Some investors look back fondly on the heyday of foreclosures, as they were able to cherry pick from a huge inventory of foreclosure properties. Many of them were recent foreclosures, still in relatively good condition, not vacant for very long. It was easy pickings, great cash flow and a super time for rental property investors.
Well, foreclosures are way down from those days, not a bad thing. They’re down from between 3 to 4 million per year from 2008 through 2011 to around a million per year 2014 and 2015. Also, because many of these are judicial foreclosures that have been sitting vacant for a year or more, they’re certainly not turnkey and ready to rent.
Have all of the rental property investment homes disappeared? If you’re looking for high cash flow from a turnkey property, you’re certainly going to have to dig deep for the treasure, and you still may come up short.
If you’re open to Renovate to Rent strategies, it’s a whole different story. Riches are closer to the surface, with treasures out there ready for your attention. There’s another major advantage in renovation to rental investing. The home is going to need some significant work, so why not use that to make it more appealing to renters? You have an advantage over turnkey properties, in that you can incorporate some of the amenities and features that will make the property more rentable.
A great many investors have perfected their ability to recognize financial potential in a rental property. Far fewer have practiced at recognizing feature or livability potential that would change the property enough to make it rent better or for more money. Often the homes best fitting this model are passed over by other investors because they’re:
- Too small
- Too vintage
- Dark or chopped up floor plan
There can be a number of reasons why an investor, rental or fix & flip, will pass by a property. Being able to spot the potential to change the negatives as a part of the rehab can not only make the property a better rental, but also improve its market value significantly.
A good way to illustrate is with an example. A pretty rough property had four small bedrooms and a small formal dining room. It needed a lot of work, and really with that floor plan wasn’t a great candidate for rental in that market. So, it was passed over and the price just kept dropping.
An investor with the eye for it saw a different house; one with three bedrooms and a large kitchen/dining/entertainment area. Taking out a wall, making a larger master bedroom and closet and creating that larger living area improved the floor plan and made the home fit the square footage better. The new floor plan configuration better fit the current rental market demand as well.
With the changes and rehab, the home now had a market value exceeding what it would have been after repairs without the floor plan changes. It turned out to be a great investment with good cash flow and long term renters.
Where have all the rentals gone isn’t the right question. How do we find the treasures out of sight is better. Renovate to Rent is the metal detector to get you in front of the real values.