They say timing is everything. It is especially relevant for anyone that invests in a rental property. Unlike the potentially substantial moneymaker called property flipping, investing in a rental property requires the commitment to be in it for the long haul.
Some investors of rental properties are afflicted by what real estate professionals call analysis paralysis. In other words, they spend way too much time over-analyzing potential rental properties to invest their hard-earned cash.
Let’s review a few tips that let you know the time is right to jump into the rental property investment market.
Factors that Define a Great Rental Property
Another popular saying that is used in the world of business is ‘Location, location, location.” Where you operate a business is as important of a factor as any other factor in determining the success of the business. The same principle applies to rental properties.
What rental property do you think brings in more revenue: An apartment complex located miles from a Santa Barbara beachfront or an apartment complex that sits feet away from the incoming tide.?
Choosing the right city is a good start, but finding the best neighborhood maximizes the return on your rental property investment.
As another important factor for deciding on investing in a rental property, cash flow involves much more than the amount of rent you collect each month from every tenant. You also have to consider that cash that leaves your bank account.
A rental property that generates a substantial amount of cash flow appears financially sound on paper, that is until you discover it bleeds money every month because of costly repair and maintenance work. Before you invest in a rental property, ask to see the books to learn whether the property requires considerable repairs and maintenance.
Quality of Property Management
You could own the highest-paid team in Major League Baseball and still find your team sitting in last place. The reason for the lack of meeting performance expectations sits on the shoulders of the manager of the team.
Apply the same principle to investing in a rental property. You want to work with a highly rated team of professional property managers, such as the team of property managers at Utopia Management. Some of the attributes you want in a property management company include operational expertise and the ability to attract new tenants.
Times, they are a-changing, and quickly at that. The recent outbreak of the Coronavirus represents a case study in adapting to rapid changes. Following the economic news presented on trusted websites like Newtrals is a good place to start.
Know the Difference between Fair and Below Market Price
You are not trying to sign a contract that delivers a fair market value of a rental property. Fair market value simply means both parties agree that the price of a commodity, which in this case is a rental property, is the right price to finalize a sales transaction. No, your goal as a rental property investor is to buy a property that falls below the standard market price for a similar property.
Consider a “Fixer” Rental Property
Since we want to find a rental property that is priced below fair market value, the best type of rental property to discover is one that requires a bit of fixing up to make it appealing to potential renters. You can renovate a rental property to match the unique specifications that you want for your tenant target market.
Foreclosures Offer Great Value
Since we are searching for a rental property priced below fair market value, you probably will not find a better opportunity to invest in a depressed rental property than one that is currently under foreclosure.
The bank handling the foreclosure process wants the property removed from its book. Foreclosures represent a prime example of taking advantage of a bad situation.
Patience is a Virtue
You can look at investing in rental property the same way a poker player views a full house. There sits a great deal in front of you, but you want to receive as much money as you can for having the best hand. This means remaining patient when the ideal rental property comes on the market. Demonstrating an eagerness to buy can lead to price adjustments made by the seller.
Keep your poker face on throughout the buying process.