Hello @Harvey Gill,
In my response to your post, I will describe how to narrow your rental property search and provide a source of reliable information.
Finding Performing Rental Properties
Searching for properties based on your or others' opinions and hoping they'll attract reliable tenants is both risky and time-consuming. There's a better approach. Like national retail store chains, start by identifying your "customer." Your customer is a high-performance tenant, or what I call a reliable tenant—someone who stays many years, pays rent on schedule, and takes good care of the property. However, reliable tenants are the exception, not the norm.
You can increase your odds of always having a reliable tenant by only buying properties that attract tenant segments with a high concentration of reliable people and working with a property manager who can consistently select reliable tenants. This is a rare skill—in my 17 years of working with investment properties, I've only known two property managers with this ability.
The Relationship Between Properties and Tenants
Every tenant segment has specific housing requirements and won't rent properties that don't meet all their requirements. For example, on the left of the image below is a tenant segment and their housing requirements. On the right are four properties, but only one matches all the housing requirements—making it the only one they'll consider.
You can leverage the housing requirements of a specific segment to attract tenants from your target segment.
Start by identifying a tenant segment with a high percentage of reliable tenants. You can identify what properties this tenant segment rents, and where they rent them, by asking multiple experienced property managers a question like this: "If you wanted to buy rental properties that attract tenants who stay many years, pay rent on schedule, and take good care of the property, what properties would you buy?"
Here's what I did: I asked about 15 property managers the same question, and 13 of them described the same properties. Once you know what properties and where they're located, you can build what I call a "property profile"—a physical description of properties that this tenant segment is willing and able to rent. For example, below is part of the property profile for the tenant segment we’ve targeted for over 17 years.
- Type: Single-family and select townhomes
- Configuration: 3+ bedrooms, 2+ baths, 2+ car garages, 1,100 to 2,400 SF, one or two stories, lot size 3,000 SF to 6,000 SF.
- Rent range: $1,900/Mo to $2,300/Mo (Current numbers)
- Location: See the map below
Once you have a property profile for the tenant segment you want to occupy your rental property, you can hand it to any realtor who can find conforming properties. Instead of evaluating hundreds of properties based on opinions, you'll only need to evaluate a small set that will attract the segment with a high concentration of reliable tenants. The critical information you need to evaluate a property is the rent range and time to rent.
Reliable Information
Zillow, Rentometer, and other online sources do not provide sufficiently accurate information to be useful. Online sites calculate the average rent per square foot ($/SF) for an area based on the number of bedrooms. When you enter the address of a property along with the number of bedrooms and baths, Rentometer (and others) calculates the rent by multiplying the average area price per square foot by the subject property's square footage. Below is an example of Rentometer's failures.
Rentometer predicts $1,900 to $2,200/Mo for this property. Would you expect this property to rent for the same amount as a similar property in good condition?
You need to understand how a good property manager estimates rent. Property managers focus primarily on current market competition rather than just looking at rental history. For example, even if similar properties, in similar conditions, previously rented for $2,300/Mo, your property will likely rent for around $2,000/Mo when comparable/competing properties are currently listed between $1,950/Mo and $2,050/Mo. What matters most is the current market conditions, not the historical data that websites like Rentometer base their estimates.
Everything you learn from podcasts, websites, books, and seminars provides only general information. When investing, you'll be purchasing a specific property in a specific condition and location, subject to specific local rules and regulations. The only reliable source for all the detailed information and resources you need to succeed is an experienced investment team.
If you like, I can provide the process and interview questions for finding and vetting an investment team.
Summary
Instead of hoping to find a "good" property, turn the process around. Start by identifying a tenant segment with a high concentration of reliable people. Create a property profile based on what and where they are renting today. Work with an experienced investment team to select conforming properties. Have your team provide the information you need to make an informed decision.
