Readers of our blog know that we love to write about how great it is to live and play in Tucson and Scottsdale, Arizona. We won’t bore you (this time!) with a long list of reasons why you should buy a home or take a golf vacation in Arizona, but if you do need to refresh your memory then click here, here and here!
Today we’re writing about real estate investing and how you can make money on a rental property in 2012 if you follow a few very important rules. The first one is the most important:
Real estate investing doesn’t start with buying a rental property – it begins with creating the financial situation where you can buy a rental property.
Once you know that your finances are healthy enough to make a real estate investment, then it’s time to find a good one. Here are some things to look for:
- Location, location, location! – Think long term about whether this investment will be your retirement home or the place your kids will hang their hat during undergrad or grad school. That will help you to make your first big decision. Then check out properties that are both at and above your desired price point (remember that real estate often sells below its listing price in this economy). Never, ever buy more than you can afford no matter how tempting!
- Estimate the appreciation potential – once you have the neighborhood (location) narrowed down, now you need to find a property that with some minor cosmetic changes and renovations will attract tenants who are willing to pay the rent. And, there’s an expectation that at some point you want to be able to sell the property for a profit, and that leads us to the next point.
- Keep your expectations realistic – create a spreadsheet with all the area comps and be honest about them. You can also use online tools like Rentometer to check your rental price once you set it based on math and not emotions!
- Only act when there’s projected positive cash flow – Don’t be a speculator unless you can really afford to be one. To estimate your cash flow take the average rent for the neighborhood and subtract your expected monthly mortgage payment, property taxes, insurance costs and a generous allowance for maintenance and repairs. Don’t underestimate the cost of maintenance and repairs – that’s a rookie investor’s mistake.
The basics are really rather simple when it comes to making money on a real estate investment property. But, so many people during the housing boom acted without doing their homework. When you find a good neighborhood, a property at a fair price with realistic appreciation and cash flow potential, and your own finances are healthy then it’s time to act. Give us a call when you’re ready – we have some properties to show you!