In Episode 30 of An Investors Journey, we go over #1 Problem Most Landlords Face And How To Solve It!
We across so many investors that face the same issue when buying rentals. This issue is the reason we have been able to pick up so many deals. Before we get to the issue let me cover the misconceptions people have about why they invest rental properties, to begin with.
Deferred maintenance happens because of all the problems listed above. Most people buy a house and think it's going to be hands-off so they never visit the home to make sure everything is fine. They'll put a property manager in place and think, "it's good". Nope! The property manager needs to keep the tenant in place and that sometimes means patching things instead of doing the right repair. Enough of these little repairs a property manager needs to handle and it can literally wipe away all of your cash flow for the year.
Deferred maintenance can also affect your appreciation and cash flow. If you don't do any of the required work to your property because it will rent "just fine" now, then you will see your profits drop as the years go by and you can no longer increase your rents. Or it comes time to sell and you have to sell to an investor because it's no longer move-in ready.
Buy it right! I know you're thinking, "DUH!" but, it's not that simple when it's been months and you haven't found a great deal. You tend to become a motivated buyer and start thinking about how you can "just make a deal work". That state of mind is the beginning of your downfall.
Even if you don't want to update the property now, you MUST buy it with all the necessary updates needed accounted for.
We usually by highly distressed homes so we can go ahead and update absolutely everything. This helps us virtually eliminate any tenant issues while at the same time capturing as much rent and price appreciation as possible.
We have recently bought a property where we don't need to do much to get it rented but of course, it will not sell in its current conditions for max ARV. So, because we know the area very well and see great appreciation over the next couple of years, we went ahead and did the bare minimum repairs to get it rented. BUT... we also bought it at the price we needed to do a FULL update. So the money is still there but we're just not touching it right now.
The way we see a balanced portfolio of SFR is first starting off with properties that offer a little of both cash flow and appreciation potential. These are not always homerun deals but they will always make you money. A good rule of thumb would 60(cashflow)/40(appreciation). This means that you want there to be a little more cash flow than the potential for appreciation.
Once you have acquired 15-20 properties this way, now you can start picking up strictly appreciation plays which may mean very little to zero cash flow or strickly cash flow plays which will mean very little to zero appreciation.
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