So you want to buy a rental property.
You saved up a down payment, got preapproved for a mortgage, and decided where you want to invest. You know the type of property you’re looking for and you have a good calculator to help you run the numbers. But you don’t know how to find good rental properties to buy in the first place.
Finding the right rental property can feel like searching for a needle in a haystack. There are a huge number of properties out there, and the one that’s best for you might not be visible on the open market.
There are many ways to look online and in person, have a professional help you search, and build relationships that can bring deals to you.
Here are several ways you can find good rental properties to buy.
1 Make use of websites
In the 21st century, the first place we turn for information is always the internet. There are plenty of great websites that specialize in bringing the real estate market directly to your phone and computer. So of course, you’ll want to start there.
Even if you plan to use another method to find better deals with less competition, these websites will help you understand the market in your location.
1.1 Conventional residential homes
There are 4 sites that I would recommend if you’re looking for single family homes on the Multiple Listing Service (MLS). You don’t need to go through all 4 of them. Pick one you like, download the app on your phone or bookmark the website, and stick with it. The apps are all highly rated and generally give you the same information:
A word of caution: My experience with these sites is that their information can be a couple days old. So you might find that a property you like is already under contract or has multiple offers on it. That’s where a realtor can help, as I’ll explain later.
Also, remember that this is where everyone looks first: investors and people buying their personal residence. So homes on these sites tend to have the most competition.
But don’t let that scare you away. A conventional residential property is a great way to invest. And it’s the easiest way to invest in rental property. It’s the largest market and you naturally know a lot about it just by living on this earth.
1.2 Foreclosures and auctions
If you’re willing to work a little harder with the potential for higher returns, there are 2 sites where you can find properties that the banks own and want to get rid of:
As the name suggests, Auction.com is focused on homes that are coming up for auction. The auctions sometimes happen online, at the property itself, or at the courthouse.
Auctioned homes are their own niche. I would recommend studying up on the process before getting involved. You can find amazing deals. But you can also end up with a nightmare property because of the limited inspection and diligence allowed at auction.
My best real estate investment has been a foreclosure near where I lived in college. I wrote about it in What Makes the Best Cash Flow Rental Property, and there’s no doubt that it was the most challenging rental I’ve ever had to get the up and running.
This link is a good place to start if you want to learn more about buying foreclosures and auctioned properties. But you should read at least one book before investing in one. Check out the book Bidding to Buy: A Step-by-Step Guide to Investing in Real Estate Foreclosures if you think it might be for you.
1.3 Commercial properties
Another rental niche that you might be interested in is commercial properties. They can range from a small corner store or restaurant to a large strip mall or office building. Apartment and condo buildings with 5 units or more are also considered ‘commercial’.
LoopNet is the best website and app out there for commercial property searches.
Like auctions and foreclosures, commercial property is another area I would recommend reading about thoroughly before making your first investment. The lending rules and lease structures are different than you might be used to with a residential property. Read the latest edition of Commercial Real Estate for Dummies to get started.
1.4 After you select the site
Set up your search parameters and see how many deals these sites come up with. If there’s enough inventory that interests you and you’re comfortable enough to work without a realtor, you may be able to stop there and go directly to the seller’s agent to make a deal! If not, move to the next method, armed with the information from your initial web search.
2 Find a knowledgeable real estate agent
Successful rental property investors have a team of professionals working for them. Unless you’re a licensed realtor yourself, the first person you want on your team is a knowledgeable real estate agent.
A realtor is particularly helpful if you’re investing in a location where you haven’t personally lived for several years.
Having someone on your side who lives and works where you’re investing can bring all sorts of insight that you wouldn’t easily get any other way. A good local realtor can tell you about crime, schools, employment, and community development trends that help you invest in the right neighborhoods. They might also have an eye for common problems with construction and maintenance. This can help you avoid common pitfalls with buying a home built a certain way, by a specific builder, or during a particular date range.
For instance, let’s say you’re investing in a rental property in New Orleans. Your realtor might tell you how to look out for homes built before 2005 that still have flood damage from hurricane Katrina. He or she might show you how to find properties that were built to the latest hurricane standards or that are outside of the flood plain.
