I have been investing in rental real estate for several years and researching the field even longer. I am now using my experience to compile a Top 10 list of tips for investing it rental properties. This list is primarily for the rental investor but some of the items could apply to other investing techniques.
Here is my Top 10 list for investing in rental properties.
- Just Do It – Research is fine but don’t overdo it. You need to find a deal and buy a house.
- Margin of Safety – Margin of Safety (the Ben Graham concept) means to buy low enough so that you can absorb mistakes. Make sure you have room for unforeseen problems – they will occur. When things go as expected this margin of safety becomes profits.
- Cash Flow – No positive cash flow – no purchase. Make sure the rent covers servicing the debt, property taxes, and insurance. My records show I spend about 25% of the gross rent for repairs and maintenance and vacancies – cover this too.
- True Costs – Your invested cost is not just the purchase price and repair cost. You need to include carrying costs, closing costs, and many other expenses that vary from deal to deal.
- Sweet Spot – First, make sure you are buying house that rent for an amount many tenant are willing to pay. You want a large prospective tenant pool so the house rents easily. You can usually buy 2 properties that will rent for $750 for a lot less than a single property that will rent for $1,500 (actual numbers may vary in your area).
- Formulas – Avoid emotional decisions. Make use of investing formulas so you can remain objective – and stick to the formulas.
- Just Fix Things – If something is broken then fix-it. Don’t spend money on upgrades and remodeling. These things may help a flip but that rarely help rentals.
- The Right Deal – Do not be in a rush to do-a-deal and lower your standard. Wait for the right deal then act quickly.
- Hire Professionals – Sub out the rehab work – Do not do the physical work yourself. You may enjoy the work but the pressures of the schedule pressure will eventually burn you out. And certainly do not rely on doing work yourself to make the numbers work. If you have a lot of free time then use it to find more properties – not to sweat. I have seen the problems caused by doing the work yourself.
- Numbers, Numbers, Numbers – Only the numbers matter. When the numbers don’t work let the deal go. Don’t looks for other reason to buy the property. No one ever lost money by buying to low.
I look forward to your comments. What did I miss? What did I get wrong?