Choosing Profitable Rental Properties
In my last article, I talked about what types of properties I don’t personally like as rental properties.
If you haven’t seen it yet, you can check it out here, Do Condos Make Good Rental Properties.
In today’s article/video, I’ll be talking about my preferred types of rental properties.
Now, before you get in a huff and tell me you’ve made a ton off of condos and think they rock and that the properties I suggest don’t work in your area, remember, this is based off my experience.
For some people you may have had other experiences, and if you are only looking at one or two properties, maybe that works perfectly for you. I applaud that you are successfully running a landlord business and your property works.
In the long run though, if you’re looking at expanding your landlord business, want to increase your monthly cash flow and create your own little mini Real Estate empire, you might want to watch this next video.
In it I will explain why I think the properties I like make the best rental properties for people looking to either get into the business or to expand their portfolio.
I look forward to your feedback, so leave me a comment and tell me your thoughts!
My question is how to choose an insurance company to insure commercial properties. My rental properties (under my company name) and my home are insured in the same company now. But the insurance company told me if I get 1 more property, I have to look for an insurance company dealing with commercial properties since they only insure home owners, not business. Any suggestion? Thanks!
Hi Lee,
I saw your email about this and replied there. Commercial insurance may save you money and if you;re running a company under it, you can also get supplemental insurance that covers your company. In today’s litigious society, that is more important than ever!
Bill
I like your suggestion of two rental streams per property. We have one house with a legal suite in the basement; we find we’re often mediating disputes between the upstairs renters and downstairs renters. any tips on how to handle those situations?
Also, how do you handle utilities with these types of properties? We have one furnace and electrical bill, and currently split the utilities 60/40 top and bottom, but this creates a lot of complaints about the other guy doing too much laundry and leaving the lights on too late. Any tips on how to solve those kinds of problems?
Hi Marlin,
It can be a tricky situation. We’ve had issues where tenants simply cannot get along and others that have become life long friends, some times it’s a crap shoot. What you can do to stop many of the problems is to be very pro-active.
If you make extra effort to explain the care and attention teach tenants needs to take with the use of utilities and shared laundry it can be a good start. If you also take immediate action if there is a problem it will show the tenants you are serious and if you stick to six month leases, it can give you some serious leverage if it’s nor working out, although this can depend on your local bylaws and how leases are regulated within your state or province.
I would look at additional options such as lights with sensors for common areas as well if it is an ongoing problem. Finally I would make sure to provide written notices to the tenants if there are problems just so you can show a history.
Hope this helps a bit,
Bill
Thanks for another interesting post Bill.
Question regarding duplexes.
When I looked at price ranges in area which I liked, I figured:
-single family house – 300 000
-duplex – 550 000
-2 single family houses – 600 000.
Yes, 1 duplex is a bit cheaper than 2 single family houses. However each of a single house potentially could create 2 streams (with an illegal suite), so I’d get 4 streams for 600 000 or 2 streams for 550 000. A single family house looks better from this point of view, plus it’s more liquid. Is there something I’m missing?
PS:
Are those pictures of your properties in your office? Awesome idea!
Hi Igor,
Good job of looking at the numbers! That’s really where landlords have to start when looking at adding to their portfolio, because without working it through to start you won’t know how well it will work.
My concerns in your case are the illegal suites. They can cause you some sleepless nights. I’ve owned illegal suites when I first started and I’ve had illegal suites shut down due to anonymous complaints. Losing one income stream from a property can be a huge strain.
If you looked at similar properties with legal suites, how would that affect pricing? Would it add $25,000 or $50,000 to the price? What would the cash flow be on the property if it was at $350,000 legally suited? I’m assuming quite a bit higher than the duplex.
At $550,000 for a duplex with two suites I don’t think you would be close to getting any type of good cash flow and after factoring in maintenance, management and vacancies you would likely lose money.
Thee are other variables to consider, but from a pure cash flow standpoint in this case the single family homes (legally suited) would be a better long term investment. You may want to take into consideration financing issues as well. With illegal suites, the income is typically not counted from the second suite when trying to set up financing and this can affect what you can afford.
With a multi property portfolio, this can also affect future purchasing as the properties have to carry themselves or they will negatively affect your debt servicing to a lender and stop you from growing any further. This is a wall many new investors suddenly find themselves hitting when they don’t plan further down the road.
Hope this helps,
Bill
P.S. the pictures in the background are flip projects we have done. the big photo at the top is the completed project with a description of the property below and the images on the left are befores while the images on the right are after photos.It was a great motivator for us and a great conversation starter!