PDF Summary:The Book on Rental Property Investing, by Brandon Turner

Brandon Turner’s The Book on Rental Property Investing is an educational guide to effectively locating, buying, and managing real estate properties. Turner identifies the major pitfalls new investors encounter, and he suggests how to profitably overcome these challenges by working smarter, not harder.

Turner is a real estate investor with hundreds of income-earning properties. He’s also a bestselling author and a former host of Bigger Pockets, a real estate investment podcast. In this guide, we’ll cover Turner’s detailed approach to each stage of the rental property investment process, as well as explore overarching strategies to help new investors think professionally about their portfolios. In our commentary, we’ll provide further advice on various elements of the rental property investment process, such as handling paperwork and securing a good agent.

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• Primary markets tend to be urban centers with high population density and productive industrial and commercial sectors.

• Secondary markets often have slightly smaller populations and economies, but they retain some of the character of primary markets. This makes them enticing to people who want some of the big city feel but with lower prices and less bustle.

• Tertiary markets have more dispersed populations and typically less commercial activity, but they make up for this with lower prices and a slower pace of everyday life.

Additional Locational Draws

Aside from class, other locational features can appeal to would-be tenants, adding value to your investment. Strong educational options and nearby schools are key motivators for renting families, and most renters value good transportation and availability of common retailers. As a rule of thumb, Turner suggests you ask yourself if you’d like living where your rental property is located. Chances are your would-be tenant would react similarly.

(Shortform note: It’s unlikely that your would-be tenant will find every last neighborhood feature they’re looking for, such as great educational options and plentiful retailers, close to your property. Therefore, consider adding commonly sought-after luxuries to the unit itself. Research shows that potential renters are especially attracted to units that have washers and dryers, and they’re often willing to pay more in rent in exchange for the convenience and saving of not having to go to a laundromat. Experts suggest adding these items to your overall property if there isn’t capacity within each unit itself.)

Choosing a Property Type

After deciding on a location, consider what type of property you’re interested in renting. Each has advantages and disadvantages: Turner suggests considering things like maintenance needs, financing options, and competition when choosing what’s right for you.

Single-family homes draw long-term tenants and are often more affordable than other property types (for instance, apartment buildings). Also, you’ll control the whole property, meaning it’s easier to manage the grounds and run appreciation projects. However, you may face more competition when buying these properties, primarily from homeowners. It can also be hard to build wealth investing in these properties, as conventional lenders usually only allow you to finance limited properties at a time.

(Shortform note: In the US, demand for single-family homes has grown significantly over the first decades of the 21st century, particularly among millennials. One reason for this may be the preference young adults have for renting over owning property. Renting a home allows them to experience a more traditional single-family space while also avoiding rising house prices and lending rates. Renting also allows them to maintain more flexible living arrangements and financial commitments. This could partially explain the fact that, though the 2010s saw a major recession, single-family rental units kept rising in value in terms of both rent and appreciation.)

Turner explains that multi-family homes have multiple units, potentially offering more rent. You’ll also face less homeowner competition when buying one. However, the more units involved, the more maintenance is typically required, and the higher the purchase price. Additionally, you’ll face competition from other professional investors.

(Shortform note: An additional benefit of multi-family properties is that they allow you to benefit from economies of scale in ways single-family ones don’t. In other words, you can spread costs out over multiple income generators (units) at the same time. Major expenses, such as replacing a water heater for a given building, seem more manageable when understood on a by-unit basis, especially when a multi-family property like a commercial apartment building can contain dozens or more units.)

Condos and townhouses are both complex-based properties containing multiple units, often with different individuals owning different units. Turner notes that they both require low levels of maintenance and have low upkeep expenses. However, they’re typically overseen by homeowner associations (HOAs) that significantly limit your control over the property and charge substantial fees.

(Shortform note: While working with HOAs may be risky due to the challenges these groups can pose, note that HOAs take on risk too when allowing rental property investors to purchase units. For instance, HOAs have less direct control over the individuals allowed into the community, since the landlord chooses the tenants. This can lead to increased illicit activity or security issues, which lowers property values, and increased liability for the association itself. The HOA may then try to reduce risk by introducing its own specific rental policies (such as the length of possible rental terms) and approval criteria.)

