BRILLIANT or DANGEROUS? How To Evaluate Rental Property BEFORE YOU BUY | Episode 118

EXACTLY what matters when you’re evaluating a rental property investment?  It’s a short list, but every single thing matters.  I’m Bryan Ellis.  I’ll tell you the CRITICAL FACTORS for evaluating rental property investments RIGHT NOW in Episode #118

------

It’s a wonderful day to be alive, isn’t it my friends!  It is SO AMAZING to get another great day on God’s green earth!

Welcome to another exciting edition of the podcast of record for savvy, self-directed investors like you!

Today, we’re talking rental property.  It’s an important topic because the change in consumer mentality towards living arrangements has shifted DRAMATICALLY towards rentals and away from ownership, presenting a great opportunity for you and me.

But, my friends, please listen very carefully to this:  Rental properties are not inherently a great investment.  Sorry, no, it’s just not true.  They are not all the same.  Not all properties are the same.  Not all markets are the same.  Not all tenants are the same, not all property managers are the same.  These are not commodity products.

Repeat after me:  Some rental deals are better than others.  Some are far worse.  Do only the best ones!

But which are the best ones?  This episode was inspired by a great conversation I had with a new client just yesterday, who bought a rental property from us for a very deeply-below-retail-value price on Monday.  He since received a solicitation from a turnkey rental company for some other investment properties, and he asked for my help in figuring out whether the properties they offered him made sense.  Jack… it was a pleasure to speak with you!  I hope our conversation was helpful!

So let’s you and I talk about what makes for a good rental property investment, shall we?

Folks, think like a business person.  If you own rental property, then your product is housing.  The fundamental question is:  How desirable is your product?  Doesn’t really matter which property you consider… there’s an occupant for it on some level of the scale.  On the one end of the scale is the property that has all of the bells and whistles, in the nicest part of town, that commands the highest premiums in rent.  And on the other end of the scale is the property that’s occupied by vagrants and is an eyesore and a physical danger.

Where does your property fall on that scale?

Being on either end of that spectrum is the wrong place for most investors.  You’re generally looking for salt-of-the-earth type properties that are, in most markets, in the $50,000 to $150,000 range.

So aside from price range, what are some of the factors to consider?

As always, the criteria to use at the start is the S3 Investing Criteria of SIMPLE, SAFE and STRONG.

Let’s look at SIMPLICITY.  Obviously, the rental property is a conceptually simple business.  So we’re good there.  But looking deeper… is the specific PROPERTY simple to deal with?  Is the MARKET where it’s located strategically wise such that you can make a SIMPLE case for why you should invest there?

For example:  There’s a geographic part of the country that we at Self Directed Investor Network are VERY excited about.  We’ve done our homework, and this part of the country is absolutely in the path of progress and has, in my humble – but astoundingly accurate – opinion, a GREAT chance at substantial appreciation in the coming decade.  The reasons are simple – it’s between two major cities connected by a major highway, and there’s an overwhelming amount of evidence that infrastructure is rapidly growing between those two cities, raising demand for property and associated pricing.  It’s a slam dunk.  But the BEST thing about it is that with a bit of market expertise, one can still buy properties there VERY inexpensively, below appraised value… and these properties are PERFECT as rentals!  So it’s a beautiful, beautiful opportunity.  Simple to understand, simple to explain.  Just simple.  By the way – if you’d like more information about this market, hang on a minute and I’ll give you that information at the end of the show.

Another consideration for simplicity is your choice of property manager.  It’s basically their job to make it simple for you to benefit from your rental property.  Have you taken a moment to talk to a few other clients of the property management firm to find out their experiences?  Particularly if you’re buying a rental property from a turnkey company, who provides a property manager along with the property when you buy it, you need to be particularly diligent.  A few turnkey companies do a great job of vetting the property managers they recommend.  Most do not.  It’s YOUR JOB to make sure, because at the end of the day, it’s YOUR MONEY… and your sanity… that’s on the line!

Another element of simplicity is the regulatory environment.  Yes, it’s your property manager’s job to handle most regulatory issues on your behalf but your property manager is definitely subject to the constraints of the law.  For example, is it simple or difficult to raise rental rates?  Are you required to provide inspection reports to the government?  Is it simple or difficult – in other words, quick or slow – to evict a problem tenant?  Even if you have the greatest property manager in the world, they can do nothing about an unfavorable regulatory environment.

So, for example, some markets that offer strong favorability towards landlords are Arizona, Georgia, Texas and Indiana.  But New York, California, Washington and Connecticut are states that can represent serious expenses, challenges and delays for rental property owners.  Remember that delays mean extended periods where you don’t collect rent.  During these times, your rental property becomes a LIABILITY rather than an asset… so it’s CRITICAL to pick markets that are favorable – and simple – for rental property investors.

And one other quick note about this issue:  The regulatory or political environment can vary dramatically from one city to the next within the same state.  For example, San Francisco is notoriously challenging as an environment for landlords, even more than most of the rest of the cities in California.  So look at this issue from both a state-wide and city perspective.

One other note about simplicity:  Exactly how simple is it to find tenants in the market you’re considering.  This is one of the big issues with buying a rental property that already has a tenant living in it.  You simply don’t know how long it took to find that tenant.  A long search suggest that either there’s little demand or that you’ve got a subpar property manager.  Both are warning signs.  So ask your potential property manager to give you specific stats about how long it takes their firm to fill a vacant rental generally, and whether they have other rentals in the same area.  If they do have other rentals in the same area, that’s a good sign… and it’s a good source for information about exactly how simple it has been historically to find good tenants.

And, while we’re at it, my friends:  A good way to evaluate property management companies is to get a report from the local county courthouse for how many evictions have been filed by your prospective property manager.  Then, find out how many properties are being managed by that firm.  If the number of evictions filed in the past 12-24 months versus the number of properties under management seems high to you, that’s probably a sign that the property manager is good at finding tenants, but not good at choosing the best ones.

Ok, so today we’ve covered the how to evaluate whether owning a particular rental property is going to be sufficiently SIMPLE to be a wise investment for you.  There’s more to the mix, though, folks.  There’s also SAFE and STRONG.  We’ll get to those tomorrow.

Now I do want to tell you that we’ve got some AMAZING rental property investment opportunities coming up right away that MANY of you will want to consider.  But you’ll definitely have to act QUICKLY, as the properties we offer are always priced so attractively that they sell quickly.  The latest example:  I made one property available this past Thursday afternoon, and it was taken Thursday evening.

And if this notion of building wealth through rental property appeals to you, then I’d recommend you set aside some time to join me for a very special webinar that’s coming up, where I’ll introduce you to some GREAT properties in some GREAT markets that we’ve pre-vetted to confirm that they fully comply with the S3 Investment Criteria of SIMPLE, SAFE and STRONG.

To get an invitation to that webinar, you must be part of my Top Picks group.  The only way to get in that group is to text the word TOPPICKS – that’s one word with no spaces, spelled TOPPICKS – text TOPPICKS to 33444.  Again, text TOPPICKS to 33444 to get on the Top Picks list and to receive an invitation for the upcoming webinar where you’ll learn all about how to get access to pre-vetted rental property investment opportunities that ABSOLUTELY measure up to the SIMPLE, SAFE and STRONG criteria that MUST be the core of your evaluation process.

More about how to recognize great rental opportunities in tomorrow’s episode.  Until then, my friends, remember:

Invest wisely today, and live well forever!

Hosted on Acast. See acast.com/privacy for more information.