A Few Good Things To Consider When Investing In Rental Property

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So it's my opinion that investing in rental property with nice homes instead of run down properties is an often overlooked approach.

Is there money to be made fixing up "not so nice" homes and then using them for long term wealth creation by renting them out afterward - YES!

However, there's a bunch of other things that work to my advantage when I'm investing in rental property that is already in tip-top shape.

When You're Thinking About Investing In Rental Property...

Here's a partial list:

  • Buying nice homes is not exhausting. If you've never invested before you may underestimate just how long it takes to find a run down home that meets your criteria (right type of home, right area etc.). Investing in a rental property that's in good shape can be exhausting as well but the filtering process is much easier and a decent realtor can be helpful. And, the decision-making process is easier because you're not constantly wondering what surprises you may be overlooking with a beat up home that needs work.

  • You are buying into demand. This was a real eye opener for me. I flipped a home once where I was trying to create demand. And because I didn't put in the necessary granite, crown moulding, double master ensuite sinks etc. in a home of that price point ($550K) I was having a tough time getting rid of the thing. I was speculating, not investing. When I'm investing in rental property in good condition and in the right areas it's easier to achieve my goals. There's an existing demand for these properties (more on how to verify this in another article) so my risk is greatly reduced.

  • Make money from the start. I hate having cash flow out of my hands and prefer it flowing into them. I know, pretty simple right, and I bet you're the same. When you fix up properties you are spending your money before you get any. When investing in rental property with nice homes you can have cash flow in your hands quickly. Depending on your skill level and strategy (and mentor's advice!) you could be getting thousands of dollars in your pocket within days of closing. That's right, thousands of dollars a few days after closing. And this isn't done using any 'tricks', just following proven systems by other investors.

  • They rent easily. When helping my clients choose a property I usually ask them if they would feel proud standing in front of the house they are about to buy. As a beginner if you are proud of your property it will make renting it out a breeze. If you like it, others will. If you think your place is a dump then it'll come across when you return phone calls. It'll take longer to rent and you'll likely get less money per month for it. I've tried to "sell" someone on a not so nice house before...it's not fun, but I didn't know any better. When you are starting out investing in rental property I'd go for the nice homes...they rent easily!

  • Banks like them. There's nothing like trying to refinance a house that's a piece of crap! The bank appraisers are strange enough that you don't need a crummy house to compound your problems. Getting a mortgage on a nice home, getting a second mortgage, getting a refinance or even selling your property is all much easier when it's a nice property. You'll have more options available to you. When investing in rental property that needs work you'll have a much more difficult time getting a good appraisal and you may be stuck with a dog of a house until you fix that thing up.

  • You can control fear and build confidence! That fear that every new real estate investor feels is pretty incredible. Some people handle this much better than others but it's something that is real. I've seen some new investors want to sell the house days after closing on it because they just can't handle the perceived pressure they've put on themselves. Pretty incredible. The best way to make sure this doesn't happen to you is to buy a nice home! You'll greatly reduce the fear pumping through your veins if you truly believe you have a nice piece of real estate. And when you rent it out your confidence will soar! You'll feel like a superhero for a few hours, really, you will. And that's what you will build off of for your next success. You don't want to throw in the towel after you close on a property...you'll be the "motivated" seller that you were looking to get a deal from just a few weeks earlier!

  • Leverage. And I'm not talking leveraging your money, although that's never a bad thing. I'm talking about your time! It's much easier to have 3,4,5,10 nice properties than it is to manage 1 or 2 pieces of junk that you're trying to fix up. Unless you are in the construction business or have some great contacts, fixing up homes can be massively time-consuming. It can be done but for someone with a family and a full-time job...not something I would advise right out of the gates.

So there you go, a bunch of things to think about before you put in an offer on that "deal" you found on a fixer upper.

Investing in rental property is a proven wealth builder, just look before you leap.

Return from Investing in Rental Property to the Residential Real Estate Investing Guide by clicking here.


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