At Reliant Property Management, we proudly serve the greater Middle Tennessee area including Murfreesboro, Smyrna, La Vergne, Antioch, Nashville, and Lebanon. I believe every landlord needs a professional CEO to run their rental property business, and I am that CEO.
My friends and I are getting ready to head out for a run after a real estate investment meeting we had here at my office, where the topic of conversation was on investing in areas outside of your own backyard. So, it may be a new area where you may not have expertise, and that can set up some traps that are easy to fall into. Our friend Ron had some great ideas, and I thought I would share them with you.
Do the Numbers Make Sense?
Just like with any other investment, look at the numbers. Make sure the numbers work. Examine the return on investment, tap rate, internal rate of return, whatever is important to you. Make sure it works. If it does, look at the property. You might be most interested in appreciation or cash on cash. One caveat is that if you see something that seems too good to be true, it probably is. We’ll talk more about that later.
Is the Market Sustainable?
Analyze the sustainability of the market. It needs to have the resources and jobs for people to live, thrive and grow there. We have seen many parts of the country where communities have been reliant on one industry. When that industry goes away, the area becomes a ghost town and the real estate becomes worthless. So be cautious and don’t get into those one-horse towns dependent on one industry. Furthermore, look at the population growth or shrinkage. If the population is shrinking, that might not be the best place to invest. If it’s growing, analyze the type of growth. Millennials are the largest generation we have seen. They are your future renters, so the area needs to be attractive to millennials.
How are You Taxed and Regulated?
I have seen areas where real estate taxes are more than mortgage payments. These are tough areas to cash flow a property. There are other taxes to look for, too. You could face a rent tax to help sustain the local school system, for example. Taxes and regulation are different from county to county and city to city. They are specific to their areas. Look at the landlord and tenant act in the area. If it’s too burdensome for a landlord, it may not be profitable to invest there. There might be other regulations like registering a rental property. Financial regulations might be required too. It could be more difficult to finance property in one state than it is in another state.
These are the three things to look for when you’re investing
outside of your own area: numbers, sustainability, and taxes/regulations.
Here’s one more suggestion: if it looks too good to be true, it may be. There is nothing better and more powerful than local knowledge in a community. Partner with someone in the community like a good Realtor or property manager who will give you honest feedback about the property you want to invest in. Maybe it has deferred maintenance or it’s not in a great neighborhood. Have some honest conversations.
Before you pull the trigger, go out to the community. Lace up your shoes, and visit the neighborhood. We’re going running in a neighborhood right now to decide whether we want to invest in the area. I learned to do this in San Francisco, where I was visiting and I knew no one. I decided to go for a four mile run, which turned into a nine mile run. It sold me on the idea of getting out into the communities.