There are a lot of different approaches that real estate investors can take when buying rental properties and developing a plan for increasing their portfolios. Selecting a strategy to follow involves careful consideration of various factors, including personal goals, risk tolerance, market conditions, investment expertise, and available resources. While the options can seem overwhelming to a newer investor, with a little planning and thought about what you want to accomplish, you can select an approach that works for you. Here are four great strategies to consider for buying rental properties.

Focus on Market Research

One strategy for property investors is to focus on the local target markets. When you conduct market research, you dive deeper into trends and details specific to that city or region. Becoming an expert in what’s going on around town—from the latest businesses moving in, to the changing price points as the real estate market fluctuates, to any upcoming business or retail development projects—can set you up for success as you narrow down potential properties you want to buy. As you conduct your market research, focus on areas including rental demand, vacancy rates, job growth, population trends, economic indicators, and local amenities. You can also identify areas with great rental income potential, positive appreciation prospects, and low vacancy rates. Knowing which areas are up and coming, and which areas are in big demand, will help you make your decisions regarding which properties could be a good fit, as well as what kind of price point you want to shoot for.

Run the Numbers: Planning and Budgeting

Another strategy for investors to make their decisions when buying rental properties is to focus on the financials. The numbers don't lie. Take emotion out of the equation. Every property is going to have a variety of financial factors to consider. There’s the purchase price of course, but before you can pinpoint that, you need to know how much work is needed to repair or upgrade the property. If you are going to hold the property in your portfolio as a rental, then you need to know the going rental rate in that area. If you plan to flip the property, then you need to know what a fixed-up property is likely to sell for in that area.

From a budgeting perspective, look at the purchase price, any financing considerations, your down payment and closing costs, and ongoing expenses like utilities while the property is being worked on. You will also want to calculate cash flow projections, return on investment (ROI), and other financial metrics to assess the property’s potential profitability. For additional tips and more details on how to budget appropriately, read this article from Rentwell.com.

Vary Your Sources

Some investors opt to focus their efforts on diversifying their pipelines for finding new deals. You have a wide array of options at your disposal, including traditional MLS listings, direct contact with real estate agents, online platforms like Easy Street Offers, local auctions, off-market opportunities, and even direct marketing efforts. If you are looking to build a portfolio that contains a variety of property types, like long- and short-term rentals for example, then you will need to make sure you build a multi-channel pipeline for potential investments. No matter what your source is for identifying possible fits for your portfolio, you’ll still need to conduct a thorough due diligence, including property inspections, title searches, financial analysis, and tenant screening, to assess risks and opportunities before making an offer.

Taking it to the Next Level: Property Management

The final strategy we will cover here is likely one that won’t be utilized until you have a multitude of properties in your portfolio. If you do intend to build a sizable portfolio, then at some point you will want to look into options to turn over managing the day-to-day property needs to an outside party. A good property manager can help you implement best practices for tenant screening, lease agreements, collecting rent, handling property maintenance and repairs, and property marketing to attract and retain quality tenants. Though this is an added monthly expense, most investors will tell you that being able to outsource these responsibilities will allow you to use your time to acquire more properties.

Whether used alone or in combination, these four strategies for buying rental properties provide a solid foundation for buying rental properties and building a successful real estate investment portfolio. By conducting thorough research, planning, and execution, investors can identify profitable opportunities, mitigate risks, and achieve their financial goals in rental property investing. You will be well on your way toward building the portfolio you are looking for when you decide which types of strategies are best for you, and then lay the groundwork to ensure your investment success.

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