I almost missed out on making $120,000 – o.k. it’s actually $60,000 because we bought the property with a partner … but, it’s still a lot of money!
You see, my husband Dave took me to see this rental property he wanted to buy, and even though we could buy it without spending a penny of our own money, I didn’t really want it. You’ve likely read some of our horror rental property stories by now … I didn’t want to buy another pain in the butt property.
The property looked more like a tool shed than a house. I had visions of constant repairs and never ending tenant troubles. Why would I want to own this? But, Dave told me to do a reality check – there were a lot of reasons to like this deal.
Four years later, that property has more than doubled in value, the rent has covered all of the costs so we’ve yet to put a single dime into it and we own a large chunk of land in an emerging area.
When it comes to making money buying rental properties it’s easy to get thrown off by the appearance of a property, your emotions or what the media is saying. Here are 4 ways to check reality:
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 that lives in that house 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 gets. If the property is a good fit for the target market don’t worry about whether you would live there or not.
Reality Check Two: Are You Emotionally Involved?
Emotions weren’t involved in this purchase, but at any point if you feel like you aren’t able to walk away from the deal, you need to take a step back and review everything! Once your emotions get involved you can’t be rational and make sound decisions.
Reality Check Three: Are the Numbers Really What They Say They Are?
In this deal, the numbers were what sold me. The rent covered all of the expenses and left a small cushion for surprises. Make sure the numbers are what the sellers say they are though! Always get copies of the leases to verify rents. Check market rent rates for that area to make sure the current tenants aren’t just paying higher rates because they are related to the seller. Also, make sure you obtain copies of 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 of a negative first impression. The best deals are often the properties that look rough, but can be easily brought back to beauty. Granted, our little shack needs to be rebuilt to become beautiful. Had Dave allowed me to judge property based on its looks, I would have missed a deal that grew our net worth by $120,000 and has great future development potential.
Reality is what you’ll be left with after you buy a property. Use these reality checks to ensure you aren’t missing great deals!