The Rule Of Four In Property Investing

Basic property investment strategies

While direct, hands-on property investing is not for everyone, those who have the right temperament and personality for active property investing should utilize the rule of four in property investing.  That is to say, they should employ some (or preferably all) of these four  base strategies when searching for properties.

The four basic strategies include:

1)     Look for properties where rental values, and concurrent market value, can be increased through repairs and/or wholesale renovations/rehab.

2)     Acquire properties in geographic areas with quantifiable economic growth patterns.

3)     Try to find properties with unique selling propositions (USP’s) – properties that offer tenants something they can’t readily find elsewhere in the area.

4)     Always purchase properties below market value. 

Renovate to increase rents and market values

If you’re only looking to buy properties that are turnkey operations, in which you don’t have to lift a finger to improve – you’re overpaying.  In this case, overpaying to the seller of the property who already made the necessary improvements.  Think in these terms:  why pay retail, when you can buy wholesale – and for a little extra work, obtain retail prices?  Always look for properties that need some form of repairs or rehab work.  In this way, you can add value to the units.  It’s far less expensive to make repairs than pay for someone else’s finished work.

By the same token, it is not OK to acquire more than a fixer-upper:  namely, if there are structural and/or major renovations that are required immediately, the costs may not justify the reduction in market price you’ll e getting in the purchase.  That’s why God made house inspectors – to protect you from making costly mistakes.

Buying in economically desirable areas

You should be searching for properties in areas that already display a positive economic growth pattern.   Is the downtown area on the rise?  Are rents in local retail shops increasing?  Are retail vacancies lessening?  Check the numbers with your local Chamber of Commerce to see how economically desirable the area you’re considering purchasing in truly is.  Also, do not equate economic growth with whether you would want to live in the particular area of your prospective investment or not.  Even if it’s not  what you might consider a “safe” enough area to live in, if it’s a growing area, it meets the litmus test for property investment.

Unique selling propositions

Many investors let this strategy go by the wayside.  This is too bad, since you’d be missing out on the great upside potential inherent in this concept.  It takes a bit more searching work, but the payoffs can be great.  Examples of USP’s would be multifamily houses with large parking areas – enough to fit two cars per unit.  Or properties located next to a park.  Or within walking distance of the bus, commuter train, or highway.  Or within walking distance of one or more religious institutions, like churches or synagogues.  These types of properties will have high Walk Scores (walkscore.com) – which will increase their desirability for tenants.

Look for property priced below market value

Obviously, you’ll need to know what market value is before you can determine if an investment meets this requirement.  Always be checking Realtor.com, Zillow.com and/or Trulia.com for market valuations of like properties in the areas you’re searching in.  You can also use the services of your local friendly Realtor to assist you in your research.  You must be up on current market values and fluctuations in any given area of your search.  In addition,  don’t assume that a property can’t be purchased for below market value, when it’s priced above, or significantly above,  market value.  If it’s been on the market a long time, you have no idea what the seller will take  –  until you make an offer, and begin a negotiation.  Never get scared away by a seller’s asking price.  Ever.  If you’re able to purchase below market value very time, you’ll be way ahead of the game.

 

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