Finding the property
Location still matters
For a rental property, think like the future tenant. Ask one question: why would someone choose to live here?
What tenants actually weigh
- Employment centers
- Schools
- Shopping
- Restaurants
- Parks
- Recreation
- Freeway access
- Transportation
- Neighborhood amenities
- Walkability
- Community condition
- Parking
- Convenience
- Overall housing demand
A rental should be easy to explain in one sentence: “A tenant would want to live here because…” If that sentence is difficult to finish, pay attention.
Schools and rental demand
Schools can be an important consideration for many tenants and future buyers. When evaluating a property, we can research:
- Assigned schools
- School district
- Published school ratings
- Boundary information
- Distance to schools
School boundaries and ratings can change, so they should always be independently verified. We do not assume what a future tenant will value. Instead, we provide objective information so investors can evaluate demand using measurable factors.
Condo vs. townhome vs. single-family home
Condominium
Potential advantages
- Lower purchase price
- Less exterior maintenance
- Community amenities
- Easier ownership for some investors
Things to investigate
- HOA dues
- Rental restrictions
- Special assessments
- HOA reserves
- Insurance
- Parking
- Litigation
- Owner-occupancy requirements
- Pet restrictions
- Move-in fees
- Property management rules
Townhome
Can provide some of the convenience of a condo with more space, garage parking and a more residential feel. Again, HOA rules are critical.
Single-family home
Potential advantages
- More control
- No HOA in some communities
- Yard
- Greater privacy
- Broader appeal to some tenants
- Potentially longer tenant stays
Potential disadvantages
- Higher purchase price
- More maintenance
- Owner responsible for exterior and landscaping
The HOA can change the entire investment
Before purchasing a condo or townhome, we want to understand the HOA. Important questions include:
- Are rentals allowed?
- Is there a rental cap?
- Is there a waiting period before renting?
- Are leases required to be a minimum length?
- Are short-term rentals prohibited?
- Does the HOA require tenant registration?
- Are there move-in or move-out fees?
- Are there pending special assessments?
- Are HOA reserves adequate?
- Is there pending litigation?
- What does the master insurance policy cover?
- What is the owner responsible for maintaining?
Why it matters
A beautiful condo can become a poor investment if the HOA prevents the owner from using it as intended.
Before we tour a property, we research the rent
One of the biggest advantages of buying with an investment mindset is that we do not wait until after the offer to ask, “What will this rent for?” Before becoming serious about a property, we can review:
- Recent leased comparables
- Active rentals
- Days on market
- Price reductions
- Similar floor plans
- Bedroom count
- Garage and parking
- Condition
- Location
- Amenities
We want a realistic rent range, not the highest rent someone happens to be asking.
Active rent is not the same as closed rent
If a landlord lists a condo for $5,500 per month, that does not mean it is worth $5,500 per month. It means the landlord is asking $5,500. We want to know what comparable properties have actually leased for. Just like home sales, closed transactions provide valuable evidence of market behavior.
What makes a great rental?
Some characteristics can make a property easier to rent and easier to resell.
- Functional floor plan
- Good natural light
- Garage
- Convenient parking
- Storage
- In-unit laundry
- Outdoor space
- Updated kitchen and bathrooms
- Neutral finishes
- Low-maintenance materials
- Central HVAC
- Useful bedroom sizes
- Convenient location
We also look for the opposite. A property may be beautiful but have a feature that future tenants consistently dislike. That matters.
Tools
The investor property scorecard
The Investor Property Scorecard
Rate each category from 1 (poor) to 5 (excellent).
Investment Property Score
60 / 100
A score doesn't make the decision. It helps remove some of the emotion from the decision.
Tools
Two properties can cost the same and be very different investments
Property Comparison Tool
Price alone doesn't tell you which property is the better investment.
Property A
- Older HVAC
- 2-car garage
- Strong rental demand
- Total monthly cost
- $6,734
- Monthly cash flow
- -$2,134
- Cash invested
- $259,500
- Cash-on-cash return
- -9.9%
Property B
- Newer systems
- 1-car garage
- Strong location
- Total monthly cost
- $7,109
- Monthly cash flow
- -$2,359
- Cash invested
- $259,500
- Cash-on-cash return
- -10.9%
Estimates for educational purposes only, not financial, tax, lending or investment advice.