How do you see the Diamond through Rough

Question

I'm a numbers guy.  I look at a house and I see its numbers, specifically cash flow. However, I recently did a deal that bit me a little bit.  Honestly, I was so focused on the numbers and projections that I neglected to look at the problem staring me in the face (see my post in another form about this deal here. Essentially, I looked at the trees and never saw the forest.

There is this soft side to evaluating a property that I am actually unclear on. Perhaps this is where the art in our craft comes into play, but my question is this:

When you are looking at a property in which the numbers appear to work, what criteria are you using to evaluate the non-quantifiable aspects of a potential rental property?

For example, how do you evaluate the floor plan? The finishes? The feel of a property? What are you looking for?  What do you avoid? How do you know there is a diamond behind all that foreclosure rough?

John O. · Answer

Thanks for your input Ashley Wishinski - I very much agree and have built my business plan upon your second line. As for the bulletproof aspect - do you have numbers that you go by for your market?  For example - if you are 50% below the median rent, do you have to build fort knox?  Your point is very true about kitchens, but it is also hard to distinguish the overall effect.  I often find that a house with a nice kitchen often has a lot of other nice things.  I think the kitchen is often the last thing people renovate in a house because of the sheer expense of it.

Pavlos Kasselouris · Answer

Stay away from properties that are unique! You can't go wrong with typical houses.

Location will attract certain category of renters, and according to that category you have to judge everything about a house. The cheaper the property the more tenant proof has to be.

One advice I can give you besides the location is that "kitchen sell houses", and that what I found when working as a real estate agent. And that goes for tenants too. They will pay that 10-15% more than market avg  for your property.

Ashley St. Gelais · Answer

Hi @John O.-

Great steps so far.  As you get into looking at more units and renting them out - you'll get used to what renters look for and like.  Especially if you are doing the showings yourself - first hand feedback from tenants is like gold!

We've found that smallish improvements can make or break a unit. Our general improvement plan is paint, remove all carpet and replace it with vinyl.  Also when looking at units we try to invest in buildings that have the most popular number of bedrooms for our market. (2 bedroom apartments are very popular here.)

People tend not to like stairways that are hard to move stuff up, bedrooms that you must walk through to get to other bedrooms (railroad style) and run down apartments.

Hope this helps!

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