A couple in their mid-30s are struggling to find an affordable house before their first baby is due in five months. That's an arduous chore because they live in an extremely high-cost area.
To meet the challenge, they're shopping rental properties -- places currently (or formerly) occupied by tenants. To land a discount, they're hoping to locate a home that needs only superficial fixes and upgrades -- work the husband, a contractor, can do himself in his spare time.
Considering their income limits, the couple in this true story have latched onto a potentially good buying strategy, says Ashley Richardson, a veteran real estate agent affiliated with the Council of Residential Specialists (crs.com).
"It's true that when you buy a rental, you're always rolling the dice to some extent because there can be hidden problems. ... But if you get a solid home inspection and can tackle many of the issues yourself without hiring out, you can buy yourself lots of sweat equity with a minimum of risk," she says.
Sid Davis, a long-time real estate broker and author of "A Survival Guide for Buying a Home," estimates that those who purchase a well-chosen rental home can save as much as 30 percent off the market value of a similar property in better showing condition.
Here are a few pointers for cash-tight buyers pondering a rental property:
-- Try to plan your first visit when the renters are away.
Those living in a rental unit are typically -- though not universally -- unhappy about the idea that their landlord is making them move.
"Lots of tenants get very angry in this situation. Even if they're not mad, they're not going to go out of their way to clean the house for a showing or to say nice things about it," Davis says.
What's more, some renters make pejorative observations about the house -- hyping minor issues and occasionally even making up problems that don't exist to discourage a sale.
Davis recommends buyers try to schedule their first visit to see a rental property when the tenants are absent. That way you can more effectively examine the place.
"When you're first looking at a place, it's a bad idea to let tenants follow you around and distract you with their comments," Davis says.
Still, if you're interested in making a second visit to the property, he says you might consider doing this when the tenants are present and can expand on any problems you've already discovered.
-- Make sure you obtain an in-depth home inspection.
Although many rental properties are overseen by professional management firms, they rarely receive the same level of attention as owner-occupied properties. That's why it's critical to make any offer contingent on a satisfactory home inspection.
To locate a highly qualified home inspector, Davis recommends you ask your agent for the names of at least 10 candidates. Then interview three by phone to determine the best one. Another source for referrals is the American Society of Home Inspectors (www.homeinspector.org).
Avoid choosing an inspector who's also in the home improvement business.
"That represents a major conflict of interest --especially if the guy presses you to hire him for repairs," Davis says.
-- Obtain cost estimates for all the repairs you'll need.
Davis once owned six rental houses. This taught him that tenants often fail to tell their landlord about problems unless they become serious.
"Perhaps the dishwasher has malfunctioned for many months. But the landlord never heard about the problem until a home inspector finds that the dishwasher leaks and must be replaced, along with the subflooring beneath," he says.
Davis says the prospective buyers of a rental property -- or any home, for that matter -- should determine in advance how much needed repairs will cost. He recommends they get estimates for all the repairs on the inspector's list before finalizing their bid. Then they should make sure these expenses are factored into the price they negotiate.
-- Place location at the top of your list.
In many neighborhoods where the real estate recovery is still robust, buyers continue to outnumber sellers. Even so, as Richardson notes, very few purchasers prowling the market are willing to consider a rental.
"These days, buyers only want a house in pristine condition -- one that's been babied by its owners. Very few people will take a 'fixer' because of all the hassles that might bring. That means you'll have fewer rivals in pursuit of a good deal," she says.
You could get an even more favorable deal if you find a house with only superficial problems in an excellent neighborhood, like one with manicured yards and top-rated neighborhood schools.
"As with any real estate purchase, location should trump every other priority when making your choice," Richardson says.
(To contact Ellen James Martin, email her at email@example.com.)