Strategies for finding an investment property - 2 Questions

[Jeff Howard]

I am in the Oklahoma City area.  I am starting to look at houses to buy and rent, have picked out 3 or 4 that I think are decent, had a couple of questions though.

1.  I have found a house in a neighborhood that I like and am considering.  The house sits within a square mile block of maybe 1000 to 1500 houses.  There are 30 houses for sale in that 1 square mile and 14 house for rent in that same square mile.  Furthermore zillow shows that all rental properties have different "posted" dates but none for no more than 16 days for this area.  The question is this.  Would that many houses for rent scare any of you?

2.  Question 2 is this, in general, not necessarily related to question one.  When you evaluate a property and compare it to other property's advertised rent prices of the same size and bath/bedrooms, do you discount it at all?  So what I am doing is looking on zillow, I see a house I might consider buying, I look at rentals in the same block, if there is a similar one that shows 1.2k for rent, plug 1.1k into my "numbers" sheet.  What discount is practical as a general rule of thumb?

[Ashley St. Gelais]

Hey @Jeff Howard!

Happy Sunday!

I love that you are asking these questions.  Sometimes folks just jump in without thoroughly investigating the area, other folks tend to be too nervous and never end up taking any action.

1) I don't think that there being that many houses in 1 area is a bad thing.  Whenever the houses were built there had to be enough demand in the area to support it. And hopefully there is still that amount of demand.  The question that I would ask is what is the vacancy rate of the area you are looking to invest in?  If you knew how many houses were rented in that 1 square mile you could divide the number of empty units by the number of rented units.  Let's say that there are 250 rented units (just a wild guess)... 14/250=.056 or 5.6%.  That is a pretty low vacancy rate.  This means that it would be wise to assume that 5.6% of the time your unit will be empty.

2) I do think it is wise to under estimate the amount of rent you can expect.  It's always better to plan for the worst and hope for the best than the other way around. If you are new to rental prices in the area you are investing in, I'd suggest going to see other houses to determine how yours compares.  If yours has additional features such as parking, storage, allows dogs, etc you might end up being able to charge more or the same amount.

We know our area pretty well, but when a owner wants to try to obtain a higher rent, we'll list it for them at their desired rate with the understanding that if we don't get any applications, we'll reduce the rent in $50 increments until we find a qualified tenant. It's always easier to reduce the price on your listing than to realize you listed it for too little.

And lastly, when qualifying tenants, it's always better to lose out on a few months worth of rent to find the right tenant than to jump at the first person who wants it even if they don't seem qualified.

Hopefully I've provided some assistance!  : )

Ashley