Some investors opt for commercial rather than residential properties. Turner argues that commercial tenants tend to require less fuss than residential ones, with fewer late-night maintenance requests and more reliably punctual rent payments. That said, commercial properties tend to offer lower rates of return. Furthermore, initial costs are frequently higher. Finally, vacant yet specialized professional spaces can be hard to find the right tenant for, meaning longer periods without rent.

Commercial Properties Can Mean More Effort

Not all experts agree with Turner that commercial properties require less time commitment. They argue that demands on landlords can actually be higher with commercial properties, due in part to the increased public safety concerns accompanying employees and customers using retail spaces. Also, commercial landlords often manage multiple leases and are responsible for determining common area maintenance (CAM)—work and fees associated with shared portions of a property, such as parking lots, utilities, or security features.

All of these duties taken together can make commercial rental property management more active than passive. Taken along with the financial costs that Turner mentions, this may make commercial properties unattractively challenging for first-time investors.

Locating Possible Properties

Turner notes that once you’ve decided on a property type, you can use several methods to track down possible properties to invest in:

The Multiple Listing Service (MLS): a database with the most accurate survey of listings. In the MLS, smaller catalogs of regional listings combine to form a single national database. You likely need a real estate agent to access it—another reason to cultivate this relationship early.

(Shortform note: Canadian MLS services work similarly to the US-based ones Turner covers. They’re also run by a collaborative of real estate professionals, and brokerages stringently oversee the listing addition process to ensure accuracy. The largest single regional catalog is for the Greater Toronto Area: In 2015, the service boasted the participation of more than 50,000 local realtors. Canada, as a whole, has more than 80 boards of realtors managing MLS catalogs.)

Direct Mail Marketing: frequently sending out postcards or letters to property owners you think might sell. Some owner lists are accessible for a fee, or you can make your own. This cold calling approach appeals mostly to struggling owners who want to sell quickly and hassle-free.

(Shortform note: It’s possible that sending physical marketing materials to prospective sellers is more effective than sending digital ones because they have a higher emotional impact on the receiver. This factor, added to the frequency Turner suggests, can enhance the chances that a prospective seller will identify with your brand and consult you first if they decide to unload a property. To add more to that emotional appeal, include attractive pictures on your materials.)

Driving around, hunting properties: a low-cost option that’s especially useful for finding options. Look out for signs of distress or neglect that often indicate no one resides in a property—the owner might be poised to sell.

(Shortform note: Some telltale signs of distress or neglect to look out for include no one putting garbage cans out on collection day; the home going undecorated during holiday seasons; electric meters having red out-of-service tags; damaged or boarded windows; and the lights never being on, especially at night. When scouting properties, make sure to consult local trespassing laws to make sure your activities are above-board.)

Evictions: Turner points out that landlords in the midst of evicting tenants are often going through stressful and legally complicated experiences. They may be more apt to sell quickly—and at a lower price—if you present them with a timely exit opportunity. Eviction records are generally available to the public.

(Shortform note: The late 2010s and early 2020s saw considerable spikes in eviction rates in the United States, leading to what many lawmakers consider an eviction crisis. Specifically, the country has seen annual eviction rates of nearly four million renters, and nearly six million renters not being up to date on their payments. Further, in 2018, roughly 6% of renters were threatened with eviction.)

Craigslist: a common online hub for locating sellers or advertising yourself. Turner emphasizes that the site is free and easy to navigate.

(Shortform note: Not everyone agrees with Turner that Craigslist and similar sites are worth the effort. Critics point to the fact that, even if you religiously create ads and respond to sellers’ posts, those other users may not respond quickly or at all. Also, because these sites are free and easy to use, they can be saturated with competition, making it difficult to drum up a stream of worthwhile leads.)

Lending Options

Now that you’ve found an attractive property, you’ll need to finance its purchase. Since many early-stage investors don’t have the cash on hand to buy properties outright, Turner states it’s essential to understand the leverage options available to you. In this section, we’ll examine three specific lender types: conventional, portfolio, and private. Then, we’ll discuss tips for obtaining a loan.

