What Motivates Investors to Buy Rental Property?

Understanding the motivation that drives investors to buy rental properties is paramount to real estate agents seeking to make money with real estate investing.

The assumption of most agents is that real estate investors, like homeowners, are mostly concerned about the property’s amenities. That investors make investment decisions, like home buyers, based on such things as whether a rental property is in perfection condition, has curb appeal, or is in some particular school district; not so.

Property amenities play only a supporting role in real estate investing. What a prudent real estate investor is actually seeking is return on investment in the form of anticipated income stream, and amenities are important only in how they might affect that income stream.

If an apartment building is not in perfect condition, for instance, and the cost of rehabilitating that apartment didn’t offer the opportunity to increase rents enough to offset those costs (and more) or, contrary wise, perhaps could increase rents enough to offset those costs (and more), then property condition would be a consideration to the investor. Otherwise, it’s less important.

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

This is the reason why I advise real estate agents who want to successfully list and sell rental properties and gain investor-customers to prepare themselves adequately to run the numbers. The easiest way, of course, is to make the small investment in a quality real estate investment software solution, but you can also setup your own Excel spreadsheet.

The point is not to ignore the financial measures investors look for to make investment decisions because nothing else motivates investors. They buy (and for that matter, sell) rental property based solely on the amount of money they can make; and real estate agents who understand that are more apt to make money, too.