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Thoughts on Rentals

By
Home Inspector with Bay Area Home Inspection, LLC WI 739-106

Investing in the right rental property can bring steady cash flow, but how do you find the right property? Over the years, I've purchased 6 rentals in Wisconsin and Michigan. One thing I learned early on, is, don't under estimate the repair costs.

It might seem like a great deal, but does the price reflect the time and money you will invest in order to get quality renters? It's also tempting to assume you'll be able to do many of the repairs, but because of time constraints or lack of knowledge, they end up being done by a contractor.  An objective assessment of repair costs is essential.

yes, there are those properties that need little or no repair. In such cases, price is the main issue. Does it reflect the location? Is the location conducive to renters? What level of cash flow will it generate?

I have seen extremes on both ends. A home that's bought with little initial investment, which needed expensive repairs, but was in a poor neighborhood that could not generate good cash flows once it was rented.

On the other end, I have seen properties purchased in great rental markets that did need a fair amount of work, but the price easily justified the repair costs. The old addage: location, location, location, is a good guideline when purchasing a rental.

 

 

Also keep in mind that prices for similar homes may not adequately reflect the needed repairs. My advice: buy in the best rental markets. Limit repair issues to cosmetic ones. Or, if buying student rentals, at least make sure the building is structurally sound, and make sure the price gives you room for setting money aside for future repairs..

Properties may or may not appreciate quickly as they did for nearly 15 years, starting in the 90s. However, rentals can be a positive leg on the stool of your portfollio.

Jennifer Mackay
Counts Real Estate Group, Inc. - Panama City, FL
Your Bay County Florida Realtor 850.774.6582

Thanks for sharing Walt - I always tell my new investors to look at rental property not as if you are going to live there.  You are buying the income the property generates, not a new "home".

Jan 04, 2015 08:56 PM
Walt Fish
Bay Area Home Inspection, LLC - Marquette, MI
Upper Michigan's Most Experienced Home Inspector

Good advice Jennifer. It's hard, and expensive to keep a rental in the condition most home owners would expect for themselves. Student rentals are one good example.

Jan 05, 2015 07:58 AM