What makes a good rental property?
Many investors have varied opinions on a good rental property. Some like duplexes, others like townhomes, some like distressed properties, others like condos.
I used to favour converted single family houses with basement apartments.
Each person can find a reason to justify his preference. For instance the condo renter will have no exterior maintenence problems. I used to say that having a converted property put two tenants in one place for more convenience.
But is there really a property type that stands out from the rest?
Yes there is, the one that has a positive cash flow. That is the only true measuring stick. Once you have acheived this, then choose the property type you like.
Many an investor tosses away oppurtunities, too old, too new, don't like condos, etc... but don't. The only one you should toss away are those that don't meet your cash flow standard.
As per my previous article, establish your cashflow standard and stick to it!
It will serve you well!
In any business Cash Flow is king and the rental business is no exception. Cash flow is the ultimate test for any property investment.
Without positive or at the very least neutral cash flow, it will only be a few months before you will wonder why you are doing this!
You must carefully put together a monthly spreadsheet that will evaluate whether a rental property makes sense. The one I use is as follows:
Mortgage Payment $1100.00
Insurance $100.00
Taxes $200.00
Ave Utilities $300.00
Property Management $200.00
5% Emergncy fund $100.00
The above totals $2000.00 so I would want to make sure I could collect at least this $2000.00 each month and I should have a worry free situation each month.
The reason I am willing to accept a neutral cash flow situation is that because my tenants will be paying down my mortage each month the mortgage payment portion will reduce over time. In addition over time the amount of rent collected will increase each year due to yearly rent increases.
So a situation that starts out neutral will turn to the positive after the first year and get better each year.
Of course positive is the best situation so I always try for this first.
If you only buy positive cashflow properties you cannot go wrong!
