I get calls from new investors all the time that want to buy a good investment. My question to them is what would make it a good investment? And of course the reply is "I don't want to lose money, I want it to be worth more in a couple of years. Do you think that will happen?"
Now I don't know about you, but crystal ball is broken. It's been in the shop for months and no one has been able to come up with the parts I need to fix it. So instead I try to have them put it in perspective.
If you're buying a property that you intend to hold and lease out, how much of a profit would you need to make every month for it to be considered a good investment? $100 a month? $300 a month? $500 a month? More? How long would you have to hold a property for you to feel like you made your money's worth? 2 years? 5 years? Longer?
In our market, many investors have discovered that they can easily make $300-$400 a month positive cash flow per month based on what the property costs them vs. the rent they can collect. When you're deciding if that's enough for you, remember to calculate all your expenses.
Typical expenses on an investment property include:
- Principal and interest, if you financed the property
- Taxes
- Insurance
- Homeowner's Association or CIC (common interest community dues if there is one or more – yes some properties have up to 3 associations to pay dues to)
- Property manager's fee (unless you want to be the one the tenants call at 3am with a plumbing problem)
- Money set aside for possible repairs
- Money set aside to renew the home warranty you bought next year (an extremely worthwhile investment when it comes to helping maintain necessary systems, keep your tenants happy and your wallet happier)
So when determining if a property is a good investment, find out what it will lease for in good condition. Decide what price you would have to pay for it and how much you'd have to put into repairs to make it a place good tenants would want to lease. Make sure NOT to overprice your property. Great properties have lots of people want to rent them but not if they are much more to rent than another property.
If the numbers make good sense to you, and you're in the black, then buy it. Have your financing or proof of funds ready, decide what the most you can afford to pay is and go for it. Happy Investing!
Heather Peck
Rosen & Company West
702-595-7380
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