The Secret to Buy & Hold: How to Squash Vacancies by Understanding Demand
If you want to be exceptional in buy and hold investing, there is one thing you have to do: Spend less time shopping for good deals and more time understanding what people really want.
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Let’s face it, people pay for what they want. If you give them what they want, you get paid. Even if you save a lot of money or get a good deal on a house, it won’t matter unless someone wants to pay you for it.
Imagine how easy it would be having 20-30 applicants every time you post your rental. You could pick only the best tenants, charge whatever you want and never have to spend time or money advertising. Renters will beg you to take their money. It’s a beautiful thing.
I’m going to tell you exactly how to figure out what people want so you can be exceptional and not waste time, effort or money on a “good deal” that will cause you a lot of trouble later. It all comes down to demand.
How to Determine Short Term Demand
Find out what people want right now.
- Call every local rental agency/apartment complex and ask how often 1, 2 and 3 bedrooms become available. If all 3 bedrooms are sold out around town and they don’t come up often, invest in 3 bedrooms. That’s what people want.
- Call Craigslist ads for different sized homes in an area and ask how many applicants they usually have and how often they have vacancies. Most landlords are happy to share their experience with you. Let them brag a little.
- Put up several Craigslist ads with different types of properties you were thinking of investing in and see how many people reply.
- Find the most expensive rentals and see how their vacancy rates compare to cheap rentals. Is there a need for high end rentals or more affordable rentals? Buy what people demand.
How to Determine Long Term Demand
Real estate is anything but static. It’s a fast paced roller coaster ride that’s always changing. If you understand how it works, the bumps and dips will be exhilarating. So how do you know what people might want in the future?
- The U.S. Census will give you statistics on all population demographics and even rent vs. own and vacancy rates for an area. It’s all done for you. Have a look at how the population and economics are changing over time. How will your rental meet that demand? How will the changes impact rental rates and property values in the years to come? What do you need to do to stay on top?
- Go to your city’s website right now. Are they giving incentives for low-income housing, small business start ups or even residential and multi-unit construction in a certain area? Are they changing the zoning to encourage growth? Check for recently issued building permits. What are the permits for, who applied for them and what does that mean for the area? Look at the proposed general plan. How is the city changing to meet the expected demands of the future? What can you do to stay ahead of demand?
When is Rental Demand the Highest?
Knowing when most people move in your area is also important. In general people move in the spring and fall. Make sure your leases start and end during these prime times to increase the demand and optimize prices. I do college housing and if a lease ends a week before classes start, I can get 25 calls an hour after posting it. If the lease ends mid-semester the phone is silent.
- Call a property manager/apartment complex, and ask when they have the most vacancies.
- Call landlords posting houses for rent online and ask when demand is the highest and how many applicants they usually have.
- Look at the local population and economy. Is there a time of year that people are more likely to move? Why?
The most important thing you can do when investing in real estate is homework. It’s all supply and demand. The steps above take a few hours to complete, but the benefits last for the rest of your life. Don’t get into the trap of looking for good deals. Find out what people want, then look for good deals.
To stay on top you’ll have to do these steps every year. Put it in your calendar right now so you don’t forget. If you stay ahead of the competition and give people what they want, you’ll always be exceptional.
How did you decide which buy and hold properties to invest in? Do you research your market demand extensively before you buy?
Leave a comment below, and let’s discuss!