What Real Estate Investors Look For In Rental Property | Correcting The Misconception!
Real estate agents who are new to real estate investing commonly have a misconception about the driving force behind an investor's decision to buy or pass on rental properties. .
Most agents want to assume that real estate investors, like homeowners, are mostly concerned about the property’s amenities. That investment decisions, like home buying decisions, are based on such things as whether a rental property is in pristine condition, has great curb appeal, perhaps a large kitchen, or is located within some particular school district.
This is not so with income property.
Sure, amenities are no way going to be ignored by a real estate investor, but they play only a supporting role in the investment decision-making process.
What real estate investors look at most is the "income stream" of the rental property and whether or not it results in a favorable return on investment.
Amenities are a secondary issue that become important only in how they might affect that income stream and resulting return on investment.
Let's consider an example regarding the property's condition.
If an apartment building is in less-than-stellar condition where the cost to rehabilitate that apartment doesn't offer the opportunity to increase rents enough to more than offset those costs, condition is not an issue.
On the other hand, if rehab means rents can be increased enough to more than offset those costs, then property condition would be a very important consideration to the real estate investor.
And so it is for all the property amenities. They may, or may not, have any significant bearing on the investor's investment decision at all.
At the end of the day, real estate investors are only interested in the anticipated real estate investment benefits provided by the rental property known as "income stream" for it dictates the return on investment. Or as one of my investor customers once said, “Only women are beautiful, what are the numbers?”
What This Means to You
If you are a real estate agent who wants to work with rental income property, discard all the previous notions you had about amenities and focus on the "numbers".
Remember, real estate investors are really only considering the rental property's financial performance and subsequently make their investment decision based solely on the amount of money they can make.
So if you want to be successful with investors, prepare adequately to run the numbers.
The easiest way is to make the small investment in a quality real estate investment software solution to do this for you. But, of course, you can also setup your own Excel spreadsheet.
The point is not to ignore the financial measures investors are looking for to make prudent buying and selling investment decisions. When you can do this correctly, you are more apt to make money, too.
About the Author
James Kobzeff is a real estate professional and owner/developer of ProAPOD - a leading provider of real estate analysis software solutions since 2000. Create rental property cash flow and rates of return analysis and marketing presentations at your fingertips in minutes! Learn more at www.proapod.com
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