When I started in the pre-foreclosure investing business I was determined that I was not going to be a landlord. There is a reason for this. However, I couldn’t help but to realize that buying a property at 30% below market and renting it is a great way to get positive cash flow on a rental. Therefore, I started acquiring a small portfolio of rental properties which now net me upwards of $4,000 per month and growing.
Now let me tell you why I really didn’t want to be a landlord. Prior to getting into investing, I worked seven years for a property management company specializing in affordable housing. I worked four years as an On-Site Manager for a 118 unit apartment building and three years as a Regional Property Manager, supervising over 700 units in the Greater Los Angeles area.
During that time I was certified by the Institute of Real Estate Management (IREM®) as an Accredited Residential Manager (ARM®). Sounds fancy but it simply means that I have a clue when it comes to renting units. Bottom line is that I learned more than I ever wanted to know about managing residential rental properties and how to make them cash flow. I’m now applying what I learned to my pre-foreclosure investing business.
So where do you start?
That’s a great question because there’s a lot more to it than just buying a property at a discount and renting it out. Start by familiarizing yourself with the “Tenant/Landlord” law in your state. There are many books on the subject and I highly recommend you do this first. If that doesn’t change your mind about being a landlord then read on. Now you must determine what types of properties you want to rent, i.e. single family homes, duplexes, fourplexs, etc. Since the ForeclosureS.com Home Study and 3-Day Lab teach you about residential properties 1-4 units, stick with that for now. Once you exceed four units, it’s a completely different ball game.
Your target rental property should be residential 2-4 units. Set up a separate search in your ForeclosureS.com list for those types of properties in the areas you choose. You can do the same with single family homes but I’ve found that 2-4 units cash flow a little better.
Once you have done the above, you must do what’s commonly referred to as a “Market Survey.” What this means is you have to figure out how much you can rent your unit or home for in the area it’s in. Your goal is to collect more in rent than it costs you to hold the property.
That’s a given right?
To do a market survey you simply research what similar properties are renting for within a 5-10 mile radius of your target property. You can use resources like local newspapers rental section, online services like Rent.com and local Real Estate Agents who almost always have rental listings.
After you’ve completed your “Market Survey” go drive those areas, same as you would your comps, to know what type of neighborhood it is. What you absolutely don’t want to do is buy in an area that has a large number of vacant rental properties and/or default filings on 2 and 4 unit properties. Why? Because there is a reason for it. I assure you it’s not a good one. Things like drug and gang activity and loud traffic noise are reasons people move out and not in.
So now you know what you’re looking for, you’ve set up your search on your ForeclosureS.com list and BAM! There it is, the perfect rental property. What next? This will sound very familiar, GET ON THE PHONE and call the owner in default.
In Part-II I will cover creating a “Property Budget” to maximize your cash flow.
Happy Investing. Until next month…
Daryl White
Personal Investor Coach, Instructor, Investor