Conventional Lending

Turner explains that you can acquire a conventional loan by going to a lender, such as a bank or credit union. These loans tend to be stable and trustworthy. They also provide longer terms and lower interest rates than most other options, giving you longer to pay the loan back.

However, conventional loans have strict application criteria, including minimum buyer credit scores and conditions around how much you can borrow. These criteria exist because many lenders bundle together mortgages they’ve approved and sell them on to governmentally-backed organizations. These organizations want to reduce their risk and ensure the loans they buy are paid back—therefore, they require the lenders to set strict lending criteria.

(Shortform note: Conventional lenders often have stringent lending criteria for rental property investment loans specifically—usually more than on loans for residential purchases. This is due to the very fact that the borrower will be renting out the property rather than living there. To the lender, this raises the fear that, should the investment not pan out, there’s less incentive for the borrower to follow through with the terms of the loan than if the property were their actual home.)

Portfolio Lenders

According to Turner, portfolio lenders can be the same institutions as conventional lenders, such as banks or credit unions—but not always. They curate their own loans rather than selling them on to government organizations. This means less stringent oversight of the loans, making it easier to qualify for one (as long as you have good credit). Also, you’re more likely to secure more simultaneous mortgages with a portfolio lender and their eased restrictions, allowing you to build your rental property empire.

However, loans from portfolio lenders can have shorter terms, giving you less time to pay off both the principal and interest. Further, the lenders may be harder to find—some don’t even use the term “portfolio,” so you may have to hunt them down.

Added Benefits of Portfolio Lenders

Alongside less stringent oversight, portfolio lenders offer other benefits that conventional ones lack. These benefits may outweigh the cons that Turner presents.

First, because they often draw on their own funds for loans, portfolio lenders can offer more capital than conventional ones. This gives you more money to direct toward improvements or additions to the property.

Second, many conventional loans penalize borrowers for early repayment by levying extra fees. This discourages the borrower from repaying early and allows the lender to collect more interest. Portfolio lenders don’t typically do this, meaning you can pay down the loan more quickly (if you have the resources) and move on to your next purchase.

Finally, your portfolio loan interest may be tax deductible (one of the government advantages we mentioned earlier). To determine this, consult the CPA you enlisted earlier.

Private Lenders

Turner points out that private lenders can offer terms freer of the restrictions conventional lenders demand. These loans are especially useful if you’re interested in purchasing a property that needs a lot of work, something that usually dissuades conventional lenders from getting on board. Armed with the private lender's investment, you can fix up the property, refinance the mortgage with a bank later on, and pay back the initial private lender in full. The short-term quality of these loans often allows the lender to ask a higher interest rate to make their investment worthwhile.

(Shortform note: Because, as Turner indicates, many private loans are intended for the short term renovation of a property and lead to eventual refinancing, you’ll sometimes see these referred to as “bridge loans.” As the name suggests, they’re intended to get you from one point to another, not be an end in themselves. Current industry standards for bridge loans see most lenders fronting the entire value of the property and 90% of the renovation costs. Some experts warn that if a lender offers you the full 100% of the latter, that’s a warning sign that their professionalism may be suspect, and you should further investigate their credentials.)

Tips for Securing a Loan

Turner insists that one of the fundamentals for obtaining a loan is understanding how a lender (in other words, a banker or underwriter) thinks. Most importantly, know that despite how many denials people receive, lenders need to lend money to survive. In other words, they have to approve some loan applications. If you decrease their sense of risk, they're more likely to approve you. Therefore, do everything you can to diminish that initial sense of risk.

(Shortform note: One way to play to lenders’ risk-averse preferences is to know their most common pain points. This often means avoiding behaviors that disrupt their process. A common “red flag behavior” lenders cite is when would-be borrowers try to apply a loan they received from family or friends to their down payment, which is usually against financial regulations. Another is making sudden changes to your financial situation in the process of seeking the loan, such as accepting a job offer or considerable pay increase. Whenever possible, delay these activities until after closing on your new property to keep the process smooth and orderly for your lender.)

