Successful Rental Property Purchase

Boiling this topic down to a few short paragraphs is no easy task. So, we’ll hit on four key components to a successful property purchase. Success will ultimately be measured in how well you perform against the following list over the life of your property investment.

1. Identify your rent goal

Our goal is simple – rental income should be double our mortgage payment (including principal, interest, taxes and insurance). As you evaluate properties all of the items below are variables that will impact your ability to meet this goal.

2. Hold true to your purchase budget

Have a $50,000 budget? Assuming a 15-year mortgage this will leave you with a monthly mortgage liability of just over $500 per month assuming a 20% down payment.

For every dollar you exceed your purchase budget you cut into the property improvement budget and jeopardize achieving your rent goal. When setting a purchase budget it is important to remember that there is not a direct relationship between how much you spend for a property and the property rent. A $50,000 home may allow you to collect $1,000 in rent, however, a $100,000 may only allow you do collect $1,100 on rent. The latter example will not allow you to achieve your rent goal.

3. Plan and budget for property improvements

Our strategy is been to invest in homes that are essentially move-in ready. We first allocate funds to address any items that are safety concerns or require attention to maintain the integrity of the home. Given our strategy, these upfront maintenance and repair costs are low.

So, where to do we invest in property improvements? We focus on cosmetic updates that are going to attract tenants and keep tenants in the property longer. Basic upgrades in the kitchen with granite counters and cabinet refinishing are very attractive to tenants. A clean and refreshed bathroom with more modern fixtures is next. Finally, basic painting and carpet cleaning is the last step to make our properties feel more like home to prospective tenants.

The key message here – be sure to factor in a budget for this improvements when determining your required cash post-closing.

4. Know your customer and neighborhood

Location, location, location. The fourth and final variable that will determine if you are able to meet your rent goal. There are various strategies to selecting geographic investment areas that impact your success.

Our strategy has been to identify properties appeal to a broader demographic. Our most successful investments have been located in stable areas that are experiencing a revitalization. These areas tend to be located near major employers and are attractive to the widest age demographic. In these markets we have seen the spectrum of young professionals looking to connect with a “hot” part of town to established families looking to be closer to work in a family friendly area.

The bottom line…these items cannot be evaluated independently. Each of the four items above are linked and impact your ability to meet your rent goals. Evaluate wisely!