Foreclosure inventories are down, and many of those that are available are in pretty rough condition. The good news is that this situation is helping to reduce investor competition, as fix-to-rent is costlier and requires a lot more involvement on the part of the investor.
Sure, you can turn over a rundown home to a contractor with an all-inclusive bid and hope for the best result. However, this usually runs up the costs and can deliver results that don't meet your expectations. The investors who are willing to get out of the passive role and control the project and costs can still end up with some really great rental home investments.
What it is Isn't What it has to Be
Start your next fix-to-rent home search with a different plan. Don't just find one that you can repair and rehab and take to the rental market as it is. Find one that you can make into the perfect rental home for your market area. The beauty of taking this approach is that you'll have choices in homes with less competition because they're not what other investors are seeking.
Maybe you find a small 3-bedroom foreclosure home in a great neighborhood, and of course it needs some work. Small is the keyword, as the three bedrooms are all pretty small. This neighborhood is sought out by millennial renters due to its location near downtown and high tech employment. These aren't families with children, and a house with three small bedrooms and an overall small room floorplan isn't really that appealing to this group.
They like room to entertain, and they want what buyers want, a large master suite. So, why not give it to them and create it with this home? Strategically remove one or more walls to create a large master bedroom and increase the size of the bathroom as well. Reduce the home to a two-bedroom plan, and they can use the second bedroom as an office or for guests.
These are renters who have good jobs and can afford to pay the rent you'll need to create the home in which they want to live. The increased costs of doing the major renovations may be partially offset by buying this home with no competition at a better discount to its ultimate value.
Another example might be a larger home with 4 or more bedrooms in a community where renters want to be. Instead of just fixing it up, you see the opportunity to create a separate entry and a mother-in-law suite or separated rental unit. Your added costs are not that great, but the rent you can charge can take a nice jump. Potential tenants can rent out their other unit to cut their costs.
The key is to look at a property not as what it is but as what it could be. If the numbers work, why not create the perfect rental home?