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Buying a rental property is risky. On the one hand, the right property could be a consistent source of income for years to come. On the other, a bad pick could end up costing you more far money than the property is worth. With stakes like those, it’s crucial to make sure that you’re getting a good buy. To that end, I asked the experts to share their thoughts on what buyers should look for in a rental property.
Here’s what they had to say:
Focus on cash flow:
“When doing long-term buy and hold real estate investing, having enough cash flow is going to be a large determining factor in your success. Cash flow is how much of the rent income is left over each month after you have paid your mortgage, insurance, and property taxes, as well as set aside savings for vacancies, repairs, property management, and capital expenditures.
There’s no hard rule on how much cash flow you should have on each property, but we shoot for a minimum of $250 monthly cash flow per unit. If you buy your properties correctly, you should not have to come out of pocket for any of the expenses.”
– Shawn Breyer, Owner of Breyer Home Buyers in Atlanta, GA
Don’t forget ‘location, location, location’:
“Especially for rental properties, the cardinal rule for property investors is to snap up houses in central locations where people are likely to be centrally situated with close proximities to major roads, public transportation, and most importantly, schools.”
Start with ‘Toyota’ properties:
“If the investment real estate world was the car world, you’d be hunting for Toyotas, not Mercedes-Benz. Higher end investment properties are also a higher risk because you’re limiting your pool of renters from the start. Not to mention that by default you have less of a buyer’s market if you ever decide to sell. There is a high-end rental market, and some investors’ choose that niche. However, it’s essentially the luxury version of an investment. More expensive, lower yield.”
– Devin Beverage, an agent with Lombardo Team Real Estate LLC in Tampa, FL
Check the health of big-ticket items:
“If you are looking to purchase a home as a long term rental, focus on homes which have “good bones.” You particularly want to pay attention to big-ticket items, such as the age and the condition of the AC unit, roof, water heater, plumbing, electrical, flooring, and windows. These items are costly, so when purchasing a home it is crucial to consider the repair or replacement cost of these items when presenting your offer to the seller.”
– Bruce Arapovic, an agent with the HomeSmart Elite Group in Phenoix, AZ
Go with your gut:
“If a property isn’t feeling right to you, but you may be getting pressured from an investment partner or family member to buy it, avoid it. With money, it is usually the things that you don’t buy that save you money rather the things that you do buy. There are plenty of properties out there to choose from. Don’t get peer pressured to purchase something that doesn’t fit your investment strategy. “
– Ellie Thompson, CEO of Money Therapy