How to determine if I will be able to rent my buy and hold

Question

Hello

I am searching for SFR and 1-4 unit buy and holds in other markets but am having trouble figuring out how to determine the likelihood that the properties Im looking to buy will actually rent once they're ready. I have gone to Zillow and looked at other rentals available in the area to see how long they have been listed and notice that some have been sitting for several months. The neighborhoods I am looking at are nice but affordable (80K-120K price points), with well kept properties, good schools zones and highly populated.

I imagine in many cases the problem is simply that the rent price is set too high but what other factors could cause rentals to sit on the market? Are there other sites or data available or other factors to consider to help me determine which areas to buy in without having to worry about them sitting vacant?

THANK YOU

JD Martin · Answer

This becomes infinitely more difficult when you don't know the local market. Anything will rent at the right price, the trick is determining what the right price is for your unit in its location. Lots of things affect rentability, from crime to airports, busy highways to lousy access to transportation. If you don't know the market very well, you should consider using professional help in locating feasible rentals for your purposes.

Lee Smith · Answer

Sorry late to reply.. Been busy.... Give me a call at your leisure and we can discuss.. I already gave you my best DIY pitch.. hehe We do manage properties for national and international investors here in Indy... I always tell them to double check to make sure what I am telling them is true as well... haha  I like the Indy market.. I not only manage properties for other people, but I also own quite a few myself... We strive for 2+ year leases, and for the most part we are successful in that.

Paul Altman · Answer

thanks to everyone for the advice

@Mike Makkarthanks for taking the time to share the good advice. I agree with the "Just Do It" philosophy, guess sometimes in life you just gotta act, learn, and adjust as you go as long as you did every everything under your control from the start to protect and hedge your investment. I do have a few properties already but in areas where i was familiar with the type of tenant and knew the demand for the particular type property was high.

@Lee Smiththanks for the help. I have had a little bad luck with my realtor and PM search so far. Many realtors seemed more than willing to help at first and would then slowly (or quickly) disappear and the property management companies have been pretty flaky too. So the search continues!!  I noticed that you're located in Indy which is one of the areas I'm considering but the one place i haven't done to much reaching out yet. Would love any recommendations if you're able to share.

Jeff Gates · Answer

Never buy anything that you are not 120% confident the rental market supports your investment plan, and consider bad times as well.

Mike Makkar · Answer

@Paul Altman, I gotta quote Nike!

Just do it

In other words, just pre-advertise the property before you while you have it in contract.

The first deal can be unnerving and you are unsure whether you can rent it, get good tenants, get the rent checks on time, have unknown contingency repairs etc etc etc. Truth of the matter is you don't. But you can take steps to hedge your risk. Assume you don't do anything and not rent it for 6 months, you are stuck with mortgage payments, you have 50% risk. This is assuming you can still flip the property back for whatever you bought it for, the other 50%.  Now this is an exercise in risk management

Steps to mitigating risk

1. Look at nearby rental comps in the area. If it has already rented you reduce risk by 10%

2. As @Sean Elliott suggested, call property managers, if they say they can rent, you knock off another 10% risk

3. Now Pre-advertise your property. Take good pics and post it on zillow, If you get calls for people wanting to see, you knock off another 10% risk. You can also adjust the price based on the demand

4. Pre-Show the property to prospective tenants. Arrange this with the realtor. If people show strong interest wanting the place, you knock off 10% more risk

5. Last Step, (for the advanced managers), do a background check and sign a lease agreement to a tenant before you have your property before closing, of course with a disclaimer that they can move in contingent on closing. You knock off the last 9% risk!

There ya go! Just suggested a way where you can make this process 99% risk free. Ofcourse, if one of these steps don't proceed as planned you may have to change your game plan! Halt the purchase, or move forward to a flip.

Remember, the first one's always the hardest. The next ones will happen like clock work!

Good luck!

Lee Smith · Answer

Call a Realtor or two in the area.. They should be able to pull comps to tell you what rentals are doing. If not they may be able to give you property manager names in the area as well..Zillow may be nice, but try hotpads.com as well..  Some people like rentometer.com but your mileage may vary... Point is you want to get a variety of different sources to give you numbers... Then you go with worst case scenarios or averages... If you are good with the worst case scenario, then you should be ok.Also, a lot of places get rented if they are nice.. They don't have to be crazy over the top, but clean and freshly painted and in good condition go a long way with a lot of folks.. Also pictures and videos do wonders to get good tenants...Lastly, make sure you get a good property manager who will do a good and complete background check on the possible renters. Every time someone tells me a horror story about a tenant, when I ask how they qualified the tenant, I usually get a response like "Oh, they seemed nice!" We go the extra mile when qualifying tenants.. We ask tricky questions when talking to mom and pop previous landlords to find out if it's a friend. We will pull up addresses on google maps, tax records, etc to find out who real owners names are, contact info, etc...

Stephen Hundley · Answer

@Paul Altmanenlist the help of a local realtor that knows the areas you like.

How to determine if I will be able to rent my buy and hold

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