Most buyers want to purchase at the lowest possible price. However, price must be balanced against quality. An inconsistent rental income and an uncertain exit strategy will quickly sour a deal that seemed too good to be true.
In good times and in bad, the lowest prices will always be available in low income areas with poor transport links, low owner occupancy, high levels of foreclosures, high levels of delinquencies on community fees and lots of deferred maintenance.
Chasing a low purchase price with a high rental yield is what I consider to be a “too good to be true” strategy. Your rental income isn´t going to be very reliable in these kinds of areas. Tenants here are less creditworthy, less responsible and more transient. This will lead to high vacancy periods, high management fees and high repair costs. Finding a profitable exit strategy for that kind of property five years time will be difficult if not impossible.
The best investment locations, in good times and in bad, are those closest to the best schools, jobs and amenities where young families and professionals rent, live and buy property. For these reasons, they will never be the cheapest properties on the market, but they will certainly be the most stable.
A person seeking a reliable rental income and a solid exit market should choose properties with the following characteristics:
- FHA financing available to owner occupiers
- Low foreclosures levels
- High owner occupancy and low vacancy levels
- Low levels of delinquencies and deferred community maintenance
- A satisfactory HOA reserve to cover future maintenance work
- Close to quality schools and major employers
Junk mail filter
If you are receiving a dozen emails every week with deals that all look great – just ask the seller to confirm the above and you´ll very quickly find out which ones are duds.
The six bullet points above are obvious, anybody could come up with them after a few minutes thought. The trick is finding properties that match these characteristics and securing them at a competitive price. That´s not so easy and not many people are doing it.
There are different levels of risk in real estate, and plenty of ways to earn a living from it. Not everybody will agree with my take above. That´s ok – one size doesn´t fit all in this game.
However, if you happen to agree with me that the most viable strategy is to buy in locations where people pay their rent and bills on time, where the amenities are well maintained, and where banks are already lending to owner occupiers, then you´re going to love our next product launch. See http://www.torcana.com/newsletter-41.htm for further details.
Original Article by Colin Murphy of http://www.torcana.com
