Rental Property Investing

At Pear Tree Property, we invest in Rural Rental Real estate.  Or, the three R’s.  In the previous blog we discussed why invest in Real Estate.  Here I’ll talk about why you should invest in rental property.

Types of Investors

The first thing you might ask is:  what other type of real estate investors are there?  About as many types as there are investors.  For the sake of this conversation I’ll dump them into three categories:

Speculators - They buy real estate, with little or no down payment, expecting it to quickly increase in value (or at least price).  Generally, expenses outweigh income so they have to feed the investment with money out of pocket while they wait.  Paying a small amount of money on a regular basis hoping things go in your favor?  That reminds me a bit of something else…

Rental Property should not be a gamble

Pro – It works great!
Con – Until it doesn’t…

Flippers – First, they by invest in crappy properties (It turns out, the industry prefers to call them properties with “deferred maintenance.”)  Maybe something like this:

Rental property with deferred maintenance

Second they fix them up and then immediately turn around and try to sell them.

Pro – Given enough local knowledge, cheap labor/materials, and time you can make money.
Con – If you don’t have enough of the above, you can get stuck with a property that is overpriced or partially finished.  Then you’ve got to either take a hit and sell it or start renting it out.

Landlords – Landlords invest in rental property with more income than expenses (ie, they cashflow), meaning they make money every month.  They’re in it for the long haul and are happy just getting their checks mailed out.

Pro – If you’ve got enough local knowledge, you can find rental property that meet your criteria.  This approach builds steady long term income.
Con – Large ongoing commitment.  When the tenant backs up a toilet at 3 AM and doesn’t know how to use the plunger, either you’re taking the call or you’re paying someone to take it for you.

Which Is Best?

Truth is in the eye of the beholder. – Scar, the Lion King (Google let me down on this one)

If you’ve bought into my “subtle” bias in the above then you’ll probably agree speculative investing doesn’t really work as a long term “investment” strategy.  As a long term gambling strategy it’s great!  Flipping has some potential, but there is the downside of getting stuck with a house (overpriced or otherwise).  Rental property is pretty safe but has a limited upside.

What do we do?

We invest in potential rental property with a lot of “deferred maintenance” and then fix them up.  Our purchase criteria is entirely based on cash flow.  This way, we don’t have to worry about getting “stuck” with a rental property, we’ll just sit back and collect our checks until we can sell and turn a tidy profit.  Ultimately, the goal is to build a steady income and return for our investors so everyone is looking good when they retire, like Billy Ray:

Investing in rental property let's you look good, like Billy Ray.

Why Buy Rental Property Now?

Time for another fancy chart!

Rental property - price versus rent rates

There’s not been a better opportunity in 20 years!  If you’ve got the know how (or know someone who does), the time to invest in rental property is really freaking nigh.

Wrap Up – Invest in Rental Property

So yea…invest in rental property.  Do it now.  Who knows how long this is opportunity is going to last?  If you believe virtually any realtor out there, a seller’s market is just around the corner.

You can further improve your chances of finding great deals by specializing in a specific type of rental property: Rural.  That’ll be the topic of our next blog post. 

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During Kenny's decade in finance he bought many single family rentals in rural areas, as a hobby. Along the way, he talked some brave souls into joining him as investors and recently retired from finance to take his hobby to the next level. Keep up to date with everything he's doing on twitter!

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