Turner adds that lenders want to know if you have enough financial stability to take on the debt. So, have proof of things like cash reserves, insurance, and your (preferably high) credit score prepared before you speak to one. Also, lenders are concerned by many of the same property characteristics you are, such as condition, type, and location. Therefore, strive to make these features look as attractive and problem-free as possible for initial inspections.

What’s a Good Credit Score for Rental Property Loans?

Of the lender-pleasing tactics Turner discusses, perhaps the most effective is submitting a solid credit score. But what if your score needs improvement? Try the following:

• Avoid signing up for any new credit cards or lines of credit.

• Try and pay all of your bills on time.

• Keep any preexisting credit card accounts up-to-date and open.

• Pay down any outstanding balances you may have.

Purchasing Properties

Once you’ve found the property you want to buy and have a plan for financing it, you have to buy it. In this section, we’ll explore the process of making an initial offer and the negotiating skills required during the purchasing process.

The Introductory Offer

According to Turner, there’s no set rule for an opening offer, but you should ask two questions: First, how much competition is there for the property? When competition is strong, higher offers can put you ahead of the pack. Conversely, a buyer who’s had a property on the market for a while without an offer might abandon her original asking price, making bidding low a sounder strategy. Second, ask why the owner is selling—for money or expedience? This helps you better gauge a number they’ll accept.

Avoid Lowballing

Even if the answers to the above questions suggest that a lower offer may be accepted, it may be wise not to go too low. Specifically, some experts warn against low-balling: bidding significantly below list price (the price initially determined by the seller).

This practice can bring negative consequences beyond just losing a deal: It can damage potential sellers’ confidence in an investor’s seriousness and reputation. It can even harm an investor’s relationships with real estate agents and attorneys. If you’re serious about entering the rental property industry, and you aim to buy multiple properties in a given area, it’s prudent to keep these relationships strong. Therefore, make sure that lower bids are logical to the property’s value.

Soothing Seller Anxiety

When you’re making the initial offer, the seller may doubt your ability to pay or good intention to buy, weakening your bargaining credibility. Turner notes that sharing a pre-approval letter from your lender can ease the first concern, calming fears that the deal will fall through. To ease the latter concern, offer an Earnest Money Deposit (EMD), roughly 1-2% of the purchase price, up front. This is held by a third party, such as a real estate brokerage, until the deal is closed. If you back out of the deal without cause, the seller keeps the money.

Turner advises that you can add contingencies to the EMD to protect yourself. For example, you might add one that frees you from the sale if a late-stage inspection discovers new property damage or that the seller was dishonest with you about the property’s value or condition.

(Shortform note: The third party will likely use an escrow account to protect your EMD. This acts as a neutral place for funds to sit until all transacting parties fulfill their ends of an agreement. In many cases, the buyer will address the EMD check directly to the escrow service rather than the seller, adding another layer of protection against the seller simply absconding with the money before the process is complete. The escrow holder can then either apply the check to the eventual purchase of the property or return it to the issuer if the deal falls through.)

The Art of Negotiating

Turner highlights three post-offer scenarios: acceptance, counter-offer, or rejection. Counter-offers are extremely common, especially if you don’t immediately meet the seller’s asking price. They can also happen after a rejection, if the seller changes their mind.

If the seller counter-offers, you may want to negotiate to reach a lower price that suits you both. Turner emphasizes that while negotiating, you must avoid appearing aggressive, confrontational, or insulting. You’re likely to get a better price if the owner finds you professional, friendly, and approachable. Also, cite data to back up your offer—things like local income and rent averages, vacancy rates, and employment rates. If it’s clear that you know what a fair value for the property is, the seller is less likely to think they can take advantage of you.

(Shortform note: When negotiating, remember that counter-offers, or even counter-counteroffers, typically invalidate an offer that came before it. In other words, if you come up with a counter-offer that the seller rejects, you most likely won’t convince them to return to their previous number—no matter how friendly you are or how much data you cite.)

Finally, Turner reminds you to never be so emotionally invested in a property that you can’t turn your back on a deal if the numbers don’t work or the seller expects more than your maximum budget. There will always be another investment opportunity.

