If you are an investor and mulling with the idea of purchasing or amassing a wide range of rental properties. Read on. I’m not going to give national data and a bunch of other investment scenarios. How about a dose of good ol’ fashioned advice without the frills. When I was in the business of finding a rental or rehab, here are some of the biggest challenges and opportunities you may face.
–Let’s talk about the overall condition of the property. Here’s a list of ideas to get you going on your first or next project. Enjoy!
1. Make a visual inspection of the structure such as roof, siding, brick, windows, doors, foundation, etc.
2. Take a flashlight. Don’t be scared of the attic or crawl spaces! Get over your fear and know your potential rental purchase.
3. If you were a renter, would you want to live in this neighborhood? Is the drive to the house appealing? Does it feel like a place that a single person or family would want to stay long-term. Remember, long-term renters are great!
4. Use a site like Rentometer to find out what current rent rates go for in that neighborhood. Simply put in the address, number of bedrooms in the property and the desired rental rate you want to charge. Rentometer will output a number of properties, in that area with average rental rates. It will even tell you if your property is to high or just right for the area.
5. Take a measuring tape, if the room sizes aren’t listed, then measure. Why? So you can get a better estimate of what repair costs are with the total square footage. Always, as a new investor, account for as high as 25% overages in your repair estimates.
6. Look for things like lots of big trees or lots of pine trees in the yard. This is important because the larger trees will have larger roots. Those larger roots may cause you lots of problems with plumbing pipes running underground. Roots can break old piping pretty easy. If you have a lot of pine trees, remember there is a lot of yard maintenance required to keep that property up. If you are doing a rental and not a lease purchase, it’s important to know you don’t have a ton of expenses for yard maintenance.
7. Pay attention to the gutters and downspouts. The last thing you want to deal with is foundation issues so make sure the gutters are all in working order and can be easily cleaned, if needed. It also helps to have a single story home so that, if you are capable, can do a lot of the maintenance yourself.
8. Be mindful of the amenities your property may offer vs the next rental you see. Renters like garages, a fenced backyard for pets, quiet neighbors, a generally safe area, etc.
9. Location, location, location! I’m sure you’ve heard this before but it still holds true in rentals as well. The trick is to find the area and investment that you not only have equity built into the property but are not mortgage poor. If you are a small investor, look for a location that is decent but is actually going to produce a profit. I’ve seen so many investors get a great property but end up making next to nothing or a loss because of the repairs, maintenance and capital gain taxes.
10. Screening tenants. You need to research and develop a proven or iron-clad system before looking at any investment property. Bad tenants are notorious for destroying properties and causing you a lot of frustration and time away from making money on your rental. In some scenarios, you might be looking at 3 months before getting a sheriff to effect a legal eviction of a problem tenant. The investors I know that have solid processes in place for screening tenants have, without a doubt, been the most profitable.
11. What is your overall goal to owning this property? Sit down and write out a short and long-term plan of action to achieving success as an investor. There are plenty of spreadsheets for free you can download to manage rental property expenses. I’ve owned several companies and the one’s that did the best were the ones with a solid business plan. I’ve made every mistake possible in business but I made sure I never made it again. In the investment and rental business, sometimes you only have one chance to get it right. There’s too much at stake to go at it halfway. Invest the time in yourself to be great at it!
12. Be honest with yourself and your agent while shopping. If you have questions, ask! Ask around for the best home inspector possible. It could literally save you thousands, if not tens of thousands, on potential repair costs. If you are shopping investment property above your means, then stop! You are in this business for the long-term. Get out of the mindset of wanting it all now and take baby steps. Learn. Relearn and never become complacent. Renter’s needs change and so do real estate markets. Buy in an area you know will still be great 10-20 years from now. If you play your cards right you could have a pretty cushy retirement and many nest eggs to fall back on.
As always, your comments and feedback are appreciated. If I can be of service, please feel free to call (901) 444-2884 or email me. Thanks and hope these tips help and good luck with your future investments. John