NOT EVERY GOOD PROPERTY MAKES A GOOD RENTAL PROPERTY!

Real estate offers many investment formats, though the most commonly known are rehabbing and flipping. Building a portfolio by acquiring rental property is also a good investment strategy but remember – Not every good property makes a good rental property! When considering purchasing a rental property, it is important to focus on aspects that can make a rental property stand out.

Location. Location. Location. This is the gospel about any kind of real estate property, be it rental, residential, commercial, retail or investment. If a property does not have a favorable location, you can be sure, demand will invariably be compromised. Put yourself in your customers shoes. Since rental decisions are based on first impressions and perceptions, the smallest negative can set back long-term rental values. Unlike short term flips, with a rental property a five to ten-year horizon is ideal, meaning you need to have a long-term perspective for the area you are buying in. Talk to other owners in the area to see if they have insights on future development plans for the area. A planned new school, or medical center or even a commercial development will certainly bump up holding value over time.

Rental property goals. Before jumping in, it is advisable to have a clear fix on the short and long-term goals for the investment, since they will determine the level and kind of work you will put in and future upgrades you make. So, the question to ask is – Am I looking to generate monthly cash flow or long-term capital gains? If you only plan on renting out the property for two or three years, chances are you will keep away from expensive upgrades. On the other hand, if you are planning on renting until the property is free and clear, you may consider upgrades and repairs that will enhance curb-appeal and perceived property value. The right decisions will help maximize returns and most likely impact your future investing decisions. Sometimes a sudden jump in value can tempt you to sell before the anticipated ten-year horizon. Or an unforeseen financial circumstance can force you to liquidate. The best of plans can change along the way, but your goals will help you these changes.

Financial considerations. For a rental property, financial considerations are all important. New investors may not have an idea of all the costs associated but should take into account property management costs like utilities, landscaping, repairs and other items. Even the cost of vacancies, should be factored into the overall cost of ownership, which includes beyond loan financing, mortgage, interest amount, taxation and insurance costs. The more you know about comparable homes in the area, the better equipped you are for determining rental value for own property. Take time to talk to agents to get the lie of the land. And if you are planning on getting a property management company onboard, make sure they understand the scope of work involved in managing your rental. That way, you can come up with the real cost of ownership and yield.

Understand your market. Before finalizing a purchase, spend time to understand what investment into the property will yield the best return? Tenants will invariably seek out the most comfortable option, but not necessarily be ready to shell out the extra dollars! Take time to research what’s on offer in the area. Understand what it will take to keep your rental occupied with minimum vacancy gaps. People like to rent homes they are comfortable in, but not willing to pay the extra price for it. Not always! Renters will often place a premium on a driveway, and a garage. Consider investing in one if it will allow you to charge a higher rental and ensure your property retains demand. An outdoor patio may seem like a good idea, but if the cost of putting one in, does not justify the small rental gains, you’re better off without it.

A good rental property is indeed a good business proposition and can help grow your portfolio. But get to know everything about the property and the market to get the best return on your investment.

FORECLOSURE PROPERTY AND THE NEED FOR DUE DILIGENCE.

"GO THE EXTRA MILE!"

When considering a prospective foreclosure property purchase, the importance of going beyond the façade cannot be understated. Why? Because, the ramifications of a foreclosure purchase gone wrong, can have serious consequences not just for the individual, but also future owners and tenants.

Market potential is the single greatest motivator for investing in foreclosure property. If you were to buy it and flip it, just how much money would you stand to make? Given the sale considerations, perhaps you could land a deal 20 or 30% below the market rate, allowing you to flip the property and make a tidy percentage. But the importance of conducting detailed due diligence is very important.

Conducting due diligence on a foreclosure property is of paramount importance.  Make sure to clear any liens before you buy a foreclosure property, and be fully aware of any outstanding payments to contractors or financiers. Even if all seems okay at first sight, you may face hidden maintenance bills and renovation costs based on project work carried out, prior to your purchase!

It pays to conduct detailed property inspections on a home that’s been vacant for some time, which is often the case with foreclosure homes. Plumbing problems, water leaks, mold, and other obvious problems may be easier to spot, but unseen problems can lurk in structural and foundation concerns, which only an expert can tell. If you have limited real estate experience, it pays get an experienced property manager to do this. This can save you a ton of cash in un-wanted repairs, in the future. Property management companies have years of experience and skills to pick up on details you may skip, as you move quickly to secure the deal.

With a new foreclosure property, maintenance costs can recur continuously for a long time to get it to acceptable standards. You may also need to make more substantial, one-time investments. It is not uncommon to allocate up to 10 percent of the purchase price to repairs – and these are upfront costs, which you will have to pick up yourself.

Quite often banks and finance institutions may choose to forego full disclosure of a property’s foreclosure details. Meaning you will know less about its history of past improvements, structural concerns, and chronic maintenance problems. These will surface over time, and depending on their severity, play a damaging role your property’s ownership and resale value.

So, by all means, go ahead with that foreclosure investment. But only after you are sure that all the little details have been looked-into first!