Why Do Investors Really Buy Rental Properties?

The reason why investors buy rental properties is often misunderstood by real estate agents new to real estate investing.

Most agents want to assume that investors, such as homeowners, are more concerned with the amenities of the property. That investment decisions, such as decisions to buy a home, are based on such things as whether a rental property is in perfect condition, has exterior appeal, or is located in a particular school district; not so.

In truth, amenities only play a supporting role in what a prudent real estate investor is really looking for: return on investment. The real reason buyers buy a rental property is because of the anticipated real estate investment benefits known as income stream, and amenities are important only in the way they can affect that income stream.

If an apartment building, for example, was in less-than-stellar condition and the cost of rehabbing that apartment did not offer the opportunity to raise rents enough to offset those costs or, conversely, it could raise rents enough enough to more than offset those costs. , then the condition of the property would be a consideration for the investor. Otherwise it is less important.

Keep in mind that true investors are not as interested in buying property as they are in buying the property’s income stream, and therefore tend to treat physical property as a secondary issue. Now, in the words of one of my investor clients, “only women are beautiful,” he said, “what are the numbers.”

This is why I advise agents who want to successfully list and sell rental properties and win client-investors to properly prepare to run the numbers. The easiest way, of course, is to make a small investment in a quality real estate investment software solution, but you can also set up your own Excel spreadsheet.

It is not about ignoring the financial measures that investors seek to make investment decisions. Because nothing else drives investors, they buy (and for that matter, sell) rental properties based solely on how much money they can make. And real estate agents who understand that are also more apt to make money.