As a Smarter Landlord, you should be very in tune with the market where you invest. Remember, you are a real estate investor buying investment properties and the value of an investment property is based solely upon the income it can generate.
To a landlord that means you really only need to know one thing when looking to buy a property, what will the property generate in rent. Once you are reasonably certain about the rental income, everything else will fall into place.
I have seen way too many “investors” go at buying properties from the wrong direction. They start, not by looking at the income, but by looking at the expenses. They note that their mortgage, tax, insurance and expenses payments will be X dollars. Therefore they reason, they will need Y dollars to cover those costs and make a little profit.
Sounds great, but here is the problem. You do not get to set the rental amount at Y dollars. The market, hundreds if not thousands of other landlords and tenants, will determine what the rent will be for you property. It may not be Y, it may very well be Z. The market does not care that you need Y dollars and were not in tune with what it was trying to tell you, it will simply ignore you
This is why knowing your market is so important. Knowing what your market can generate in rents will set the price for the properties you are looking to invest in. Knowing your potential rent first and then subtracting expenses will lead you down the path towards becoming a successful investor. You will also be able to see when a deal is truly a deal.
Remember, the numbers do not lie. If the numbers do not make sense, then do not buy. And never, ever bet on appreciation. Betting on appreciation is speculation, not investing. Look where that got folks in the last few years.
So learn your rental market and what it closely, by doing so you may just spot your next deal. I’ll write more about that in future posts.
