Today, I’m going to share with you all my personal tips on how and why I select my rental homes. If you’ve been following me for a while, you’ll know that I try to buy one new investment property each year to rent out.
These are my current parameters.
1-Price- I try to buy around $330,000. Why? Because $350,000 is the average purchase price in Utah county right now, so I know there’s a good chance I’m getting a deal at $330,000, but not getting something too cheap or dilapidated.
With a 20% down payment, a $330,000 mortgage will be around $1472 a month. As an example, if you bought in Lehi, current rental prices for 3-4 bedroom homes are $1700-$2100 a month, which would give you a good berth for cash flow.
2-3-4 Bedrooms. Why? When it comes to a rental, it’s all about the bed and bath count. If you only have 2 bedrooms, it seriously limits the number of families that will be interested in your home. With 3-4, you’ll get the widest net of interested renters.
3-Don’t worry about square footage. When you’re paying per square foot for yourself, it makes sense to maximize the space you need. A renter, however, isn’t looking for a forever home- they only want something that is comfortable for their family, as long as it has the required bedroom and bathroom count. An extra 300 square feet in a bonus room won’t bring value in your rental, but WILL cost you extra money on the purchase price.
And don’t forget- every square foot of extra space that doesn’t bring in income is just extra space that needs to be re-painted, re-carpeted, and cleaned up between each new renter.
4-Look for a home with a garage. Turnover between renters costs you money- you don’t want someone who will be in and out in a few months. People who are looking to stay for a while typically look for garages, so having a garage will get you a better chance of having a renter who will stay longer.
5-Look at school districts. Many people look for specific school districts and will move to have their children attend favorable ones. When buying a rental, look for one in a neighborhood with a highly-sought after school, and you’ll have a larger renter pool.
6-Don’t go older than 1970’s. Why? You’re much more likely to run into electrical and other expensive issues that you’ll end up paying to update.
7-Buy a property that cash flows at LEAST $100 from day one. For it to be a good investment, you need at least $100-$200 over and above expenses in cash flow.
Do you have a property that you are considering investing in? Give me the details and I will help you decide if it’s a good investment!