I almost missed out on making $100,000! My husband took me to see a rental property he wanted to buy – and though we could buy it without spending a penny of our own money, I didn’t really want it.
It looked more like a tool shed than a house. I had visions of constant repairs and never-ending tenant troubles. But my husband told me to do a reality check – because there were a lot of reasons to like the deal.
Four years later, that property – a large chunk of land in an emerging area – has more than doubled in value, and the rent has covered all the costs. We’ve yet to put a single dime into it.
It’s easy to get thrown off by the appearance of a property, your emotions, or what the media is saying. Here are four ways to avoid making that mistake:
Reality Check One: Who is Your Target Market?
I couldn’t imagine myself living in that little shack – but I was not the target market for that rental. The tenant who lives there loves the large yard. He doesn’t mind the exterior appearance because it’s cozy inside and the rent is cheap for the privacy and space he enjoys.
If the property is a good fit for your target market, it doesn’t matter if you wouldn’t live there.
Reality Check Two: Are You Emotionally Involved?
Emotions weren’t involved in this particular purchase, but it’s something to be wary of. If, at any point in the negotiations, you feel that you can’t walk away from the deal, you need to take a step back and review everything! When your emotions are involved, you can’t make rational decisions.
Reality Check Three: Are the Numbers Really What They Say They Are?
In this deal, the numbers sold me. The rent covered all the expenses and left a small cushion for surprises. But make sure the numbers are what the sellers say they are. Get copies of the leases to verify rents. Check market rental rates for the area to make sure the current tenants aren’t overpaying. And make sure you obtain copies of the bills you’ll be responsible for (taxes, utilities, insurance, etc.).
Reality Check Four: Are You Judging the Book by Its Cover?
Many opportunities are missed because a property makes a negative first impression. The best deals are often those that look rough but can be easily rehabbed. Granted, our little shack needs to be completely rebuilt to maximize its potential – but had my husband allowed me to judge it strictly on its looks, I would have missed a deal that has (so far) grown our net worth by $100,000.
[Ed. Note: Real estate expert Julie Broad can show you how to create your own million-dollar real estate portfolio with her new program. Find out how to get hands-on coaching and step-by-step instruction right here.
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All excellent points. You mention the positive cashflow from the rent covering all your expenses plus some, but in addition to that you are reaping the benefits of principle paydown, appreciation, equity capture and the tax advantages real estate investors enjoy.
Congrats on the good decision!