The first thing to know is that you want an exit plan. You want to buy something that will be fairly easy to sell when that time comes. That is why I usually suggest a single family home in a decent neighborhood. When you sell it, your buyer pool will be owner-occupant buyers who will happily pay a full retail price.
The second thing to know is that you pick your tenants through them picking your house. You have a crappy worn out rental, guess what type of tenant is going to be willing to live there? You make your house one of the nicest ones in it’s price range and you will attract the best qualified tenants out there. Also, if you have one of the best houses they could ever afford, why would they move?
Here are some things that I think make a house a good pick:
1. A ranch house. Who doesn’t like one? They are suitable for buyers/tenants in all stages of life. They are easier to paint by yourself since there is no staircase. You can clean out gutters with a step ladder. They are just easier to work on period.
2. A house on a slab. When the wax ring around the toilet fails and when water gets splashed out of the tub, there is no wood to rot. Also there is no water to collect under the house and grow mold.
3. A smaller house. Fewer people can live in a smaller house. That means less wear and tear. While a 2 bedroom house has a little more limited market when you sell, tenants usually don’t care if a house is 2 or 3 bedrooms.
4. A simple roof line with not much of a pitch. The fewer ridges and valleys the better. Not only are they cheaper to replace, there are fewer places to get a leak.
Here are some things I try to avoid:
- Basements. They all have the potential to leak.
- Sheds. They are just one more thing to maintain and tenants usually leave you stuff they don’t want when they move out.
- Huge yards. When they get out of control, it takes a lot of time to bring them back.
- Big garages. I’m talking more than a regular two car garage. Usually tenants who are attracted to a huge garage have a lot of stuff to store or hobbies that need the space. Either one means you might need a dumpster when they move out.
- Fireplaces. Do you really want somebody starting a fire in your house?
Now a lot of this is based on paying retail. If you get a great deal on a house with a huge lot or a basement, take it. A good deal can make up for potential future headaches.
My ideal house would be a smaller ranch on a slab built after 1960. It would be 2-3 bedroom and have 1-2 baths. A normal sized, flatter yard for good drainage. On the lower end, no garage is okay. If the house is worth more than about $150k, I would want a garage more for resale than to make a tenant happy.