(Shortform note: It’s common for an investor to forge an emotional connection with a property when it has features that create feelings of attachment, such as inviting grounds, an old-time charm, or the potential for appealing renovations. If you notice this happening, try creating physical and emotional distance between yourself and the property by asking other professionals from your team (most likely your real estate agent) to take over the handling of the deal. They’ll bring a neutral perspective to the transaction, reducing the chance of you overcommitting, getting stuck in a bad deal, and undermining your finances.)

Before You Close

Having made your successful offer, you now move into a key point in the purchase process: the period that real estate professionals call “due diligence.” Turner presents this phase, which occurs between striking a deal and closing the sale, as a critical chance to troubleshoot the property and its documentation: Make sure you’re getting what you paid for and that all is legally in order. In this section, we’ll cover both on-site and documentary troubleshooting and how Turner advises navigating them.

The Physical Inspection

First, Turner advises conducting an inspection of the property. He argues it’s best to hire a third-party professional to ensure thoroughness and neutrality, but he recommends attending their inspection to get a hands-on sense of any issues. Remember that if you arranged an EMD with contingencies, you can back out of the sale at this point if you discover major problems.

(Shortform note: Certain types of property purchases—particularly commercial or business ones—may require inspections beyond those of residential properties. A restaurant, for example, likely requires additional inspections from both the health and fire departments. From the health department, it might need proof that mop and hand sinks, floor drains, and washable surfaces are in working order. Similarly, kitchen hoods, fire suppression systems, and ductwork would demand approval from fire officials. These requirements should be clearly stated in state, federal, and local laws.)

Reviewing Paperwork

Now, turn your attention to paperwork, Turner suggests. Ensure the title (the document that dictates ownership rights over the property) is present and correct. Also check for easements (rights of access to the property), covenants (the terms of a property's legal use), and liens (claims on a property to ensure debt repayment). The best situation is when a property has a “clean” title without liens or other encroachments—meaning your ownership isn’t complicated by any other debt or ownership claims on the property.

Buying Properties With Liens

Of all the paperwork Turner suggests reviewing, checking for liens is arguably most important. As he notes, properties with liens may be more complex to purchase and own. However, some experts argue that a lien’s presence doesn’t mean that you must halt a purchase; you just need to be aware of the risk. For example, know that a lien means that a creditor is using that home as collateral for money owed by the seller. Many times, this is due to owed back taxes. If you’re determined to proceed with the sale, be aware that the burden of the owner’s debt will legally pass to you.

It’s also best to pay even closer attention to the condition of the home in these cases—many times, homeowners who are in debt are more likely to fall behind in repairs or upkeep of their properties, especially if they think they’re on the verge of losing them to a creditor.

The Nuts and Bolts of Management

You’ve gotten the keys to your new rental property—now, it’s time to run your business. This is the critical time when you need to attract tenants (thus optimizing your cash flow) and learn the ropes of operating efficiently. This will turn your investment into a profitable and sustainable enterprise.

In this final section, we’ll first cover the ins and outs of finding tenants, followed by methods for accepting the best ones. Finally, we’ll delve into issues of upkeep.

Attracting Tenants

Turner recommends making the property as enticing as possible before showing it to prospective tenants. An appealing paint job is one of the best ways to enhance a property’s appeal to potential renters, along with thorough cleanups inside and out.

(Shortform note: A paint job and cleanup may not be enough to attract certain tenants. Another critical way to boost your curb appeal is to ensure the grounds are neatly kept—prospective tenants often react badly to grass or shrubs that are out of control. Also, consider adding exterior lighting to the property—it not only makes the property appear more cared for, but it can also bolster a tenant’s feeling of security.)

Once you’re ready for viewings, invite tenant interest. Turner notes that you could use signs, which are cheap and easily personalized—although visibly advertising an unoccupied property may invite vandals. Craigslist offers similar advantages to signage; it’s also accessible to anyone with an Internet connection. But avoid mentioning a specific address, as this can also invite vandals. Other options include advertising in a newspaper and using existing (trusted) tenants to spread the word and attract equally trustworthy clientele.

(Shortform note: You can further improve your advertising efforts by getting the timing right: Tenant shopping activity tends to be highest during the summer. Advertising at this time may make it easier for you to attract tenants to your unit and get the vacancy filled quickly, before vandals strike. Plus, getting any pre-existing tenants to stay until summer can reduce the pinch of an extended vacancy.)

