Where to find the most profitable rental properties

I’ve been investing in this thing called real estate for over 25 years. I’ve made many mistakes and almost lost my shirt in the 2008 crash. I’ve also learned a great deal throughout this journey.

One of the most important things I’ve learned is that the “best” rental properties will be found in areas where there aren’t many jobs. I didn’t read this in a book. I didn’t learn it in some course on investing in real estate. Nope! I learned it the old fashioned way through my own experience (blood, sweat and tears) with my investments.

To be 100% clear, the “best” rental properties for me are homes offering very attractive monthly cashflow. Homes providing very attractive cash-on-cash returns. Homes that show you the moonneeyyy (Jerry Macquire was on last night)!

Now, I realize this goes against what we’ve all been taught: location, location, location. “The best investment properties are in up and coming areas with strong job growth.” This hasn’t been true for me. In fact, the exact opposite has been my experience.

As you might imagine, rental properties in areas with limited job opportunities typically don’t offer much appreciation. This is because… um… there isn’t any significant homebuyer demand!

What does limited buyer demand translate into for us investors?

– Motivated sellers
– Lower purchase prices
– Zero buyer competition

Think about it for a second and you’ll realize that these are the areas you can buy homes for significantly less. Not 5k less… we’re talking 50k to 100k less.

What happens to your return on investment when you pay 50k less for a property? It skyrockets.

The average investor spends massive amounts of time trying to buy homes in areas with lots of jobs for pennies on the dollar. They go to foreclosure sales. They send letters and postcards to owners. They run around town sticking “We buy houses” signs everywhere.

They do all of this hoping to get a good deal, when all they have to do is simply go to an area without many jobs and they’ll find plenty of good deals. These deals are just sitting there available for anyone who “sees” this opportunity.

Just last week, I spent an afternoon looking at homes in one of these areas and found several very attractive investments. One of these investments was a four bedroom, two bath single-family home with a large two car garage. The home was on a quiet tree-lined street within walking distance to the downtown area!

The home has been on the market at $84,900 for over a month. Scratch that, they reduced the price to 82k yesterday. ๐Ÿ™‚

My guess is that an investor could purchase this home for 75k, which is $58.63 per square foot. The home would easily rent for 950 a month. After deducting insurance and property taxes, the home would provide 800 a month of cashflow. This is 9,600 per year for a cash-on-cash return of 12.8%. Not too shabby, if you ask me.

To buy a home similar to this in an area with more jobs, an investor would have to pay over 120k.

The challenge is these areas with limited job availability are a little further out. This home I found is a 35-minute drive from my home. This distance is too far for the average investor, so they don’t bother looking there. I’m not sure why this is the case, because we don’t have to drive to this home every day. If you screen your tenants properly, you rarely have to go to your rentals.

So there you have it… where you can find the “best” rental properties.

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