For those struggling to buy a first home for two years or longer, it’s small comfort to know the pace of price increases has slowed and bidding wars are less common than before. Many novice buyers have yet to score an affordable place due to price constraints.
Frustrated buyers need a sound breakthrough strategy, says Steve Israel, the broker-owner of an independent realty firm that caters to homebuyers. He suggests one strategy for income-tight consumers to consider: buy a rental unit.
“Absolutely, it’s possible to get a good deal on a house that’s now a rental or was previously rented. But you and your agent must be extremely careful to do serious research on the property,” Israel says.
Fortunately, many sellers are now more open to negotiation as the home sales market slows down.
Dawn Templeton, who heads an Idaho realty firm, says, “The market is cooling off a tad. There’s more balance between buyers and sellers, and sellers are making more concessions on repairs.”
Israel says some of the most-willing-to-negotiate sellers include the disillusioned owners of properties that were converted to rental units.
“Many of these folks never intended to become landlords and they dislike the headaches,” he says.
“The owners of rental property who live far away are often so eager to sell that they’ll give you a very good price,” says Sid Davis, a Utah broker and the author of “A Survival Guide for Buying a Home.”
“Think of the hassles of trying to manage tenants and keep up a house when you live hundreds of miles away. Then combine that with the reality that a lot of people just can’t stomach being a landlord,” Davis says.
Here are a few pointers for buyers pondering the purchase of a rental:
-- Investigate the property when the tenants are away.
With rare exceptions, those living in a rental home are usually unhappy to learn that their landlords plan to sell, forcing them to move.
Some tenants, in an effort to sabotage the sale, will make derogatory remarks about the owners and about the underlying condition of the property.
Davis urges buyers trying to evaluate a rental property to schedule their visits at times when the tenants are away.
“That way, you’ll avoid the annoyance of having the tenants follow you around in the house. You’ll also feel a lot more comfortable scrutinizing the property,” he says.
-- Make sure you get a serious home inspection.
A fair number of rental properties are overseen by professional managers. Still, they rarely receive the same level of attention as owner-occupied homes. That’s why it’s important to make any bid conditional on a satisfactory home inspection.
“Every house should get an in-depth home inspection. But this need is especially great for a property that’s served as a rental, either currently or in the past,” Israel says.
Davis says one way to find a qualified home inspector who serves your area is to go to the website of the American Society of Home Inspectors (homeinspector.org).
“Ideally, you’ll gather the names of at least 10 candidates and then narrow your list to three who you can interview by phone,” he says.
Davis recommends you avoid hiring any inspector who’s also in the home-improvement business.
“Watch out for any guy who tries to contract with you for home improvement or repair work,” Davis says.
If a comprehensive home inspection reveals only the most minor of problems, the rental unit you’re considering could qualify as a legitimate “diamond in the rough,” according to Davis.
-- Seek cost estimates for potential repairs.
As a real estate investor, Davis once owned seven rental properties, all of which he’s since sold. His experience as a landlord taught him that tenants often fail to tell their landlord about problems unless they become serious.
“Suppose the dishwasher has malfunctioned for a year, yet the landlord has never heard about the problem until a home inspector determines that the dishwasher leaks and must be replaced, along with the subflooring beneath,” he says.
Davis says the prospective buyer of a rental -- or any property for that matter -- should determine in advance how much needed repairs will cost. Before finalizing your bid, he recommends you get estimates for all the work on your inspector’s list. Then make sure these costs are factored into the price you negotiate.
-- Rule out houses with major issues.
In those neighborhoods where available homes are still in short supply and buyers continue to outnumber sellers, bargain properties are still tough to find. Even so, Davis says those who keep an open mind about purchasing a rental unit could still get a good house for an under-market price.
The key to finding a genuine bargain in a rental unit is to carefully consider each property on its own -- upsides and downsides.
“The reality is that some rental properties, especially those that have been occupied by tenants for five years or longer, are a terrible deal that would drain your savings and make your life miserable. But a house that’s been rented out only briefly could present a wonderful buying opportunity,” Davis says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)