“There are two reasons: One, the property is not performing as well as the rest of the portfolio. Two, the seller wants to get prime/retail value for that property.” – Jorge Vasquez
Before buying real estate, have you ever considered purchasing a rent-ready property? Do you believe it is more profitable to acquire a property that is completed rather than choosing a property that needs rehab for it to be rent ready? Let us join Jorge Vasquez and Rafael Castro as they discuss the merits and problems of acquiring a rent-ready property.
Note – This article has been created based on the YouTube video titled “Why You Should NOT Buy Rent-Ready Property?” by Rafael Castro and Jorge Vazquez.
Rafi: Welcome to another Graystone Session. Our topic for today is quite different because it came from one of our clients. And that is, “Should I buy a property that is rent-ready?”
Jorge: I get that question a lot Rafi, a lot of investors believe that it’s a great idea to purchase a rent-ready property. The intention of cash flowing right away makes sense. But my advice is, you should not.
Rafi: Wait, so it’s like when you buy a car that is brand new and ready to go? But your argument is they should not? Why?
Jorge: Let’s think about this. If you have a property that you purchased and you rehab yourself, is up for rent, and that property’s cash flows correctly, why would you sell it? The only reason you would be selling is two options. One is because it’s not performing as good as the rest of your other portfolio, and two because you want to get prime/retail for that property, and you want to squeeze its equity. What I usually advise investors is that they should buy the stressed asset, then you put the equity into it. Now you have a property that you understand in and out. You also know the history of the tenant.
Rafi: So, it’s like buying a car at a lower price in retail than buying at a dealership where they will make most of the money. So are you saying that they do it themselves? Are you advocating that they buy the property and do the repairs themselves?
Jorge: The terminology to explain that is called a turnkey process. Instead of buying a turnkey property which means, it is a property that is already cash flowing. You buy a property and join a company that can offer you that turnkey process.
Rafi: What would be the ideal turnkey process that someone should have?
Jorge: You require a team that possesses experience that can present you with testimonials and data that they have done this before. You also want them to know about allocating, rehabbing, and managing the asset.
Rafi: So you are saying that there are three essential components in the turnkey process: The acquisition, a team of experts to help you find a market for the property. The general contractor (GC) for the rehab, one with experience and affordability, and the property management team.
Jorge: For a GC, you want someone with experience and affordability. One that understands how to rehab a rental vs. how to rehab a flip.
Rafi: There are different types of rehabs? Give me an example regarding the difference in terms of rehabbing a rental versus rehabbing a flip.
Jorge: For rentals, you need to lean towards more on the heavy-duty side rather than a more refined-looking rehab, stability over beauty. How many years would you have it rented are questions you should be asking. These are usually the mistakes of some independent investors. They put in too much money toward rental properties.
Rafi: When you are renting, make sure that it works, and you don’t have to fix it again. Communication is essential, aside from affordability and experience for GC’s. Constant updates and how they respond to what you want is critical.
Rafi: We were talking about three teams in this turnkey process, what would be the third team?
Jorge: The third team would be property management. Some investors would hire or try to do it themselves. They think it would be the most logical thing to do. My advice is, wear one hat, either the investor or the landlord. It is quite hard to do both, and it can be emotional when someone does not pay. Usually, you make bad decisions when you are emotional. When you determine that you need a property manager, you also need to know what their focus is. Hire someone that understands the psychology of the area. Big firms sometimes do not concentrate on your neighborhood, and this could lead to drastic results.
Rafi: I believe that the 10% payment for property management is the best invested 10% if you do it right. From the property management perspective, they take the whole turnkey process. You may be able to manage one, but you have to understand…
Our goal is to grow
Rafi: Once you start managing three to five properties, including payments, you could step into a landmine if you are not careful. Some laws protect tenants, including eviction. We have several out of state investors that decided against taking a property manager, and it ended badly. We had to pick up the pieces and hire a property manager to take over and go from there. Remember, the highest expense for a landlord is vacancy! A property manager makes sure that there is a happy tenant, and a happy tenant means a happy investor. Do not underestimate a good property manager.
Jorge: That is right, and all it takes is one phone call or visit us at homes4income.com.
Rafi: Ok, That’s it for today. See you again in the next Graystone session.
Rafi and Jorge explained the elements connected with buying a rent-ready property. Understanding the reasons why investors are selling their rent-ready property gives us an insight into whether it is a good idea to venture into that investment.
Jorge also explained the three main elements to make a rental property work well:
- An acquisitions team.
- A reliable general contractor.
- A property manager.
All these three are essential in making sure your investment is successful. If you have more questions or would like to know more about other real estate opportunities, then visit us at homes4income.com, where you invest, and we do the rest!