Buying Rental Properties - What to Look For
By Steve Gillman - 2008
Buying rental properties is a great way to build your wealth,
but how do you find a good deal? Watch for the following things.
1. Good location. Traffic is good, because it makes rentals
easier to rent. Signs can pull more response than an ad in the
paper. Also, if it's in a nice locale, it will usually rent faster.
Nice locales include places that are close to amenities.
2. Good numbers. Verify every last expense, figured them into
your calculations, and be sure that you'll have positive cash
flow from the start. One of the biggest mistakes investors make
is to start with negative cash flow.
3. Expensive homes. High home prices create rental demand.
What do people do if they can't afford to buy? They rent, of
course. Look in areas with high house prices.
4. Low maintenance properties. Cedar-shake roofs and wood-sided
buildings just mean more expense and trouble. Look past current
expenses to how much maintenance the building will need. Lower
maintenance means fewer headaches and more profits.
5. A good rental history. Look at the rental history, and
note how long residents are staying on average, and how often
they pay on time.
6. Below-market rents. Buying rental properties with below-market
rents is a sure wealth builder. It means you get to raise rents,
and that means you immediately raise the value, because rental
property values are based on income.
7. Complies with fire codes and zoning. Have the property
inspected, and ask local officials if there are any existing
problems. Sometimes a violation that was tolerated for years
won't be tolerated once a new owner is in the picture.
8. Less than 25 years old. The number is somewhat arbitrary,
but if you limit your search to newer buildings, you'll be less
likely to have building code and maintenance problems.
9.Owner/manager is out of state. These properties are often
the best deals. It can be a real headache to manage a property
from far away. Out-of-state sellers are often more concerned
with a quick sale than a high price.
10. Stable or improving neighborhood. It's okay if it's stable,
but if you can buy in a neighborhood that is improving, you'll
rent the units more easily. This less vacancy, more income, and
therefore, automatic appreciation in value with time.
As you look at properties, you'll find other things to add
to this list.Some things are particular to an area, like local
rental codes that tell you what you have to fix or improve. Add
these to the list above, and actually carry the list with you,
so you don't forget anything. Watch for the right things, and
you'll be safer and make more money buying rental properties.
Buying Rental Property
- Avoiding Seller's Dirty Tricks
Real Estate Appraisal
For Rental Properties
Rental Properties - Ten Ways
To Increase Income
- Ten Ways To Find Them