Saturday, August 12, 2006

Important queston to ask yourself before purchasing an investment property in a new town

There is an important question that you must know the answer to before purchasing an investment property in a new town:

How are you going to inform potential tenants that you have a place available for rent?

This is one thing that I was extremely lucky with when purchasing my first real estate investments. There is a popular weekly circulation which _everybody_ in the town religiously reads, and in fact is the only place I need to advertise when renting an empty apartment..

The circulation is distributed every Thursday night to quickmarts, grocery stores, donut shops, and others within a 20-30 mile range. It contains items for sale, service advertising, and most importantly rental advertisements. It has become the definitive source of pricing rentals, and is where everybody looks.

Before purchasing an investment property in a new town, I would highly recommend looking into how potential tenants find available apartments. There are towns where there is not a good source, and it will be more difficult for you to determine the fair market value, or even rent your apartments. I'm not saying that you shouldn't buy in these places, but if you do you should deduct a higher vacancy/maintenance percentage when calculating your monthly cashflow.

Another advantage is that I can easily follow the rental market. I try (try being the operative word) to input the rental prices into a database every week. I input the # of bedrooms and rental price. I can then track the price fluctuations of the units over time (broken up by number of bedrooms). I know that this isn't completely accurate, but it allows me to get an idea of how the fair market value fluctuates over time. This is particularly helpful when pricing a empty unit right before I advertise. Also, I can easily find renters (although I apparently don't always screen them enough). Once I put an advertisement in the circulation (about $10 for two weeks) I instantly get 10+ calls from potential tenants.

These circulations are most important when purchasing investment properties in smaller towns. If you're renting out an apartment in a city, there are other good ways to go (craigslist for example). In smaller towns not everybody uses the internet. You could go with a realtor, but that ends up costing a lot. Really, your best bet is to understand what the locals use.

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