The On-A-Roll Rental Real Estate Strategy

Single-family rental real estate investment is gaining in popularity among individual investors who want to move some or all of their assets from riskier strategies and asset classes.  It doesn’t hurt to know that many multi-millionaires and billionaires became rich through real estate investing.

If you have an interest in buying rental homes, you’ve undoubtedly seen television shows, read articles, and visited websites that tell you how to do it successfully.  You may have even attended a seminar or taken courses.  It is clear that information isn’t a problem.  It’s also clear that there are still many who are hesitating to take the first step toward a rental property purchase.  There are also some investors who have had less than happy experiences with their first property.

One thing that’s missing from a lot of this otherwise useful information is more of an in-person neighborhood inspection approach.  “On-a-roll” refers to getting into your car and driving the neighborhoods of interest for rental homes.  It’s both a neighborhood research tool and a possible property location strategy.  As you drive neighborhoods, what is of interest?

• House styles, lot sizes, general similarities – What is the overall style of the neighborhood?  Are the homes mostly ranch style, or other types of construction?  Was it a subdivision with a single or few developers who built a lot of cookie-cutter houses?  You want a feel for the houses and even the resident demographics.  Small homes could be first homes with small families.  Older homes can indicate stable neighborhoods and low turnover.
• What’s different about some houses – Are there outliers when it comes to home styles or sizes, or maybe lot sizes?  Older subdivisions often had no zoning or restrictive covenants, and they can have varying home styles and sizes.  Take your smartphone with you and take photos.  Leave your location function on or in some way map the location of the homes you photograph.  You’re trying to get the big picture with these first two tasks, as well as any differences or properties that stand out.
• Are there foreclosures and how many – While you may get excited about the possibility of picking up a foreclosure bargain for rental, too many foreclosures in a neighborhood may be a problem for property values in the future.  Too many flips with tenants may show an imbalance of supply and demand.
• How many homes for sale & by whom – Are there a lot of for sale signs on homes?  Are they all real estate agent signs, or are some FSBO, For Sale By Owner?  Too many homes for sale could signal a problem, maybe a future declining neighborhood.  There can be many reasons for this, but the cause doesn’t matter as much as the fact that people are leaving.  If there aren’t that many homes for sale, and some are FSBOs, those may be worth investigating for a good deal.
• Do any homes look abandoned – High grass, removed electric meters, or locked off gas meters can indicate absent owners.  These homes may be in the early stages of the foreclosure process or not, but they may be worth investigation.  Sometimes an estate takes a while to liquidate, and you may find a deceased person’s home that’s in the process.  Contacting the estate representative could yield an opportunity.
• Resident activities – Are there a lot of young families with children playing in the yards or parks?  If so, this may be the tenant type you’ll want to attract with marketing.  Get a feel for the residents to see the type of tenants that will feel at home there.

If you are going to own a home in a residential neighborhood, why not get an overall impression of the area and residents.  It can not only help in finding the right home but in placing the best tenants as well.  The better they fit into the neighborhood, the lower your turnover costs.

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