If you’re buying rental property, you will definitely want to add the “SWOT” method to your analyze process.
What is the SWOT Method When It Comes To Buying Rental Property?
SWOT stands for Strengths, Weakness, Opportunities and Threats.
It’s a standard analysis used by businesses all the time.
So why not use it in our real estate business to analyze when we’re buying rental property?
The first kind of analysis most of us do is the number crunching…
To find out if this rental property cash flow.
Nothin’ wrong with that…
But let’s take it a step further and use the SWOT method as well
Strengths
What are the strengths of your property?
Does it have strong appeal to the tenant profile you are looking to attract?
Is it in a growth area where jobs are coming into the city?
Does it provide a clean living space combined with comparable rental rates?
Or, is it PRIME real estate that will attract a higher rental income niched to a higher-end tenant?
These are just some examples of what you’re looking for in the strengths area of this analysis.
Weaknesses
Every property will have SOME weaknesses.
It’s your job to look at everything from a business perspective and take the emotion OUT of this analysis.
For instance, what if this property had the opposite of the examples I gave you above?
- It’s in a poor location – rough area of town
- will attract poor quality tenants – it doesn’t appeal to the tenant profile you want to attract
- it has high operating costs which means you have to charge higher rent and it may price you out of the market
Even though a property may have weaknesses, it’s not always a dead deal.
The reason we’re doing the SWOT analysis is to bring awareness to the surface of what might be able to be done to position this investment better.
But at the same time, I CAUTION you to FORCE a deal to work “just because”.
Opportunities
Hey, who doesn’t like opportunities right?
The weaknesses you have uncovered may actually be a good thing (read: opportunity) in some cases.
Let’s say you’ve found a property that it is in need of some repair – in other words, you’ve got to put some money into it.
BUT, it’s in a really great area – rents are god and it can be tenanted easily once it’s brought up to speed to compete with the rest on the block.
Another opportunity may be an underpriced property in an area that you know is up and coming (from your research right?)
So take a look at the strengths and weaknesses combined to uncover a hidden opportunity in some cases.
Threats
Threats could mean how the property fairs against market fluctuations…
It could be that it’s been neglected for a long time and the costs to bring it up to decent marketability are greater than anticipated and could dip into money that could be used elsewhere or for another property.
Property Management is another BIG one here.
If you’re buying a property in areas that are challenged with good property management this is a huge threat.
I’ve run into a LOT of investors who have purchased properties in remote areas because it was a good deal..
They spend more than their fair share of weekends driving up to the property for maintenance issues etc because they can’t find a property management company that will do the job right.
Also, look at the economic strength of the property.
If you’re buying in areas that depend on one or two major employers and one or both goes through some financial trouble, it could leave you scrambling…
One last thing is to look at the neighbourhood and how much of a threat it exposes to your property.
Because if you’re buying in a lower value area you could be prone to vandalism or unsafe conditions for quality tenants.
If that’s the case, it won’t matter how great your property is.
Buying Rental Property is a Serious Investment
So make sure you do a quick SWOT analysis alongside your number crunching…
It will save you tons of stress.
Let’s get a conversation going about this one below…
Until next time,
Be SWOT safe when your buying rental property!
– Joey