Selenid and I have used direct real estate investing to drastically increase our net worth and accelerate our path to financial freedom. This method of real estate investing does require work, especially up front. However, it becomes more passive once you get your systems running smoothly. Regardless, finding the right property is key to your success. So here are some important tips to find the best rental properties!
1. Focus on cash flow
Cash flow is #1 when looking for an investment rental property.
The reason is simple. When you property cash flows, that means that the tenants rent pays for the mortgage, taxes, insurance, maintenance, and all extra fees. Plus there is extra money i.e. cash flow that goes into your pocket.
Ideally, you will shoot for a cash on cash return (the main measure of cash flow) of 10% or greater. But even in a worst case scenario, if your property is cash flowing, then you are not losing money.
There are other ways that real estate investing makes you money, like forced appreciation and tax benefits. These are secondary however.
Some people try to buy real estate hoping that the value will increase via market appreciation. This is gambling.
Cash flow is what stabilizes an investment property by decreasing the risk and optimizing the return.
Buy for cash flow. If your cash flow is good, you are even protected from a housing crash as I explain here.
That’s the most important of the tips to find awesome rental properties that will help you grow wealth.
2. Trust your numbers
Especially when you first start out and are looking for your first investment property, you are going to be eager to buy something. Resist that urge.
The beauty of investment real estate is that it is very numbers based. Use my recommended analysis calculations and develop your cash flow based criteria for buying a property.
Then, when you look at potential investments, run the numbers on them and see if they fit your criteria. If they do, perfect! Put in an offer. If not, walk away. It’s that simple.
I’ve seen too many people buy a bad property because they were over eager, didn’t set their criteria, or rationalized a way to ignore their previously defined criteria.
When it comes to this part of the real estate investing journey, it’s ok to be a bit robotic.
3. Get an inspection
Spoiler alert! Selenid and I haven’t always followed our own advice. And this is how we have learned!
Please, always get an inspection on a property that you plan to buy. Make your offer contingent on an inspection.
With any property, there is more than meets the eye. Even for a very seasoned investor or real estate agent. So get a professional there to look at every nook and cranny.
Even if issues are found, you don’t need to back out of the deal. But that option is there if you need it. And if not, you can negotiate to have your offer price reduced or to have the sellers fix certain issues.
At the very least, it helps set your expectations for the property.
Selenid and I did not do an inspection on our third rental property and regretted it. The property still turned out good, but we had to deal with more issues than we expected.
4. Buy vacant properties
This one is less hard and fast compared to the other tips to find awesome rental properties. But still, I recommend really trying to find and buy properties without tenants.
Or, if there are tenants, doing something like offering them cash for keys to move out.
The bottom line is that picking good tenants is a huge component of successfully managing and running your real estate properties.
And by choosing your own tenants, you can select the right tenants and also set both of your expectations in the landlord-tenant relationship. You want this to work well on both sides.
When you inherit tenants, you are not on the same page. The prior landlord may have been lenient and allowed late rent or damages. Or, the prior landlord may have provided services with landscaping that you do not intend to provide.
How do I know this is a mistake? You guessed it…because we made this mistake!
Again on our third property, we inherited tenants. The previous landlord was very irresponsible and collected rent late, let the tenants run down the properties, and overall did not run a safe or good rental business.
We cleaned this up. But it was difficult with the tenants there. They were not happy and neither were we. In retrospect, we would have done things differently.
5. Look at a lot of properties
The final of my 5 tips to find rental properties is to really, really look around.
We probably saw hundreds of properties for the three that we actually bought so far (as of Dec 2021). And this was key in our ability to choose good investment properties.
The more you see, the more experience you gain in assessing potential investments and running their numbers. You get a better sense of how a property will run, what rents can be, and how expenses will add up.
Nothing can replace this experience.
I would almost recommend seeing at least 10 properties before you even consider buying one!
Notice that picking your market is not one of the top tips to find amazing rental properties
Most potential investors get really hung up on picking a market. And don’t get me wrong, this is an important step.
But honestly, it is no where close as important a step as the previous 5 I discussed above.
That’s because there are good deals in every single market. All the time. It’s true. They are there. They may be harder or easier to find. But as long as you have your criteria set and follow the tips above, you will find them.
That’s why the how of finding a rental property is so much more important than the where.
To drive this point home, Selenid and I wanted to invest in Buffalo, NY because it is where we live. And when we started our journey, we found publications listing the best and worst markets. Buffalo was continually listed as one of the worst!
But we figured there was no harm in looking and have actually found Buffalo to be an amazing market that we have been able to do really great in. (So shhhhhhhh…don’t tell anyone!)
Tying it all together
Investing directly in real estate is actually a lot of fun. There is a science to analyzing properties but an art to running them.
If you are looking to get started or maybe optimize your rental properties, these are great resources:
- A Real Estate Investing Guide for Physicians
- How to Screen & Analyze Investment Properties the Right Way
- One Year Real Estate Review of Investment Property #1
What do you think? Have you struggled to find a rental property? What is holding you up? What tips do you have for others? Let me know in the comments below!