Is This a Good Rental Investment? Part IV: The Final Overview
The most important eyes you can get on the property you’re considering…are someone else’s.
So, you’ve found a decent property in a decent neighborhood. You’ve run the numbers and determined that it will be profitable. You’ve even looked into the cost of repairs and decided that you can afford it. You’re ready to move forward — but there’s one more thing you should do before you take another step: get one more pair of eyes, and go over it all one more time.
Why Get Someone Else?
This is simple psychology: when you get involved in a project, your brain naturally focuses on the good things and minimizes the importance of the bad ones. The more time & resources you invest in something the worse this gets. Getting someone who won’t be making — or losing — money off of this venture, but that is still interested in your success as a human being, is a great way to make sure you’re not missing something because of your rose-colored glasses.
What Should They Be Looking For?
You want the person entrusted with your overview to look for four major things:
- The Neighborhood: Are there any significant factors that would affect someone’s decision to live in that neighborhood? Schools, major employers, crime rate — a few minutes on Google Maps and a quick drive-through should give them enough information to validate your opinion. That said, don’t give them your opinion until after you’ve heard theirs — you don’t want to taint the well.
- The Structure: Don’t ask for their opinion on the place overall — instead, specifically ask them to walk the land and make a list of everything that they would want to see fixed up before they moved in, and why. Ask them to be demanding. If they mention something that you didn’t note in your ‘cost of repairs’ step, re-do the math.
- Your Risk Tolerance: This might seem like an odd one, but ask them about your ability to fail. You have to take into account that failure is not just an option, but a somewhat likely one, and if you fail, you have to know ahead of time how you’ll respond. Oftentimes a good friend or family member will be able to answer that question more honestly and thoroughly than you can.
- Your Attitude: If you’re overoptimistic, ask them to tell you. If you’re not through the vetting process and you’re already acting burned out and hopeless, this might not be the industry for you. Have them assess your emotional and mental readiness for this project, and if after everything else, you’re satisfied with all their answers…it’s go time.
With the overview complete, and your trusted advisor satisfied, it’s time to contact your choice of financial agents and move forward. Get a mortgage or buy the property outright if that’s your thing. Then, it’s time for the last but potentially most important decision: are you going to do this hands-on, or are you going to hire a property manager to take care of the work while you enjoy the profits?