Knowing which potential foreclosure rental properties to reel in and which ones to unhook and throw back in the water takes time, experience and a keen knowledge of the market where you are going to fish. Here are some tips from the experts we spoke with to help reduce the trial and error and get your fishing skills for rental properties up to speed as quickly as possible:
1.Focus first on location and condition, not purchase price
“Everything we own is in the strongest locations with the best opportunity,” said Gene Richards, a longtime real estate investor who owns rental properties in both his native Vermont and in Florida.
“I buy in the core between the university and downtown,” he said of his properties in Vermont, adding that in Florida “we keep our rod out there looking for the deals driven by location and condition. What I try to do is monitor what’s out there almost nightly and then jump on it.”
2. Pay it forward with quality rehab
This second tip also comes from Richards, who prides himself on keeping his rental properties occupied.
“We have never had a vacancy since we’ve owned properties. We’ve been very lucky with the demand we have,” he said. “Also, we pay it forward. We gut it and fix it up. We take care of our tenants.
3. Reconsider short sales as REO inventory retreats
William Bronchick, president of the Colorado Association of Real Estate Investors, is finding it easier for investors to get short sales than bank-owned homes (REOs) in today’s market.
“It’s easier to get short sales than REOs. The banks just are not releasing the properties on the market. It’s an artificial supply shortage,” said Bronchick. “With short sales they are more willing to deal.”
4. Develop relationships with short sale specialists
“Hook up that relationship with an agent who specializes in short sales,” said Bruce Norris, a longtime real estate investor, author and trainer in Southern California. “That’s the lenders’ preference as opposed to foreclosures now. Tell them, ‘I’m your guy. I’m interested in buying five of these.’ Someone doing short sales is not just doing one short sale. That’s their business model. Speed and ease of sale; that’s the service the investor provides.”
5. Develop a data-based system for making purchase decisions
“We monitor numbers on a daily basis. My decisions are almost on auto pilot,” said investor Tony Alvarez, who works the Antelope Valley region of north Los Angeles County. “This market is like any market for the guys in it for the long haul. Working it every day, day to day. It only happens if you’re constantly fishing. The guys doing the best are those who are fishing all the time. They understand the river. Stay the course and do your job,”
6. Look beyond foreclosure auctions for the best deals
Even though Dan Valentine, broker./owner of Valentine Sales & Management in Phoenix, Ariz., makes his living attending foreclosure auctions every day looking for properties for his investor clients, he’s not going there with an expectation of getting a considerable discount on the properties he’s buying.
“I don’t think you get a discount anymore from the auctions. You can get lucky, but for the most part we’re all paying pretty close to retail,” Valentine said. “I don’t care about retail. I’m buying cash flow and return. I buy cap rates. We’re buying at 2001 and 2002 levels.”
7. Stay cash flow focused
“There’s two ways to buy real estate: for cash flow or appreciation,” said Bill Twyford, a real estate investor and trainer who invests in multiple markets across the country. “What we teach is to buy for cash flow. I tell people I don’t care what’s owed on the property. If I can take the property over and make a couple hundred bucks a month, then I don’t care how much is owed. If I get 10 of those properties, that’s $2,000 a month.”
“You don’t have to get a deal. You can get something that makes sense monthly and as long as you know the area makes sense, then it’s a game changer,” added Norris, the Southern California investor. “California is full of those types of properties. Properties on sale below replacement cost.”
These seven tips were excerpted from an article in the August 2012 issue of the award-winning Foreclosure News Report newsletter, published by RealtyTrac. Subscribe to the newsletter for a year and get a bonus first issue free.