Buy low, rent high- Are such investment property strategies possible?
Of course! You just need to know where to look for the right investment properties and what steps to take when you find them. So, why don’t you take a look at our step-by-step guide on finding cheap properties for sale and renting them out?
Step #1. Find Below Market Value Property
One way to buy low and rent high is to buy below market value properties. In other words, buy those that are selling for less than the actual property value in the market. But where can you find cheap investment property for sale? Here are a few investment property strategies to get them:
One of the investment property strategies to buy low and rent high is short sales. A short sale is when the owner is behind on mortgage payments and is facing foreclosure. However, they decide to take matters into their own hands and try to sell the property before the bank does.
The key here is the seller is motivated enough to want to get rid of the property as soon as they can to make enough money to cover the mortgage due. So, even if they have to sell at a BMV price, they will to avoid foreclosure.
You can check the MLS or other real estate websites to find short-sale properties. You can also ask around your neighborhood or look through newspaper ads.
Related: The Short Sale Process: How to Sell and Buy a Short Sale Property
Another form of affordable investment property strategies is foreclosures. A similar idea to short-sales but, in this case, the bank has already taken over the selling process. So instead of dealing with the homeowner, you are dealing with the bank that financed that property in the first place. In such cases, the bank is also typically motivated to sell fast. Therefore, foreclosed homes for sale are usually priced at whatever was due in mortgage payments- usually below market value.
In order to find foreclosed homes to apply one of the best investment property strategies, you can search on real estate websites or attend local house auctions.
Real Estate Agents
Real estate agents know the housing market inside and out. So, why don’t you hire one? Just be sure to hire an agent who specializes in real estate investment strategies so that they can help you in buying an investment property BMV.
Click here to find one in your area.
Related: Here Are the 10 Most Affordable Real Estate Markets for 2019
Step #2. Do Your Due Diligence
After you have found a few potential investment properties, it is time for some math to take place. All investment property strategies require due diligence and performing an investment property analysis to make sure you find one of the most profitable investments is fundamental to your real estate investment at this point.
So, before making any further moves, put the displayed numbers to work and check for yourself what the return on investment for that rental property will be. If you have no idea how to perform an investment property analysis to find the ROI, read Investment Property Analysis: Real Estate Investing.
Additionally, be sure to investigate why the seller is willing to part with the property at such a cheap price. For example, was it a rental property before it was foreclosed? If so, why didn’t it produce enough cash flow to cover the mortgage? These are the questions you need to ask when applying this type of investment property strategies.
Visit the house and try to estimate the amount of money you’ll need to rehab it. Make sure there is room to force appreciation and achieve a high after repair value.
Step #3. Renovate/Rehab the Investment Property
Now that you know how to buy low, it is time to face the truth about these investment properties: in most cases, they are distressed properties. Of course, it may not be severely distressed, but it’s likely not perfect either. That’s usually part of the reason why this type of investment property is so cheap.
Therefore, you will find yourself having to rehab the property. Whether it’s painting the walls, changing faucets, fixing a few light bulbs around the house, it still falls within the renovating category. Any changes you apply to the investment property (unless they are trivial) will lead to forced appreciation. In essence, it means that your investment property will automatically increase in value. This will allow you to charge more which brings us to our next step.
Step #4. Comparative Market Analysis
At this point, you are done with the renovation work and your investment property is ready. You should now pose the question: “How much should I charge for rent?“
Well, good question because this is where the comparative market analysis comes into play. The CMA helps a real estate investor set the pricing strategy for rental properties. The entire process is based on finding real estate comps. These are similar rental properties that are in the same neighborhood. This way you can compare the rental price and therefore, make sure it’s not too high or too low. As long as you rent for the market price, you now have succeeded to buy low and rent high.
Step #5. Ready to Rent Out!
Finally, you know the secret to the buy low rent high strategy- one of the best investment property strategies! You’ve found cheap properties, you analyzed them for positive cash flow, you’ve renovated them, and finally set up your pricing strategy. What’s next? Rent it out, of course. Find a good marketing strategy for your rental property and stick to it. Receive tenant applications and don’t forget to do some tenant screening.
Now, you are ready to go and enjoy the cash flow!
Mashvisor’s Real Estate Investment Tools
Investment property strategies are incomplete without the best real estate investment tools in the market. That’s why we have a few tools we want you to try out for the most profitable investments. For example, for accurate CMA and investment property analysis, use Mashvisor’s investment property calculator.
You can also use the heatmap analysis tool for a display of all the neighborhoods with affordable properties for sale in the city fo your choice. To start looking for and analyzing the best investment properties in the US housing market, click here.