A Property Manager’s Guide To Buying the Right Property!

As a turn key provider, I am always looking for the next great property to run thru our program. I have 5 rules that every property must meet to even be considered. I will list these in order of importance, as I see it. I will then explain why I say Yes or No to anyone property.

I view properties based on 1 factor, and that is it's ability to rent. Most of my clients are interested in buying and holding, therefore these properties must be able to rent quickly and maintain occupancy for a number of years.

For my clients that have answered in the interview process that they are looking to sell this property at some point down the road, I will look for a property in an area that will appreciate, when the market returns.

For the very fact that not all investors have the same exit strategy, I DO NOT have an inventory of homes, to sell. My properties are done on a per order basis, so I am not selling a property to someone that DOES NOT truly meet their strategy, and they have a bad experience.

These are very important factors to know, before anyone buys a property.

1. Location – I will not ever buy a property in the "war zone", they simply are not worth the effort. To many break ins, and very hard to maintain occupancy with any decent tenants. They must be on a street with less than 20% vacancy on the same block. This simply means, if there are 15 houses on the street, there cannot be more than 3 empty or abandoned properties. The reason behind this, it is very difficult to rent a house on a street that has board up after board up. The tenants are really nervous about these streets, as these abandoned homes, typically invite trouble. The tenants do not feel secure in these locations. The property must have active bus line within 1 mile of it's location, again my exit polling has shown that nearly 30% of tenants do not have reliable transportation. The first rule of marketing is and always will be, appeal to the masses, and you will do fine.

2. Size – Tenants in KC are obsessed with square footage, even though they dont necessairy need it. I am constantly being told that they are moving, because it's to small. They are fully aware of the extra costs involved in heating and cooling larger homes, but they are just not concerned with that aspect of it.
For this reason alone, I will not purchase any 3 bedroom home that is smaller than 1200 square feet. I do purchase homes that are mixed in their build design, ranch to split level, as some tenants do not like stairs. I do not ever purchase homes without basements, there are a small percentage of tenants that do not care whether or not it has a basement, but my data shows an overwhelming number of them want a basement. Again appeal to the masses. This is the midwest, we do get tornadoes, it's a built in safety device for them, and it acts as additional storage. Bottom line for me, if they want it, they will get it. Not to mention, it's considerably cheaper to make repairs to plumbing when there is a basement versus a crawl space or slab.

When looking at the bedrooms, they must be at least 9×10 or I do not buy. This one is huge, Section 8 says a bedroom is a bedroom if it is a minimum of 7x7x7, has an operating window and a heat and light source. That's it! Notice I did not say anything about a closet or even a bedroom door, yes, Section 8 will count a room if it meets the size requirments and does not have a door. Now needless to say, we don't leave bedroom doors off. But what Section 8 says, and what tenant will rent, is night and day apart. Tenants do NOT appreciate small bedrooms, and if they have the time, will look for a home with larger bedrooms. Most tenants will either rent or purchase large bedroom furniture, so a 7×7 bedroom just won't cut it.  I know there are homes rented with small bedrooms, but I would venture a bet, that it took some time to get them rented.

3. Renovation – Can I renovate this home with "The Renovation", and make it appear to be modern. The Renovation is performed on each and every property, and was created by exit polling of tenants. The bottom line here, I cannot keep my renovated properties on the market, great problem to have.

For this reason, I do not consider any of the following properties:
  a. Homes that have had additions and give you the appearance of being chopped up. If the home does not flow well, I am just not interested.
  b. Homes that don't fit with the rest of the neighborhood, I don't want the sore thumb of the block. The fact is most tenants are not unique in what they want or desire, they tend to go with the masses, so I will appeal to that.
  c. Any home at any price with any sign of foundation issues, this is a guaranteed LOSS! The cost to properly repair a foundation can easily reach into 5 figures, depending on how bad it is. Just because it's a crack now, should tell you that it's NOT always going to be a crack, there is a reason it cracked in the first place, the foundation is shifting. Now I know, there are "experts" (used very loosely), that can fix anything for a fraction of what it would take to do it correctly, but good luck finding those people, when it's time for a warranty call, because it's leaking again. It makes more sense to go look for another house, it's not like there is not enough of them out there.

4. Neighborhood – As mentioned before, I do not buy in "war zones", but there are other factors to consider. Do I have a registered sex offender living within 2 miles of this home? Can I drive a 4 block radius and see drug activity in plain sight, this just doesnt happen in the bad areas. What do the houses look like in that 4 block radius, are they mostly owner occupied or rentals, if they are rentals, are they being kept up? This is important to give you the sense of what the neighborhood will look like in 2 years or more, again, doing what's best for my client. If it's a rental house, what types of cars are out front, if they are renting a house for $700 a month, and they are driving a $60,000 escalade, does that not make you wonder where they are getting their money from? I check owner records on every house I see that has a really expensive vehicle out in front, real fast and easy way to see if it's a rental or not.

I know there is no 100% way to completely avoid drug activity, it's just a fact of life. But if you take basic steps that will not cost you more than about 10 minutes of your time, you can avoid the very obvious trouble areas, that by the address give you the sense they are in good locations. The address means absolutely nothing to me, I never assume it's fine based on that alone.

5. Price – Yes this is my least important factor. I am not looking for the best price out there on every deal, the fact is there is more than enough product to choose from. My most important factors are above. Yes I need to be able to renovate these homes and still make a profit, but I would rather pass on the lower priced ones that will generate a larger profit to me, in exchange for misleading my clients.

I hope you can use this information in the best way you see fit, I am not proclaiming it to be the full proof way of doing house searching, its just the method I use and have had good success with.

John