My Secret Weapons for Unearthing Great Rental Properties
Rent Range tool provides make-or-break rental and vacancy information.
(Usual disclaimer: I'm just an investor and not a financial advisor or attorney. Consult your own financial professional before making any financial decisions).
As I talked about in my recent article (A Sneak Peek Inside My 2017-2018 Real Estate Portfolio), my highest portfolio allocation (45%) is in residential rentals. In addition to producing stable, attractive income (7% last year), they also appreciated in value quite a bit (over 20%). But building up a portfolio of these wasn't easy. Getting a good return requires going through thousands of candidates to find the diamonds in the rough. And once you find one you have to make a competitive offer that's higher than all the other investors trying to do the exact same thing. And it has to be low enough that you don't lose money. Striking that balance isn't always easy, but if you don't, you either miss out on the property, or end up investing in a money loser. So it's crucial to figure it out. Finding the Needle in the Haystack One of my secret weapons, is a program that I wrote. It finds the thousands of properties that are for sale in the areas I'm interested in, and then filters them out based on my strict criteria (unit features, crime, neighborhood appreciation, construction type, etc). It then spits out a report of the handful of properties that are worth a closer look. (If you're interested in more about this, please let me know, and I'll do a future detailed article on it). Making Short of the Short List Once I have my short list, it's important, to look at each property and make sure it really is a moneymaker and not a money loser. And there are certain key numbers (rental income and vacancy rate) that make or break the profitability. But the problem is they're really hard to figure out accurately. A few lucky investors may happen to have years of experience in whatever submarket they're buying in. But most of us don't have that luxury. Some first-time investors, make the mistake of relying on the real estate broker or the seller's information packet for this. Unfortunately, both have a strong economic incentive to be "overly optimistic", and wrong information often hides the fact that a property is really a money loser. "Data, Data Everywhere, but Not a Drop to Drink" There are public websites like Zillow, that attempt to estimate things like rent. However, even Zillow themselves says that the accuracy varies widely, depending on how much data they happen to have in a particular neighborhood. And even then, it's difficult to know if you're getting a good answer or not. As an example: in a top-ranked data-accuracy neighborhood, San Antonio Texas, only 60% are estimated to be within 10% of the rental price. That's actually really bad. Being 10% off can be enough to make or break an investment, and that means 40% of the properties are guaranteed to be worse even than this. And there's no way of knowing if your property is one of the accurate ones ornot. In my opinion the numerous flaws with the Zillow rental estimate makes it fairly useless. My 2nd Secret Weapon Thankfully, I discovered a fantastic tool called Rent Range. It's very reasonably priced, even though it's used by credit rating agencies, Wall Street firms, asset managers and large property managers. And instead of using an algorithm to guess what the rent theoretically should be, it takes a look at what actual rental properties have been renting for in the area. It pulls 15 million data points from property managers, institutions, MLS, etc. Here's what a typical report looks like:
And here's the real gold: where it shows you what nearby properties are currently renting for:
The rental estimate is based on the average rental, so often you can get more rent if you have something special to deserve it. After I get this info, I go even more granular and lookup each similar property on Zillow, and take a look and all the features and pictures. This lets me figure out if I can go even higher.
Track Record I've used Rent Range on every rental property that I've purchased, and to date the rental estimates seem to have been very reliable. I've been able to rent out every single place using this method, and sometimes as quickly as in a week. (Of course, your mileage may vary, depending on how hot your local rental market is, etc.). Special Discount for Site Users And thankfully, the price is quite reasonable. It costs $14 to run a report (4 credits at $3.50 each), which is a pittance compared to the tens or hundreds of thousands of dollars you can lose without the information. And what's even cooler, is that after I told Rent Range about the 1300+ accredited investors on this site, they agreed to give all of us a special 25% discount. This drops the price to only $10.25 per property, which in my opinion,makes it even more of a no-brainer. To take advantage of this site discount use this link, (Or you can go to the site and use discount code: RECR1001).