Your risk tolerance has to be very clear if owning rental property is right for you.
A couple of topics to discuss here. Can you screen tenants effectively? Do you have a plan to screen tenants?
What’s your plan with that? Are you going to do a credit check? Are you going to do background checks?
You need to make sure that you have a system in place to properly screen your tenants.
You need to ensure that if you’re here in Birmingham, Alabama, that you understand the landlord-tenant laws as the state goes.
If you have rental properties in other states, laws in Alabama may be different than what you’re used to.
So please make sure you look into the landlord-tenant laws that are applicable for Birmingham, Alabama, or the general area.
We all want to have tenants in place that we don’t have issues with and there are no problems.
But we…running a business, you know that you’re going to run at things from time to time and you need to be able to have some tough conversations that time and be upfront with people, and you need to be okay with that.
Things are going to happen with owning any type of rental property and you need to be able to be very truthful, very open, very honest, be transparent with what you’re trying to do.
The second thing we’re looking at is to find a great real estate agent to work with you.
If you’re not familiar with the area, it’s very important to get a good, solid real estate agent that you could trust, that can show you around the area, give you good advice.
So, if you’re looking for a real estate agent, please make sure that you check and make sure that they understand the value of rental properties.
If they’re used to selling single property homes or single-family homes, they may not have a lot of background in rental property. Make sure that they understand what you’re looking for.
So again, if they’re used to working with other investors, they should have a general idea of rental property and what it takes to give you solid and sound advice.
If you’re not from this area or even if you are from this area, I know as a general rule of thumb people think that just because they’re from an area, they know everything about it.
You may have grown up in a certain area and knew every street here, but when you really come down to it, you may not know.
So before you buy any properties, make sure you drive by all the potential areas that have houses in your target price range.
Make sure that you spend the time, get in your car, go out there and actually look at it, look at all the options that you have that are available for you.
And one thing that you want to keep in mind here, if you see a ton of houses that are in the area that you’re looking at that are all for rent in the same spot, you may want to avoid that.
Why are there so many rental properties, number one, for rent and, you know, what’s going to make your house stand apart? Is it a good business move to put it there?
Not saying to stay away from it, but it’s definitely something to think about.
The same thing as I just mentioned, you need to understand, just like buying any type of property, you don’t want to be the highest price in the area.
You don’t necessarily want to be the lowest price in the area. Make sure you find a good fit.
The general range of most properties is a three-bedroom and two baths, and you wind up with a three-bedroom and one bath, it may not be what the area is looking for and it may hurt the ability for you to be able to rent your property.
I just touched on what the bedrooms and baths…it’s very important there.
Again, you know, understand your market, understand the types of families that are in the area and what they’re looking for.
And if you’re going to rent your property, you want to make it as appealing as you can to the most amount of people.
Depending on what you want to do, trying to be intentional or set goals for your business, you may want to stick to one, two or you could go with all three of these different kinds of tenants.
So the first kind of tenant that we are going to have will be your low-income tenant.
These are going to be rent ranges up to about $800, we classify these as our class C homes.
You’re typically going to have high turnover and these can generally have a fair amount of maintenance.
Nothing wrong with these properties, but you need to understand what you’re getting into if this is the property that you’re going to purchase. The second type of property or the second type of tenant would be your moderate income.
These are going to be your $800 to $1200, $1500 range. Most of the tenants that you’re going to place here are going to have a little bit less turnover than your class C.
These are going to be your class B homes and should require a little less maintenance.
Again, just because you purchased the house for a certain price does not mean that there’s not going to be any maintenance involved in it.
Make sure you have someone to check any property you have out and that you understand what you’re getting into on the front end.
The third would be your high income. These are going to be $1500 and above.
You’re actually going to have a little bit higher turnover here than your moderate income.
Just for the fact that people that are able to afford a $1500 a month property typically can afford to purchase their own home.
They may take good care of your home while they’re there, but you just need to understand and be very intentional about what your plan or your business goal is.
Do you want to be in a C class, or B class or A class and understand the different challenges that each of them has and plan accordingly?
Every single day, there are new properties that become available.
You never know when the next thing that you’re interested in is going to pop up, it’s just like purchasing a house or anything else.
