Where should I buy rental property? This question is asked hundreds of times in internet forums across the US, in local coffee shops, and at dinner tables. Most investors think that you should buy locally. It’s convenient; you can see, touch, smell (yuck) the property. It’s about being comfortable and in your “safe zone.” I’m here to tell you to step out of that. Buy property where the returns are highest, plain and simple. Why buy a $100,000 property just because it’s across the street from you with a dismal 6% return when you can buy a property that is in a better rental market, that may be 12oo miles away, but offers you a 20% annual return?The answer is, you shouldn’t. Well, at least not if your buying rental property to actually make money. What a novel concept, eh?
I was recently speaking with a fellow investor who I know on a popular social media outlet known as Facebook. He had posted a comment and “advice” on a forum that went something like this. “If I were you I would never buy a rental that is farther away then 45 minutes from your house. You can’t see it, you can’t manage it effectively, and you don’t know if the neighborhood is any good.” When I read this laughed at first at the pure pure false and illogical thought process that must have went through his brain to make him post such non-coherent drivel in an open forum. Then, after the laughter had subsided, the side of me that just had to point out the fact of how misguided his post was came out. His thinking is flawed and here is why.
Firstly, we must ask why must you be closer than 45 minutes away from a rental you own? The obvious answer is so you can drive by whenever you want and spy on your tenant and make sure they are living a life that you approve of. This is utter non-sense. If my tenant has the income to afford the monthly payment, isn’t dealing drugs, and takes care of the place, I could care less if they dance around nude listening to Britney Spears, “Oops I Did It Again.” Pay your rent before the third of the month and we are good.
Second, to address the point that was made about not being able to manage the property effectively from that far away, I ask, why on Earth would you ever, I mean ever, want to manage any of your rentals yourself? This never made sense to me, yet uneducated investor, after investor spews this nonsense from their lips. Hire a GOOD property management company to manage all your rentals. A good property manager is worth their wait in gold. They collect your rent and disburse straight to your bank account every month, keep track of who is on time and who is not, serve three day late notices, deal with 3 AM service calls from a tenant that probably have no business up at that hour anyway, and generally make your life MUCH easier for a 6-8% monthly fee. Worth it? Absolutely. Spend your time working on new projects that can make you more money rather than micro-managing things that already are making you money. Make sense? In thought it mite.
Lastly, let us talk about the neighborhoods. “I only want to buy in “A” Class neighborhoods.” Get real, man. Do you want to make money or do you want to be able to tell your golfing buddies how overly priced your rental property is and how much fiscal nonsense it makes? I choose the latter, thank you. Give me a solid Ranch style house in a working class B to C- neighborhood any day of the week and watch me laugh all the way to the bank. Yes I said “C” class neighborhood. Look, you don’t have to live in the house or in the neighborhood the house is in for that matter. There are plenty of people who want to live in these neighborhoods. And get this, when you place a good tenant in these $35,000 houses, they tend to stay a lot longer, which means less turnover and consistent monthly cash flow for you. It’s a socio-economic fact. I prove it to myself, year after year. Prove me wrong, I dare you.
SO to wrap it all up, you must break out of the normal way of thinking that you have been so conditioned to. I buy almost all of my rental property as virtual real estate investments. Which means, I don’t need to see, touch, or drive by the property, ever. Owning rental property isn’t a status contest on who owns the nicest looking properties with tile roofs and swimming pools. It is about making the best return possible with as little capital risk as possible. It’s a business. Not a hobby to tell your friends about. You must break free of the “I don’t like this house, I wouldn’t live in that house”, syndrome. It’s a rampant, illogical way of thinking that is counter productive to you ever being the rental tycoon you dream about being. Buy your properties in regards to cash flow, not appreciation!!! I can’t stress this enough. I’ve seen landlord after landlord lose their ass making pure appreciation plays on rental property. California come to mind, anyone? Hmmm? Anyway, buy your rentals where the returns are high, the overhead is low, the state is landlord friendly (or as friendly as they can be), and put solid property management in place. Rinse and repeat. This will make you a happy and much less stressed investor.
For all your rental property purchasing needs, please contact the author, Kyle Weimer.