As a rental property investor your main goal is to turn a property into an income producing asset. With the economy in question at the moment many people have asked if now is a time to acquire rental properties or is it better to wait.
Buy Right and the Economy Doesn’t Matter
The title of this post is also the answer to the question above. And it is easy for me to say because personally I plan to hold my rental properties for 20, 30 years. There will be many market cycles over the next three decades so I don’t need to wait for the “right time” as I’m not buying anything the numbers do not work on and neither should you.
4 Benefits of Rental Property Investing
- Cash Flow
- Principal Pay down
Those are the four reasons we love rental properties, right? They are not guaranteed though – a property needs to produce rental income in order to enjoy cash flow, principal pay down and the benefits of tax write offs.
This is why we buy right
Let me give you two key pieces of buying right. The first is to run the financials through a property calculator so you can see the estimated cash flow, if any. I did a whole post on how to buy right based on the numbers you can find here
The second is to be conservative with your numbers.
What I mean buy that is if the market rents are 1,200-1,400 you should not be using 1,400 when analyzing the property. In a normal market I usually use the middle of the range, but in a time like now when unemployment has skyrocketed the best bet would be to use 1,200.
If the property will cash flow to your liking with rent of 1,200 then you are in good shape. Plus, hypothetically if rents were to come down, which can and has happen (see 2009, 2010) you have a buffer since 1,200 was producing positive cash flow.
The last thing you want is to cash flow negative, which also means…
Don’t Over Pay
In the last two years I have watched people chase prices higher. I never did. Did I lose out on some properties, yes. Well actually, no because I don’t want a property I have to pay too much for.
I submit my offer at a specific price for a reason. That is the price where I know the cash on cash return meets my requirement or that it’s discounted enough for all the renovation costs, if I am doing a rehab project.
Bottom line, if you over pay it will negatively impact your cash flow and your ability to allocate for reserves and vacancies. People that are short on reserves right now are in a precarious spot.
For the complete lesson on buying right and investing in rental properties check out the ScaredyCatGuide to Investing in Rental Properties Video Course