I have a number of friends that are always asking me about investing in real estate as positive cash flow rental income. I have noted a few suggestions of how to approach the search for the perfect rental investment.
* There are no “ideal” rental properties.
Understanding of course that some properties such as apartments and condos were specifically built with tenants in mind. Virtually any property is rentable provided it is clean, well maintained, well managed and of course in a good location. Good location is relative though as even a farm house in the middle of a corn field in Idaho will, no doubt, produce rental income. The market is substantially smaller, however, there will be people interested in the property. Plan on a much longer marketing plan.
* Verify that it is indeed rentable.
There are many areas which frown on using a property as a rental and some that likely will just outright ban it using an association agreement, ordinances and similar methods. Contact the local city offices to verify if there are any ordinances preventing renting a property. Don’t believe that just because a property is currently rented that it is acceptable in the community. Its always a good idea to make sure and find out before you plunk down hard earned cash to make a purchase.
* Buy a property that is “turn key” if possible.
Ideally you don’t want to buy a property and have to spend thousands of dollars and many months refurbishing it and getting it ready to rent. Every day the property is not rented is cash flow you are losing. Buying one in excellent condition, ready to go is not always possible either. Weigh the costs required to refurbish, etc. into your decision on whether to make the purchase or not.
* Understand the vacancy rates and average asking rents in the area you are considering.
Northern Michigan vacancy rates have dropped substantially over the last 18-24 months, are at the lowest point in several years and are not likely going to level out for some time. Similarly asking rents across Northern Michigan have continued to increase over the same period. Good news if you already own the rental, bad if you are in the market to buy. I managed multiple properties over the last few years that were always relatively slow to rent that recently have become hot properties. According to the US Bureau Of Economic Analysis overall the economy has risen in multiple sectors through the 3rd quarter of 2015. North West Michigan is no exception. It remains to be seen how the next 12-18 months play out, however, it’s looking better than it did several years ago.
* Don’t buy an investment property unless you can afford to pay the mortgage if it is vacant.
Make absolutely certain that your budget will allow you to pay the mortgage on the property if needed indefinitely. Always prepare for the unexpected and you will be able to sleep at night if the property is vacant even for a month. As you accumulate additional properties, if that is your goal, you should have positive cash flow which could potentially assist in an unexpected vacancy.
* Be prepared, that’s the best piece of advice I can provide.
The last thing you want to be doing at 4am is frantically doing searches for plumbers, electricians, carpenters, etc. in the event of system failure or storm damage. Before you purchase the property, contact a well known local handyman or contractor that can assist in those situations. If you are not familiar with the area, stop by city hall and ask the clerk, or zoning office. They will likely be able to help or point you in the right direction. Alternatively, you can hire a experienced property manager to assist you in all of your investment property needs. One contact trumps several any day.
Good luch with your search if you are in the market. If you have any questions or comments, please contact me using one of the methods below.
Northern Great Lakes Property Management