there, specifically around evictions. I think it's really important to understand the laws

before you make a purchase. And the one thing that Wyoming has going for is in the worst case scenario, you have to make an eviction. That process is very expedient. And so that was something that I was looking into. However, all that being said, we ended up coming across a listing that was posted within two miles of our primary residence.

Nice. Yeah, it ended up being a great opportunity for us because A, we completely understand the market in Port Collins. B, I actually had a relationship with the listing agent already. I didn't have a real estate agent bring this to me, but when we found it, I know that individual entrusted them really well. And then the third kind of thing that tipped us over the edge is because of that proximity, not only do we know the market really well, but we also are available in case we need to respond to any maintenance requests. I could use the contract. tractor I do on my own house if I have any maintenance repairs or anything to do on the property. So it all just fit together really nicely. I mean, that sounds pretty perfect. Now, just to be clear, are you planning to manage this rental yourself? Yes, we will manage this ourselves. We are planning on managing the one in Wyoming ourselves as well. In my opinion, it's definitely not worth the 10 to 14% property management fee for any property,

even if it's within 90 minutes or so of our house. Yeah, that makes a lot of sense. Now, tell me a little bit more about the property that you went with. How did you evaluate the deal? So we looked at a couple of different things. The first thing, like I said, was instead of focusing on the price to start, we actually focused on what we think we could rent it for. So we looked at comparables.

We went to TurboTenant and used our rent estimate calculator to try to understand what is rent going for in the area. Within the calculator, there's a whole lot of inputs for all the details you need to actually calculate your cash on cash return. And so what myself and my wife did is we went through, and we saw what data points that we had readily available, and then what data points we needed to go hunt for. So some example of things that we didn't have readily available

was like our landlord insurance. What is that going to cost in that area? And what's really awesome about the calculator is you can adjust it up $100, $200 and see how that changes your return. And the reality is, with any of those monthly expenses, it changes your return pretty drastically. And so we use the calculator, not just for the information in the results, but also as kind of a checklist of all the things that we got to make sure that we've,

you know, tied a ribbon around for us to move forward with this investment as a smart idea. That's awesome. We also went over to the property. I talked to some of the neighbors, which happened to be renters. It is a condo, so it's in a building owned where there are other individuals renting. I got an idea of what it was like there, right? Is it quiet? Does the complex, the HOA clear snow quickly?

and we looked at several of those variables to understand what we could rent it for. And then from that standpoint, it was very simple. We looked at what the listing price is. I talked to the listing agent to try to get a feel. There was six actual offers, but to try to get a feel as to what it will actually go for. And then we dug in to understand the price for monthly expenses. Like what are the HOA? We got a couple of estimates on landlord insurance.

just to try to get an idea of what it would cash flow each month. And then the last piece that we did was we looked at source of financing. So I'm fortunate enough to be in a position where I could put a much larger down payment now. And then I could utilize actually a HELOC that I have on my primary residence to buy it. So from the perspective of the seller, this is actually a cash transaction, which allowed us to move very, very quickly and not suffer from some of the current interest rates. That's amazing. Really well done.

Was there anything that gave you pause when you were evaluating this property, whether that's maintenance or other needs that you'd have to address? We definitely took some time to really try to understand the comparable for rent prices. Because the market is hottest in this area and where the location is, you have a lot of either graduate students or individuals fresh out of college. So we are definitely concerned that we had maybe missed the window, that a lot of these places had already rented out to start with a July 1st move-in date. And so that was, I would say, the biggest area for pause, because if you can't get what you're hoping to from a rent perspective,

then the cash flow kind of all goes downhill pretty quickly. The other things that we dug into is when we're looking at the property, it was clear that the H-back system and the water heater were old. And so we actually pushed before closing, which was really nice because when you're buying a new property, we actually got to push as a contingency of closing that those things got inspected and ensured that we had a little bit more life to them so that we weren't going to close on the property and then have to invest anywhere between $3,000 to $5,000 right away into a new H-back system. Yeah, absolutely. Now, when it comes to making those kind of contingencies or otherwise working with the seller, are there things that you really prioritize in? terms of making those deals to get a house ready to go or a unit ready to go.

So one thing that we prioritized was actually getting all the photos from the staging. So it was really awesome because we were buying a brand new property. They had staged it completely. So it looked, it looked beautiful. A lot different look to a property when it's got nice furniture in it than when it's completely vacant. So that was actually something that we put in as a contingency of closing that we actually wanted all of those images. That's like a really easy box to check for the sellers.

estate agent. So they sent us all them. And then like I said, just the inspection on the larger, on the larger appliances and utilities in there. And then the last thing was we really dug into the HOA because HOA fees can change fairly unpredictably. And so what we wanted to understand was, A, what is the monthly fee today? The HOA fee is very low compared to market. So then we dug into why with a concern being like if it's really low, they're going to be raising it soon. But what we could what we could get from previous HOA minutes and from talking to the HOA is they actually had a surplus in their bank account, meaning they aren't playing catch up. And so fees are very unlikely to raise because really what's most important is that the HOA is fully funded. And because this

HOA was fully funded, we felt pretty good moving forward with the purchase. That's awesome. Seamus, thank you so much for answering all of my questions. I really appreciate it. In the next episode, we will be talking about how to find a tenant, or at least how you found yours. That sounds great. And if any of you out there have any tips or things that I missed as part of my process, please feel free to tell me I'm wrong and sound off in the comments. TurboTenant is the all-in-one platform for landlords to manage their rental properties. From vacancy to tenancy, we have you covered with industry-leading tools and expert advice. Landlord better from anywhere for free at turbotenant.com.