Make sure that you have something that you’re looking for in particular, the more specific that you can be.
Obviously, we’ll narrow this down a little bit for you but keep an open mind. And then again, being intentional about what you’re trying to do.
Set things up and then just take a look at them and then again, put boots on the ground, get in your car and drive over and see them if you can and take a look at your properties and you’ll be able to make a better decision.
They can call to give you, or you can call to get a quick estimate on rehab cost.
If you try and send somebody out to 20, 30, 40 houses at a time, they’re most likely going to stop taking your calls.
So, make sure that whoever it is that you’re going to send to give you an idea of what it’s going to take to rehab your property, to get it rent-ready.
And what I mean by rehab is, go in and assess the property, see what you’re looking at, put some money into it to make sure that the property is appealing and is rent-ready so that you can turn it over and get a tenant in there as quickly as possible.
But narrow down your search to a few houses as you can before you get somebody in there to give you some rehab costs.
Again, if you give them 20,30 houses at a time, most likely they may stop working with you or they’re going to take a long time to give you what you need.
And you may miss out on an opportunity that you need to snatch one up pretty quick because you don’t have somebody that can come in and give you an accurate cost of what it’s actually going to be to get the house ready to rent.
Then number two, in the long term, if you’re going to continue to purchase rental homes, it’s a good idea for you to have a good understanding of the typical cost of doing work on a house.
So, everybody may understand the typical cost of a roof or replacing HVAC, but you need to make sure that you understand electrical, anything that could go plumbing, anything that you could get…
The more you can gain knowledge on the types of repair and what kinds of costs that you’re going to incur, it can give you a better idea to set aside what you feel like is going to be an accurate income level for your property and what you need to be looking for and also your realistic expectations.
Be prepared to make several offers on rental properties and then you also need to be prepared to have them all rejected, you know.
You want to make sure that you feel like you’re getting a good deal on whatever property that you’re buying.
You need to feel good about it and you need to be okay with somebody telling you no.
Make sure, again, you’re being very intentional about what you’re purchasing and you have a goal or a max number that you’re going to give for something.
If that doesn’t work out for you, it wasn’t the right house. And there will be another house that will become available for you that will fit in your range that you’re looking for.
The eighth thing, as much as you want to buy the property, doesn’t deviate from your numbers and take unnecessary risks.
I just touched on this, just because you love a house, you’ve got to remember this is a rental property.
You’re not planning on living here. You’re planning on renting this property out.
So, don’t fall in love with the house. Fall in love with a number. Be intentional about your plan and stick with it.
You will be doing this more in the future hopefully. So the first time you go through it, be very detailed about what you’re going to do.
Ask a lot of questions. Again, get with a realtor, reach out to us at GK Houses.
We’ll be glad to help you when and where that we can. Again, my name is Will Morton, I’m here in Birmingham, Alabama, be glad to assist you with what I can or answer questions for you.
But go through the process. Be intentional. Lay a game plan out for yourself, to begin with, and then follow through with it.
And the more you do it, it’s just like anything else. you will get quicker at it. And will be able to make these decisions faster.
You’ll be able to understand what kind of markets you’re in quicker.
You’ll be able to understand what kind of costs are going to be associated with purchasing and or rehabbing your houses, what kind of tenants you’re looking for.
And you’re going to make mistakes along the way with any business, but you will learn from the mistakes and hopefully build off of that.
I just touched on that for a little bit. Mistakes are okay, they’re going to happen with any business, but the key here is going to be not to make a large mistake on your first property.
You could be in a financial place where it makes sense to go into the rental business or to purchase some rental homes.
If you make the wrong first step, it may take you out of contention to be able to go further with this business model.
So, make sure on your first one, especially, that you go through…again, you take your time, you reach out, you do your homework, you follow up on any questions that you have before you jump in and get into the rental owning business.
And hopefully, it’ll keep you away from making any large mistakes on your first one.
So, hopefully, that was very informative to you. Again, I’m Will Morton, I’m in Birmingham, Alabama with GK Houses.
I would love for you all to reach out to us. You can reach out to us at our email [email protected]
You can also look us up online, gkhouses.com, or give us a call, 205940-6363. Thank you. And have a great day.