Real estate is one of the best ways to build wealth. Buy and hold real estate usually entails purchasing a distressed property for a low price, fixing it up, and renting it out. The general rule with rental properties is to buy and repair them up for about 70% of what you’d be able to sell the property for. This general rule is for both house flippers and buy and hold real estate purchasers.
Location, Location, Location
Buying homes in economically depressed areas where there isn’t much in the way of affordable housing is usually the smartest approach to buying rental property. When you buy in economically slow areas, the homes are affordable and there are plenty of renters who can’t afford to buy homes and must rent. If a renter moves out, they can be quickly and easily replaced. Midwestern states like Michigan fit the desired housing market profile nicely.
Not only are the homes priced affordably, but there aren’t as many HOAs to deal with in Michigan as there are in states with pricier markets like California or New York. When you buy for a low price, you can negotiate the property tax rate down to keep overhead low, too. Renters aren’t typically expecting luxury properties in Michigan either.
Price is Very Important
You want to buy a home that’s in good enough shape to hold up to the devastating winter weather in Michigan, but not in good enough shape for the seller to be able to charge a premium for the home. If you’re going to buy a distressed property, you’re going to want to do as much of the remodeling and repairs yourself as you can. General contractors are expensive, and a lot of the prep work and demolition can be done by you with a little elbow grease and YouTube research. Save money wherever you can. Don’t replace cupboards if you don’t have to. Just reface the doors, clean them up, and paint them. Patch holes in the walls yourself, put on a new layer of shingles by yourself, paint the exterior on your own, etc. There are a few places you don’t want to cut corners though, like plumbing and electrical. Take note that renters usually destroy floors pretty quickly, so don’t bother installing carpet. You can’t legally charge renters for ruining floors most of the time, because it’s normal wear and tear in the eyes of the law. Install something that looks nice but is durable, dark enough that stains won’t show up much, and is affordable. At the end of the day, don’t spend more on the property than you can make back in rent in 10 years. So if you’re planning on charging $1,000 per month in rent, don’t buy a property that costs more than $120,000 including your repair costs. Michigan has plenty of housing available in this price range, especially in the Detroit area and in small towns.
Proximity to Your Home
Keep in mind that you don’t have to live where you’re buying rental property. You can hire a property management company for about 10% of the rent price. When a pipe freezes and breaks in the middle of the night, the property manager can worry about it. You just have to reserve about 25% of the rent for emergency repairs. The best part is property managers do all the evicting and vacancy filling for you, and it’s their job to collect rent. You don’t have to listen to excuses about late rent when a property manager is taking care of collections.
Finding the Right Property
The Potempa team are experts in investment properties in Michigan. When you’re ready to start shopping for investment real estate, let our team of certified, knowledgeable mortgage agents help you with your mortgage for your investments properties. Building wealth is just a phone call away.
