We Purchased Our Third Rental Property

Investing in real estate can be a thrilling journey filled with unexpected twists and turns. The decision to acquire multiple properties not only reflects a strategic financial mindset but also opens up new opportunities for passive income. Today, I want to share our latest venture: the purchase of our third rental house.

“Wait, didn’t you just buy a house?” you might ask. Yes, it seems fast-paced, but that's the nature of real estate investment—quick decisions and opportunities can lead to fruitful outcomes. Join me as I delve into the details of this exciting addition to our portfolio.

The essentials of our third rental property

Our new investment, Rental House #3, boasts familiar characteristics: it has three bedrooms, 1.5 bathrooms, and was built in 1965, showing signs of neglect and requiring significant repairs. However, its location is what truly sets it apart.

This house is located "at the Perimeter" of Atlanta, a unique area that blends both urban and suburban characteristics. Understanding the dynamics of this location is crucial; it allows us to capitalize on the strengths of both environments. In Atlanta, neighborhoods north of the Perimeter generally attract wealthier, more educated residents, while those to the south often do not.

To illustrate, here’s a quick overview of our property locations:

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• House #1: A triplex in the city center with skyline views.
• House #2: A single-family home located in the suburban area south of the Perimeter.
• House #3: Positioned in a transitional zone near the Perimeter, it benefits from a strong school district.

Location is a critical factor in real estate investment. While some investors choose to specialize in a single neighborhood, our strategy is to diversify our investments across various locations. This approach mitigates risks associated with economic downturns in specific areas, while also providing opportunities for appreciation over time.

Understanding the financials

When we first spotted this property, it was listed at $175,000 in August 2011—an eye-popping figure for a house in disrepair, especially in a city where affordable options exist. The appeal of this home lies in its expansive one-acre lot, a rarity for the area.

However, the initial asking price was not justifiable given the house's condition. As the owners struggled to sell, they reduced the price incrementally:

1. August 2011: Listed at $175,000.
2. September 2011: Reduced to $148,000.
3. October 2011: Final price drop to $125,000.

By the time we became interested in February 2012, the property was ripe for negotiation.

Mastering the art of negotiation

Negotiating the price of real estate can feel daunting, but it’s an essential skill to develop. Initially, we believed the sellers would accept an offer of $115,000, but we decided on a more conservative starting point. After deliberation, we settled on offering $95,000, a tactic designed to leave room for negotiation.

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We consulted our families and, after discussions, submitted our offer. To our surprise, the sellers accepted our proposal! This experience highlighted a fascinating aspect of real estate: simply asking for a lower price can lead to significant savings.

Ultimately, we purchased the house for $94,000, which included a $1,000 concession for mold remediation required after the inspection. This brought our total investment, including anticipated repairs, to approximately $100,000.

According to the One Percent Rule, we aimed to collect $1,000 per month in rent to ensure a good return on our investment. Given the favorable aspects of the property, we anticipate a rental income between $1,000 and $1,200, bolstered by its zoning and school district.

Planning the next steps

Moving forward, we learned from our previous experiences that delegating repair work is key to efficiency. Instead of handling all the renovations ourselves as we did with House #2, we opted to outsource much of the labor for House #3. This shift allowed us to focus on finding the best contractors and streamline the repair process.

Here are some lessons we’ve taken from our journey with these properties:

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• Effective delegation is essential for managing multiple projects.
• Building strong relationships with contractors can lead to better deals.
• Your team’s capability directly affects your success in real estate.

By nurturing these relationships, we can navigate future projects more smoothly and effectively.

Update on our rental property journey

As of November 2012, we successfully rented out House #3! This step represents a significant milestone in our journey, showcasing the potential rewards of strategic investment and careful planning. If you're interested in the final numbers and performance of this property, check out our in-depth analysis here.

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