Psychologists say that despite our attempts to appear analytical, we make purchase decisions with our heart and then justify them with our head. This is certainly true when purchasing a home that we intend to live in. And in that context, an emotional decision may work out just fine. But, when purchasing a single family rental property, following your heart can lead to financial heartache.
Buying Real Estate by the Numbers
You may be an investor, but you’re still human. So, a home’s eye-catching architecture, lush landscaping, beautiful kitchen, or spacious master bedroom will likely get your attention. That’s not a problem. However, those attributes should not be why you sign on the dotted line. Before you reach for your pen, you must first reach for your calculator.
If you want to make a wise decision about an investment property, the numbers have to add up. When you weigh the mortgage payment, renovation costs, and other expenses against the expected rental income and the likelihood that you’ll have a renter quickly, you should reasonably expect to be in the black in short order or you should walk away from the deal—no matter how much it pains you to say goodbye to the open floor plan and great curb appeal.
Nice Investors Finish Last
If a property doesn’t ‘pencil-out’ and show positive cash flow, then it is not the one. And its impressive features will be little consolation when you are absorbing a loss each month. Keep looking. The right deal is out there, and it’s worth the wait. There’s no reason you can’t find a house that looks good in person and on a spreadsheet.
Nobody likes to be thought of as “cold and calculating.” But, in single family rental real estate investing, that mindset is the only way to succeed.