Screening and Accepting Tenant Applicants

For Turner, screening is everything when it comes to getting quality tenants. Follow an initial application form with a background check, focusing on criminal records, bankruptcy, and evictions. Call the person’s current boss and prior landlords to confirm their monthly income and past rental behaviors.

(Shortform note: It’s possible to find background check services with a quick online search, including those that search credit histories, eviction histories, and criminal records. Alone, each of these checks typically costs between $25 and $75—however, some services allow you to save money by bundling checks together through an upgraded package or premium access to their service. These services may not have income and rental behavior data, meaning approaching a person’s boss and landlord might be still necessary.)

When rejecting an applicant, Turner recommends knowing local discrimination laws to avoid appearing biased against certain attributes or communities. To ensure fairness, accept applicants in order of submission, and always provide written reasons for any rejection to circumvent claims of bias.

(Shortform note: Most housing anti-discrimination laws in the US stem from historical legislation of the 1960s, principally the Fair Housing Act of 1968. This came on the heels of the Civil Rights Act of the same year, which was aimed at helping end widespread racial inequality in parts of the United States. In 1988, the Fair Housing Act gained a significant expansion in the demographics it shielded from bias, growing to include disability and family status protections. Currently, the law prohibits any discrimination of potential tenants based on race, color, sex, religion, or nation of origin, along with the two criteria just mentioned.)

When you accept an applicant, insist on a holding deposit, which obliges them to put down a lump sum of money as a good faith gesture while you reserve the unit for them. Turner notes that this covers your costs in the event that the applicant ultimately moves in elsewhere.

(Shortform note: Just as with leases and many other documents establishing tenant-landlord relations, holding deposit agreements are subject to widely varying state and local laws. As a general rule, though, the law tends to favor the would-be tenant in cases where the terms or execution of the agreement come under scrutiny. Be sure to consult those laws as thoroughly as possible before drafting your terms—this is a good spot for your lawyer to jump in, too.)

Also, find the right kind of lease agreement for your tenants. Turner explains that you could opt for yearly leases in places where you have quality tenants you wish to retain. Alternatively, you may opt for monthly leases if tenants are harder to manage, thus leaving open the option of removing them quickly. Six- or nine-month leases are helpful for avoiding lease terms ending during holiday seasons, when you could have more trouble filling the vacancy.

(Shortform note: Another reason to opt for a six- or nine-month lease is that it can allow you a trial period to see if a tenant is right for your property. It’s less binding than the one-year option, especially in cases where the tenant proves not to be a long-term candidate. Simultaneously, it helps reduce the turnover costs that typically accompany having too many tenants come and go under month-to-month arrangements—for instance, the diminished rent that comes with vacancies.)

Before handing over the keys, Turner continues, perform a walkthrough with the tenant, documenting the property’s state with a move-in condition report. This makes it easier to identify damage inflicted by the tenant when they eventually move out.

(Shortform note: If you prefer, you can draft your own version of the move-in condition report. One of the popular formats is a simple checklist of each individual item, including fixtures and pieces of furniture, with columns detailing the property’s condition both at the beginning of the tenant’s residence and when they move out. Consider adding some empty space at the bottom of the list to add additional notes.)

Upkeeping the Property

Once you’ve rented out the property, your task is to maintain it. Turner recommends knowing from the outset what you’re legally obligated to do. Many big-picture items—such as appliance care, fire safety, and carbon monoxide safety—are your task to maintain. However, damage created by the tenant often falls on them to both report and pay for.

Turner suggests getting ahead of the most common problems and keeping a checklist of items to maintain. Arrange regular—often annual—maintenance of common features. This includes storm drains, sump pumps, and siding on the outside of the property; and fridges, boilers, and furnaces on the inside.

(Shortform note: Note that some of the maintenance tasks Turner suggests performing may require preemptive scheduling. This particularly applies to anything requiring appointments with professional service providers or inspectors, such as roof, boiler, or HVAC inspections. Establishing appointments in advance can help you keep maintenance and repairs on track, aid your property manager’s workflow, and help you understand the spread of maintenance-related financial commitments each period of the year.)