You can flip rental houses in all the same ways you can flip a personal residence, plus there are some extra methods you can utilize. These additional strategies are as follows.
1. Buy at a purchase price based on a current rental rate that is significantly less than market rents for similar properties.
2. If the rent is too low based on other rents being charged in the area, simply raise the rent, or make needed repairs or cosmetic improvements to justify a higher rent.
3. Sell at a sales price based on the new current rental rate that is equal to, or perhaps even slightly higher than, market rents for similar properties.
As you begin to research rents, you will find an amazing number of landlords who do not keep track of what their competition charges, so their rents are substantially below market. Such landlords congratulate themselves on always having tenants, but do not realize it is because they are offering such bargain rates. Other landlords know this but are terrified they will lose tenants if rents go up. Such landlords have no confidence in themselves or their properties.
I call this the market rent flip and will cover it in more detail in a later chapter. Here is a simplified version of how it works. Many landlords buy and sell rental properties based on some multiple of the monthly rent. This valuation method is called the gross rent multiplier. Such investors will say, “A rental house is worth 100 times the monthly rent.” If the rent is $700 per month, then the house must be worth $70,000. If you buy a house for $70,000 that rents for $700 a month, and then simply raise the rent to market rates of $800 per month, you should be able to sell it for $80,000. There are more complicated evaluation methods discussed later, but the strategy is always the same.
People who engage in the market rent flip must be good at making phone calls and asking direct questions to discover what the market rents are in the area. They must have time to visit other rental properties to get a good sense of what people expect to have in a home at a certain rental rate. Market rent flippers must also be good networkers and natural salespeople who can find a tenant and rent the house fairly quickly. You do not have to have a career in sales, chairpersons who head committees must sell all the time in order to obtain volunteers; ministers must sell in order to grow their congregations rather than have people go to other churches; and teachers must sell the importance of what they are teaching in order to motivate children to learn. Think about the things you do, and whether they involve selling at all. If they do, and you are good at what you do, then you should be able to successfully handle a market rent flip.