Assuming you have successfully Bought and Rehabbed a property, you will already be well on your way to a successful BRRRR when you reach the Rent stage.
If the rehab has gone well, what you should have is a newly refreshed property that should, in theory, demand top dollar as a rental. This is your opportunity to set this property up for long term success.
BRRRR Step 3 – R is for Rent
Step 1: Don’t forget the numbers
Remember that your monthly PITI costs (principal, interest, taxes, and insurance) will change once you refinance the property at the next stage of the BRRRR. That is the number you should keep in mind when renting your property. Most likely, your monthly carrying costs will increase after your cash out refinance, so use this as motivation to list your property at or near the top of your local rental market.
How do you know what your market supports for your type of property? Look at currently available rentals and perform a comparative analysis to your own property. When performing that analysis, look at:
- Property type (multi-family, single family, etc.)
- Unit size (number of bedrooms, bathrooms, square footage)
- Parking accessibility (garage, off-street, on-street, etc.)
- Location (proximity to local universities, business parks, highways, etc)
Step 2: Set up clear qualifying criteria for tenant selection
If you pick one group of tenants over another, you should be able to clearly explain why. Prospective tenants can pursue legal action against you if they believe that you denied their application based on a protected class (race, color, religion, sex, age, etc.).
The easiest way to avoid this is by using the help of a licensed professional to help you lease your property. If you decide to do this on your own, make sure you research the tenant laws in your state to avoid any potential issues.
Some qualifying criteria to consider are:
- Gross monthly income for all adults must exceed 3x the monthly rent
- Credit scores must be above 650
- No prior evictions
- Clean criminal background check
- Positive landlord references (from two prior landlords)
- Pet limitations (no pets, or no pets over 50 lbs, etc.)
Step 3: Get creative with marketing and showing
When posting the property, make sure you list it on plenty of websites so that you can get many eyes on it. Facebook Marketplace, Zillow, and Realtor.com are a few sites you can use. Don’t be afraid to pay a small listing fee if it means that you’ll get more applications to consider.
In regards to showing the property, some landlords use spare furniture or even pay a service to stage the home. Remember: first impressions are everything, so make sure the property is well kept and clean for the showings. Lastly, consider doing one or two “open house” style showings during the weekend to show the demand for the property. One idea here is to garner interest during the week and inform all interested parties that there will be one open-house showing from 11 AM to 1 PM on Saturday or Sunday. Tell them you’ll be gathering applications on site on that day.
Step 4: Consider using a leasing professional
Many landlords push back on this with me, but one of the few regrets I have from my first BRRRR was trying to rent the property on my own. While I was successful in finding wonderful tenants, this process was significantly more time consuming and stressful than I was prepared for as someone with a busy 9-5 job.
There are many things to plan out, such as vetting prospective viewers, scheduling showings, following up, vetting applicants, etc. While I was glad to have done it once, I now gladly pay a professional ½ month’s rent to have them do all of this work on my behalf. My leasing agent has now found me three wonderful tenant groups for my other properties.
Come back in a few weeks for the next stage: Refinance!
Frugal Mogul 🏡 (@RealFrugalMogul) / Twitter — twitter.com
On a journey towards financial independence through real estate 🏡. Live tweeting the trials, tribulations, and the wins of an amateur real estate investor.