In a seller’s market, finding a great rental property can be a challenge. You’re competing against tons of well qualified investors for a limited amount of inventory. To find a good deal you need to have a clear definition of your criteria, be able to move fast, and have several reliable sources for finding deals.
Define a “Good Deal”
Before you can look for a buying opportunities, you need to understand exactly what you’re looking for. Personally, I’m looking for at least a 15% cash on cash return, in a C or B neighborhood with the potential to appreciate. Some investors just look for a 1% or 2% deal, where monthly rents are at least 1 or 2 percent of the purchase price of the property.
I model all of my deals using this spreadsheet. When I first started investing in real estate, I would model almost every deal I looked at. I was quickly able to develop a good eye, and now I’m usually able to know if a property is a good deal just by looking at it’s condition, purchase price, and rents.
Now that you know what you’re looking for, it’s important to be able to move fast. Start by talking with a couple local lenders to obtain a pre-approval, and discuss their underwriting process. Having a preapproval from a respected lender is a must if you’re looking to score a deal in a sellers market.
Sourcing Potential Buying Opportunities
The next step is looking for a deal to purchase. Start by asking a local agent to setup MLS alerts for deals that meet your criteria. Every morning you can check your email alerts, and offer on any properties that seem like a good deal.
Now that you’ve covered the basics, it’s time to set yourself apart from the competition. Every time you see a good deal on the MLS, it’s important to call the listing agent, and explain to them what you’re looking for, and your ability to close. Even if the current deal doesn’t work out, they will keep you in mind for future deals.
I’ve had the most success with this strategy, and have have purchased over 15 units strictly through agent and broker relationships. If you become known in your market as someone who gets deals done, you’ll suddenly find yourself drowning in opportunities.
Another great strategy is to call every for rent sign that’s not from a professional management company. Many landlords are tired of managing tenants, and might be interested in selling. Simply call the number listed to rent, and ask if you’re speaking with the owner. If you are, let them know that you love their property, and would be interested in purchasing it if the owner would entertain an offer.
Offering on a property listed for rent can be very convenient, as the unit is always available for a showing. In my experience the best way to approach a seller is to qualify their interest in potentially selling, and then scheduling a walkthrough before discussing price. One you meet with the seller and see the building, you will have a better idea of its value, and you can learn more about the seller’s motivation and unique situation. The more you learn, the easier it will be to create a deal that works for both parties.
Combining all of these strategies will eventually lead to a great deal. It’s important to be patient, and don’t get excited at the first opportunity. In real estate, money is made when you buy, and it’s better to buy no deal than a bad deal.