The combination of low vacancies, increasing rental rates, and affordable properties makes this the perfect time to own rental real estate. In today’s market, you have the potential for strong and long-term cash flow combined with the promise of future appreciation.
If you’re thinking about acquiring properties to hold as rentals, here are 7 suggestions and precautions:
- Buy in areas you know. Don’t guess about an area or purchase in a location someone suggests; know your market. Pick two or three nearby neighborhoods with good schools and convenient shopping. Areas you know are the best for keeping up with statistics such as crime, property values, rental and vacancy rates.
- Own properties near where you live. This makes filling and maintaining properties much easier. You want something near because you’ll be driving by, especially when vacant, to check on the property, to put out signs when marketing, to meet potential tenants and, if you plan to manage it yourself, possibly to do repairs.
- Buy three bedroom / two bath or larger. It’s hard to find a tenant anymore who is satisfied with only one bathroom. Even single residents prefer at least an additional half bath for guests. And two bedrooms are much harder to rent than three. Most of your potential clients will have children, and even single people or couples without children want extra space for guests or to use as office, storage, or exercise space.
- Make sure your property will cash flow at least $200 per month. Before you purchase, know all of your costs to own the property and be sure you can get at least $200 more than that for your rent. $200 “profit” per month won’t make you rich today. That money is to cover your costs of owning such as: new hot water heater; new roof; new carpet and paint when a tenant moves out; etc.
- Don’t buy unless it cash flows from the day you purchase. One of our mottos, “Never bet on the future.” Don’t buy because rents will go up in the future. They may, but that doesn’t help you out at all today. Don’t buy because the house will be worth more in the future. It may be, but that kind of speculation hurt a lot of people over the past five to seven years. There are plenty of great deals out there that will cash flow from the day you purchase. If you’re looking at one that won’t, move on.
- Don’t tie up a lot of cash in a property you’re planning to hold onto. This is for beginners. As investors, we recommend that investors flip any properties they have a lot of cash in, and use that cash from one property to buy several additional properties. This is such a wonderful time to acquire rentals at great prices and to allow tenants to pay down the mortgages over time. Especially when looking at distressed properties (properties that need a lot of fix-up), buy those at enough discount to allow for the necessary repairs and resell at a quick profit.
- Recognize that wealth in real estate comes over time. As stated earlier, you won’t get wealthy today from the cash flow off your rentals. What will create long-term, lasting wealth is having all the mortgages paid down over time, getting the tax write-offs rental properties provide, and increasing cash flow as you owe less year after year while rents continue to increase.
Landlording may not make you rich today but, over time, it is probably the number one wealth creator in this country.
Here’s to your success and let me know any questions I can answer for you.