It’s so simple that most people will never figure it out. You make money in rental real estate with the business plan of: best product, best price.
Don’t Focus too Much on Expenses
When I first heard this concept, I was skeptical because I thought you had to be a slumlord to make money in real estate investing. Most people think that way because most people think that businesses make money by cutting costs.
If you were to only focus on cutting costs, you would end up with the worst product because you would never fix anything. To make things worse, you would probably try to charge a lot to boot. The result would be that no one would want to rent your property.
Best Product, Best Price
Start with the best product, meaning fix it up to be the nicest house on the block. You don’t have to go overboard with granite everything and top appliances, but make sure everything works and will last for 5 years or more. If you’ve ever had a chance to look at other landlords’ product, you would find that it’s not hard to do better than what is out there.
Best price means to charge less than your competitors. If the guy down the street is charging $950, you charge $900.
Less Maintenance
A strong benefit of having the best product is that your maintenance expenses will be lower. Since you fixed everything to last 5 years or more, nothing should break down. If it does, your tenant will be responsible.
Less Occupancy Issues
Having the best product and best price also affords you the luxury of having more potential tenants to choose from. The fact that you can rent your unit quickly will save you a lot of money. The guy down the street thinks he’s making more money than you at $950, but it’s taking him an extra month each year to rent it out. That means that he’s losing $950 per year!
Conclusion
Best product, best price is best for everyone. The landlord, the tenant, and the neighborhood.
