In today’s world, it may seem exceptionally challenging to discover deals on investment rental properties. If you are reading this, chances are, you have – up until this time – had a high level of dependency upon a multiple listing service (MLS).
The truth is, this is not the only source for finding optimal deals on investment rental properties. In fact, most of the best deals out there are bought and sold prior to making their way onto the MLS. You must know how to uncover opportunities that others in your field miss. Continue reading to learn the secrets to discovering the best deals on investment rental properties – once and for all.
Identify Your Niche
Generally speaking, there are four categories when it comes to rental properties. They are the property niche, the seller niche, the end-user niche, and the location niche. When searching for investment rental properties, you must select a niche and stick to it. This will help in ensuring that you are properly building your investment portfolio. The following outlines examples of the types of rentals that are available within each of these four niches:
- Property Niche – This includes single-family homes, duplexes, apartment buildings, mobile homes with land, condos, townhouses, commercial properties, and land.
- Seller Niche – This includes pre-foreclosures, short sales, auctions on foreclosures, bank-owned properties, landlords who are burned out, estate/probate, those in bankruptcy, divorce, tax delinquencies, and even owners who are in violation of codes.
- End-User Niche – This includes long-term and short-term rentals, vacation rentals, student rentals, government-assistance rentals/Section 8, seller financing, rent-to-own, special needs rentals, and other types of group homes.
- Location Niche – This includes a certain city, county, state, school district, neighborhood, or region of the country.
When considering a real estate rental property investment, location is imperative. The location of the investment property could mean the difference between maximizing the chances of a property’s value increasing and generating highly profitable returns to going in the red.
Even if a property has its share of shortcomings, those are typically overlooked if the property is in a good location. The secret is determining where the location stands on the following:
- The Value of Nearby Neighborhoods
- The Availability of Job Opportunities
- The Average Salary of Jobs in the Area
- Quality of Schools
- Median Home Values
- Infrastructure and Utilities
- Transportation and Access
- Noise Levels
- Pollution Levels
The next step to finding deals on investment rental properties is to evaluate the current market factors. You want to ensure that the market has the potential for profits. The following highlights the most critical market factors, with a brief explanation of each:
- Price-to-Rent Ration – It is important to choose an investment property that will allow you to rent at a price that exceeds the expenses associated with that property so that you have profits left over.
- Price – You may find an investment property that is very low. That may be a good option. In some instances, you may find that the initial cost of an investment property is high. To get the best deal, you must determine the overall risk-to-return ratio.
- Cash Flow – You must evaluate the potential to generate ample cash flow. If there is no opportunity, the investment should be avoided.
- Potential for Appreciation – You must determine or mitigate the overall risk and uncertainty in the neighborhood and market. An investment should never be made based solely on the possibility of appreciation.
- Property Age – It should be understood that the older the property, the higher the costs – in terms of maintenance and upkeep. While it may prove to be profitable to invest in historical homes, it is imperative that you consider the condition and costs to upkeep that home.
- Industry – You must evaluate the industry surrounding the property that you have an interest in purchasing. It is best to choose those in an economy that is supported by multiple industries. If there’s only one and something happens, the failure of that one industry could result in the failure of the economy where the investment property is located.
Avoid Those with Severe Risk Factors
In most instances, when you are in search of an investment rental property, you will not be dealing with properties that are brand new. There will be some degree of risk. Of course, there is some degree of risk with new properties, too. It is best to avoid properties that carry several risk factors; however, it must be understood that most properties carry some degree of risk. Be on the lookout for the following issues:
- Construction Style
- Building Materials
- The Position of the Structure
- Any Previous Renovations
- Any Extra Additions on Structure
- Structural Problems
- Issues with the Foundation
- Problems with the Roof
- Old Windows
- Plumbing Issues
- Electrical System Inadequacies
- Failing Appliances
- The Presence of Hazardous Materials
- Outdated Updates
- Unsafe Features
If you see any of the above-listed issues, you should proceed with caution. May be fixed quickly and easily, but you must first determine the overall severity of the issue. For example, if you want to invest in a rental property with old windows it may be okay; however, if the windows are old, the roof is falling apart, and you observe mold or mildew, this is not an investment that you should consider making.
Discover Off-Market Properties
The next step to discovering good deals on investment rental properties is to know how to find off-market opportunities. The following steps will help you succeed in this endeavor:
- You should find and join a local real estate investment club where you reside, or in the area where you are interested in purchasing an investment rental property.
- To discover golden investment opportunities, be sure to network with those in the market.
- Make contact with real estate agents that have direct access to both on-market and off-market properties.
- There are wholesalers out there that specialize in real estate opportunities. By finding these individuals, you will be able to discover a wide array of property investment deals.
- You should connect with those that work for mortgage brokers, title companies, and even direct lenders. These individuals are usually in “the know” on who is buying and who is selling.
- You should explore neighborhoods on your own. Talk to those that live in the neighborhoods. Look for properties that appear run-down or vacant, and search for For Sale by Owner advertisements within the neighborhoods that you research.
- You may use direct mail communications to contact homeowners that have properties that you are interested in purchasing.
- Research online resources such as Realtor.com, Zillow, and Redfin. You will be surprised at how much information you are capable of pulling up on properties that would be an excellent investment.
- You may advertise online and in and around communities that you are in search of deals on rental properties. Examples include community billboards, Craigslist, Facebook Marketplace, and even the placement of bandit signs at intersections that are often busy.
- Contact a property management company. Not only do these companies offer a multitude of services, they often have inside information on property investment deals that cannot be found anywhere else.
If you are in the market for a good deal on investment real estate properties, contact us here at Pioneer Property Management today by calling: 720-839-7482