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Buying rental properties can be a great way to build your wealth. However, as in most real estate investment, it is sometimes difficult to know if you’ve found a good deal – especially the first time. Here are some things to look for to be sure that rental is a great investment.
1. Location
If traffic is heavier, rentals are easier to rent. A sign will often pull more response than an ad in the paper. If it is a nice locale, it will usually rent faster. This is also true of places close to amenities.
2. Numbers
Run the numbers. Get every last expense figured into your calculations, and be sure that you will have positive cash flow from the start.
3. High Home Prices
Look in towns with high home prices, as this creates rental demand. What do people do when they can’t afford to buy? They rent.
4. Low maintenance buildings
Avoid cedar-shake and flat roofs and wood-sided buildings. Look beyond current expenses to how much maintenance the building will need. Low maintenance means less headaches and more profits.
5. Good Rental History
Ask to see the rental history. Note how long residents are staying on average, and how well they pay on time.
6. Below Market Rents
Buying rental properties with below-market rents means you get to raise rents. Raising rents means you immediately raise the value, because rental property values are based on income.
7. Complies with Zoning and Fire Codes
Have it inspected, and ask local officials if there are any problems.
8. Less Than 20 Years Old
This is somewhat arbitrary, but if you limit your search to newer buildings, you will be less likely to have building code and maintenance problems.
9. Owner/Manager That is Out of State
These properties are often the best deals, because it is tough to manage a property from far away. An out-of-state seller is often more concerned with a quick sale than a high price.
10. Neighborhood is Stable or Improving
Stable is okay, but if you can buy in a neighborhood that is improving, you’ll rent the units more easily, and therefore get automatic appreciation in value with time.
There you have it, ten simple tips that can become your “Checklist for Property Purchase.” And as you become more experienced and acquire more properties, you may want to add or subtract from the list as it pertains to your target properties. The idea here is to set and follow basic guidelines to avoid mistakes that may cost you thousands of dollars later on and ultimately help you achieve success sooner.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti as missionaries serving orphaned, abandoned and at risk children for Child Hope International.
