Question: A Twitter listener asks Dave what his evaluation criteria are when buying rental property.
Answer: Generally, on all real estate, I am trying to buy at less than 70% of value, depending on what it is. I try to figure out what it’s worth today in its current condition, not what I wish it was worth.
With a bigger property or something that is a project and going to take a while, then I won’t give that much for it. But a simple house or a rental house that I can fill up pretty quickly and it’s $200,000, I’ll buy it for $140,000 or $150,000 or somewhere in there. We buy a lot of foreclosures and bank properties. They often need a little tender loving care after we buy them. The main criteria I have is to get a deal on it.
The second thing is that I don’t want to deal with trash. I used to own a lot of very low-income stuff when I was doing real estate in my 20s. It’s not that I’m a snob, I just don’t want to deal with all that drama for a small amount of money. I’m looking for a good solid neighborhood that is increasing in value. I’d like for it to be within a county or two of where we are. I want to be able to drive by it every so often.
If I do those two things, everything generally works out. I also like to see what it will rent for versus what I paid for it. I like to see a return on investment, but that’s a little bit secondary to getting a great deal and it being in a good, solid location.