Focus on the potential of the property NOT how it is performing today!

[Alan Asriants]

As an agent who works with a lot of investors, I have recently started to notice more and more that people will evaluate a property based on its current metrics, and write it off.

For example, a duplex that's on the market is selling for $440,000 and the tenants are currently paying $850 per month and are signed until next July 2025. When looking at the property today, and the current rents that it is getting, anyone can see that the property is clearly underperforming. And most people that I speak with, will actually take the property for what it is today and write it off and try to find something that is performing more optimally. But in reality that's not what the property can get in the future... With some cleaning up and small renovation you can get up to $2000 per unit.

Instead I get these kinds of questions:

"Why are the rents so low?'

"Why doesn't the owner want to increase rents?"

"How can I justify this purchase if the rents are this low?"

To put it as straightforward as possible those are the incorrect questions to be asking if you want to be a savvy investor. They are normal to think about, but these kind of questions are going to give you limited beliefs and prevent you from moving forward on a potentially great property. The truth is, if the owner did increase the rents and was operating the property to market conditions, and at the most optimal level, they likely wouldn't be selling the property. There are many reasons why landlords have tenants at low values. Some of them being: that they purchased the property very long time ago and don't need a massive amount of income to cash flow, they are fearful of raising rents and having a vacancy, or they just don't wanna deal with it anymore.

Either way, this is where the opportunity lies for the new Investor. It is up to the new investor to see the value of the property and be able to understand that what the property is getting today is not what it's able to get tomorrow. There are many cases that I have seen where properties are in fantastic condition and have very low rents, and the Investor doesn't want to move forward because they're not making that cash flow today.

Thinking this way will prevent you from moving forward on really solid options. Before you know it, you might let a really good opportunity slip because you weren't able to see the long-term vision.

Instead of thinking with a limited mindset you should consider the following questions:

"What are the potential rents?"

"How much work do I need to do to get it to market rent?"

"How much can I increase rent in current condition?"

"if I am holding onto this property for a long time, will 1 year of lower income make a large difference?"

Your mindset shift should be: "I am looking at this as a long term investment. I know I can eventually get X for rent. I would rather buy a solid piece of real estate and realize the rent potential in the short term future than just buy something for cash flow sakes."

I have bought multiple properties personally, where rents were very low to begin with, and were even locked in for over a year, but once that renewal came up, I was able to simply raise the rent and keep the current tenant. This made my property perform much better than when I first purchased it.

I knew that all I had to do was raise the rent in order to get the fair market value. So I was OK with receiving a small amount of rent in the beginning because I saw the future potential of the property.

This isn't a purchase that you're going to have for only a year. People buy investment properties for decades, even more depending on their strategy. In today's market, you have to have a long-term vision. If you write a property off because you won't make market rent in the first year, then you shouldn't be investing in real estate. This is especially true because you're going to be holding onto this property for a very long time so one year of low income is not going to matter.

You will be surprised how fast a year can go by. One day, you'll blink and realize that you have to send your tenant a 60 day notice an increase the rent to market rate. This day will come a lot faster than you think

Look at potential and think long term. You're not in this game for a year with the buy and hold strategy. Think 5-10+ years.