In Baseball, you cannot win the game in the first inning. If you get too far behind though, you can make the hole so deep that it is difficult to win the game. It is the same for purchasing real estate rentals. You need to “play” smart on the front end. If you find yourself getting behind, no need to worry! You can make that up over time. However, if you buy poorly on the front end, you will be chasing to get back to square one and may never make it.
It’s about Return on Investment (ROI).
There is no reason to buy a property for a long term rental if you are not aware of and focused on the ROI. As a rule of thumb for purchasing a Single Family Rental (SFR), we remind our clients that Red Team is looking for homes that are going to generate a fair ROI. For an SFR, we would typically look for a home that the purchase price plus repairs is going to generate approximately 1% per month in rental income. This is not exact, but if a property is not going to generate the income that we are looking for, we move on to the next opportunity. Note: This does not apply to turning an existing property into a rental, only to the purchase of a new property as a rental.
Another thing to remember is to take emotion out of it. A rental property purchase is an investment. It is a business that is expected to generate revenue and ultimately a profit. If you purchase a rental and never make any money on it, then why did you buy it? Often we find people wanting to purchase a property because they like a certain neighborhood or because the price is great. Well, there may be reasons to make that purchase, however a good rental purchase is going to be one that generates an ROI that the owner is happy with receiving. A rental is not a good rental purchase because the owner can see themselves living in that house.
Always have the end in mind.
We tell our clients, knowing the long term plan is important on rentals. How long you are going to hold the property and what are you using the rental investment vehicle to accomplish? If you make a plan and know where you are headed, it is much easier to get there.
Educating for REAL Greatness,
Red Team Real Estate and Property Management
Red Team Real Estate and Property Management was started in 2012 to focus on being the provider of quality service that has never been seen before in property management. Our approach is to serve our owners by providing professional, knowledgeable service with maximum value.