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3 Reasons to Not Fear When Buying Vacant Rental Properties

To Buy Vacant Rental Properties….or NOT to buy Vacant Rental Properties?  That is the question…

Here is how I used to think:  I’d scour rental units for sale, do all of the high-tech (which were really not needed) calculations, analyze ROI’s, and all that other stuff.  However, one of my main criteria was that the units were already rented.

You see, I had this fear.  I had fears that my units would sit for 3 months straight without a tenant.  Being low on cash and cashflow, that seemed to be a deal killer at the time.  I had this underlying fear:

What If I Can’t Rent My Vacant Units??

After hundreds of tenants, many inherited upon purchase, many repairs, many vacancies…I’ve changed my tune.  Quite a bit actually.

3 Reasons Why I Like Vacant Properties

1) Accessibility:  Once I really started to understand what deals looked like, smelled like, and tasted like…ok…not tasted like…felt like.  Everything started to change.  Most of my deals usually weren’t ready for “habitation” at the time.  Frozen water lines, pet urine stained carpets, missing copper, etc.

It is far easier to fix the place up and bring it up to speed when nobody is living the unit.

2) Quickly Increase Rents:  When you purchase a property at full market value, it really leaves little room for you to maximize the profit or produce improvements which allow you to refinance out your investment.  Here’s an example.

If you buy a fixed-up, already rented, top value property for $80,000 and have rents coming in of $900/month.  If you apply for bank financing, assuming you paid $80K for the property, you may need to cough up $16K + closing costs to step in as owner.

However, on the other side:  If you picked up the duplex for $30,000, invested $30,000 into repairs and achieved the same subsequent value of $80K.   Do some quick advertising, get the units rented for $900/month total income…now when you apply for a refinance…you’ve changed the picture.  You have a property worth $80K and you only need a 75% LTV refinance to pull your investment back out.  Plus, you have $20K equity to boot.

Normally, when buying already inhabited deals, the rents may not be at “full potential”.  When they’re vacant, you can realize all of these different benefits we’ve just been discussing

3) Tenant Selection:  It never has seemed to fail.  Almost like clockwork, anytime I inherited tenants, things didn’t look so rosy 2 or 3 months down the road.  It was probably the reason the landlord was selling in the first place.  Habitually late on rents.  Causing problems with neighbors.  Dealing drugs out their kitchen window. (Yeah, the alley was almost like a drive through restaurant window.  Place their orders via cell phone, pull up, pay cash, receive the goods…and down the alley they go).

Choosing my own tenants hasn’t been “flawless” either.  But if I had to choose between tenants I’ve hand selected and screened, versus somebody else…I’ve learned that the odds are much better in my favor.

 

Anyway…What do you think?  Which do you prefer and Why?  Let me know in the comments below.  I read all comments.

Thanks,

Brandon

 

Photo Credit:  umjanedoan

 

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