Don’t just settle for any realtor, though. Interview a few first. Find someone who specializes in the type of rental property that you want and has been in the industry for at least 5 years.
For example, you might find someone who tells you that 70% of their clients are rental property investors. They’ve also been managing 50-60 rentals for their investors for the last 12 years. This person has seen what can go wrong, which properties and neighborhoods renters like, and which ones perform best for the investors.
They also might have connections that help you find off-market deals that other investors are ready to sell. And, of course, they’ll help you work through the process of doing diligence on the property, negotiating, and completing all the paperwork when you’re under contract.
A good realtor is a rental property investor’s best friend.
3 Drive for dollars
Driving for dollars is a catchy term that investors use to describe an activity that can help find some of the best off-market deals. It takes more effort than the first two methods, but it can make you a lot of money for the same reason.
The idea is to find a property that hasn’t been maintained for years. The owner may want to sell it at a low price. They likely don’t want it anymore. It probably doesn’t have the best renters. And it would take a lot of work and money to get it in shape to sell at a better price.
This is how driving for dollars works:
- Slowly drive—or walk—a neighborhood of interest.
- Look for signs of neglect.
A yard badly in need of landscaping. A roof with missing and loose shingles. Faded paint and cracked stucco that should have been fixed years ago. A broken fence. A boarded-up window. A big dent in the garage door… You get the idea. - Find out who owns the property.
Property records are public information, and most county assessors have a website where you can quickly look this up. If it’s in the name of a Limited Liability Corporation (LLC), you immediately know that you’re dealing with another investor.
You can also ask neighbors or the people living there—assuming it is a rental and not a primary residence of the owner. The neighbors would probably love to have someone buy and fix up the ugly house next door, so they’re often very helpful! - Contact the owner and make a deal.
A phone call is best. But sometimes you might find an address and no phone number. If the address is a nearby physical location and not a PO Box, you might be able to stop by in person to talk to the owner. Otherwise, you’ll have to write a letter and make it interesting enough that the owner will want to call you back!
Explain that you’re interested in buying the property. Try to find out what would motivate the owner to sell—it isn’t always about the money. Then see if you can work out a deal!
4 Network with other investors
Your first step in networking was to find a local realtor. Your realtor may be able to connect you with other investors, mortgage brokers, and industry professionals. But the best way to find other investors interested in networking with you is to join your local Real Estate Investors (REI) club.
Ask your realtor if they know anything about the local club. Then search “[City] REI club” where [City] is the biggest city near your target location. You can also join an online community such as the one at BiggerPockets and find other investors in your area there.
Through an REI club or local online community, you’ll find plenty of helpful people. You may be able to find deals directly through them, or even form partnerships that allow you to do bigger or better deals.
You can also find real estate syndications through your REI club. A real estate syndication is a packaged real estate deal that someone finds for you. You’ll pay a finder’s fee if you buy it, and if you like the numbers, it can be a win-win.
4 Summary
You now have several ideas about how to find good rental properties to buy.
I probably didn’t have to tell you to use the internet or contact a realtor. But I made sure that you have some tools at your disposal and things to think about when you start down those paths.
Some of these ideas may be new to you. You might be thinking about giving auctions or commercial real estate a try. If you have time, driving for dollars and an REI Club could be totally worth it! Or maybe you’ll just find a real estate syndicator who can feed you deals if you have less time and aren’t finding anything of interest in the regular MLS.
Whatever you do, make sure you get a thorough inspection, understand the neighborhood you’re investing in, and run the numbers to confirm that the deal in front of you is as good as it sounds. If everything looks good, congratulations! You’re growing a business that could bring you income for many years and help you reach financial independence sooner than you ever expected.
If you haven’t read the other articles in the PathwayToFI rental property series yet, here they are:
- Part 1 How to Know if a Rental Property Is a Winner
- Part 2 What Makes the Best Cash Flow Rental Property
- Part 3 How to Know if You Should Invest in Rental Property
- Part 4 How to Find Good Rental Properties to Buy
- Part 5 8 Ways to Make Extra Money on Your Home and Land
The simple ROI calculator highlighted in the first 2 articles is my most valuable tool.
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