Try a college town
A short while back I wrote an article about how money is made in real estate. No the answer wasn't to "buy and hold" or even to "buy and flip". The answer is to provide value to one of your three client types, either the seller, the tenant or the buyer. While maximizing value to the sellers and buyers are often discussed, maximizing the value of your property to a renter rarely is. I mentioned in my article that working with people who were not motivated to buy could raise your rental value. CNN.com just released an article that said roughly the same thing.
Why are college students such a good market? Simply the fact that they're not going to be around very long. As I mentioned before, transient populations, groups of people who move around a lot) make a wonderful rental opportunity. Your average renter, if faced with the option of renting for $1000 a month or buying for $1050 a month would always choose to buy. But your average college kid still wouldn't buy. Even if they had money it wouldn't make any sense because once you factor in closing costs and realtor's fees, they would rarely break even after 3-4 years.
The secret here is to find tenants who have money but don't want to buy. Biff and I have currently identified two demographics that fit that description. College students (who parents can pay nice rents) and military families. Military was the demographic we settled on due to Biff's proximity to a heavy military population. When we bought our first property we only put 10% down, yet were able to find someone who was willing to pay a high enough rent that we immeadiately had a $25 monthly positive cashflow. Even though our tenant wasn't military (he was ex-military), the large number of military familes looking to rent in our area has pushed up the average rental prices to a point where we were profitable on day one.
So what other demographics can you think of that fall into the "have money but are unlikely to buy" category?
4 comments:
That's a brilliant idea. College students always take great care of rental property. Their transient, binge drinking nature make them dream tenants.
I have a third group for you: Bubble Sitters. People who have been waiting to buy for years but also had enough sense to not pull the pin on that grenade.
I don't know of a reliable way to find members of this group en masse.
Anonymous - Yes college students can be destructive, but if you get their parents to co-sign their lease (assuming their credit scores aren't great) you can go after them for damages, if there are any.
OC - Bubble Sitters are a good market, but the only place you can find them in droves are in over-priced areas (like Washington DC). So unless you already own in that area, it'd probably be too expensive to enter, just for them.
I bought a building near military bases but experienced no uniformed bites. College students and yuppies live there instead.
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