We talk to investors and soon to be investors all the time only to find that there is so much misinformation floating around today about real estate investing. Perhaps this could be one of the reasons there are vacant properties sprinkled about town.
Now, I know that if you put 20 investors in a room, each one would have different opinions and views on what ‘works’ in the business and what doesn’t ‘work’.
Some of the myths we hear in the investing business…
MYTH #1 –The nicer and more expensive the house that I buy, the better the tenant I will get.
That sounds good, in theory. The only problem with this is that the higher the rent on the property, the less tenants there are that can qualify for the property. In my experience people that are renting for over $1000 a month here in Brevard County do not stay for an extended period of time. The majority of time they move in a year or less. They can afford to buy.
AND, It takes much longer to find a tenant for a $1200 a month rental than it does to find an $800 a month tenant. Our rental market is soft in the higher price ranges today. Homes being offered at over a $1000 a month are sitting empty 3, 6 and even more months.
MYTH #2 – If I build it, they will come. Every tenant wants to live in a brand new house.
Well, not so fast. They may want to live in a brand new house, but can they afford to pay the rent on a brand new house? Why have a house built just to put a tenant in it? And, who wants to put a tenant in a brand new house anyway? I don’t. And, I don’t care to do property management on brand new houses. When the tenant’s 6 year old son spills grape juice on the new carpeting, I’m usually the one that hears about it at the end of the lease term.
MYTH #3 – If I add top of the line appliances and upgrades, the tenant will pay more in rent.
The market can only bear what the market can bear. If homes in the area are renting for $1000 and you put yours at $1400 because of all the upgrades, yours will never rent.
MYTH #4 – The bigger the house I buy, the more people will be attracted to the home.
Bigger houses usually mean more people piling into the home so they can afford to pay the rent. A week ago, I was out showing houses to an out of town buyer. We looked a house for sale, that was a rental at $1500 a month. There were people and beds in every room. It reminded me of a teenage sleepover. There were at least 12 people living in this 3 bedroom, 2 bath, 1600 square foot home! They needed this many occupants to be able to afford the rent. The house was a mess. More people leads to excessive wear and tear on the property. And, more people mean more liability to the landlord.
MYTH #5 – People with perfect credit make the best tenants.
Well, you’ve heard me talk about this one before. People with perfect credit don’t need to rent from you and they won’t stay for long. These people will leave to buy a house.
MYTH #6 – I only want to buy a house that I would live in myself. It has to be a ‘pretty’ house.
You are NOT your tenant. All kinds of different people live in all kinds of different houses. Skip the pretty and focus on whether the property will produce income for you. And, not income tomorrow, or next year, income today! In my experience, tenants are looking for clean, affordable housing in somewhat decent neighborhoods. Provide them with one and they will rent it.
MYTH #7- I have to rehab the whole place before I put a tenant in it.
For what? In many cases you’re wasting your time and your money. Most of my rentals were built in the 60’s and the 70’s. Many of them have original kitchens and baths. Several of them have been rented with the same tenants for years. In some we have updated some kitchens and baths, but usually we update them with kitchens that we buy used from Habitat for Humanity. Why spend $30K on a rehab to put a tenant in, when you can spend $1000? On the rehab are you getting that much more money in rent? How long will it take to re-coop that $30K? Often times that rehab money is not bringing a higher paying tenant.
Often times what we think makes sense, in the investing business makes no sense at all. So be cautious and talk to a Realtor that knows and understands the investment side of the business before making a costly mistake.
This article is authored by