So you're ready to own a rental property, how to pick the right one?
From our previous emails you should have a feel for the different types of Real Estate Investing: single-family, multi-family, apartment building etc. This month we are going to focus on how to find the right property once you've identified the type of property you'd like to invest in. There are 4 major factors to consider when purchasing an investment property: Acquisition Cost, Repairs & Improvements, Carrying Costs and Profit.
Acquisition Cost is perhaps the most important factor when deciding on the right property. You can not fix a bad buy. Buying right relies on understanding the condition of the property and the market value. You may need to use an inspector or several contractors to understand the condition. Is the boiler past it's prime, how long do you have on the roof? You get the idea. The market value should be interpreted by a Real Estate Professional with local experience. Someone you should have on your team.
Repairs & Improvements are the costs associated with getting the property to its maximum profitability. Do you need to add granite counter tops, paint, new carpet, what will get you the best return for rent? It is easy to over improve property so you want to focus on the biggest bang for your buck options. Avoid over improving; remember you're not going to live there.
Carrying Costs are what make your portfolio a success or failure long term. You need to account for Capital Expenditure cost in the long run. The roof will need to be replaced, the hot water tank won't last 30 years and kitchens & baths will need a few updated over 20 years. Being disciplined and putting aside a reasonable amount of money each month to account for these larger expense over time will make or break your portfolio.
Profit is what everyone focuses on, but in reality it is what is left over. If you did a good job on the first three parts, the profit comes in every month. It's not get rich quick money, but consistent and reliable cash flow that is scalable.
Each property is a brick in the foundation of Real Estate Wealth. The first few will be slower and harder, but as you grow, you gain speed and momentum. The economy of scale begins to show and before you know it, you are a Real Estate Mogul.
Want to learn more about the 4 factors for finding the right property? Give us a call today to see how The Coverdale Team has You Covered!!