The TLC Your Garage Deserves

The TLC Your Garage Deserves

The first part of your home you step foot in is most likely the one you give the least attention to. This first impression of your home can not only have a strong psychological effect on your personal mood and perspective, but it can also equate to more tangible damage, in the form of diminishing financial value. That is why 82% of 500 realtors surveyed stated that a disorganized and messy garage has a considerably negative impact on potential home buyers (Braun Research survey). Here, we examine a few of the most common long-term effects of a neglected garage and how we can begin to quickly address them while transforming your garage into a portion of your home you want to show off.

 

Cracks in flooring

One of the most common issues that arise in a garage are cracks in the flooring. We’ve almost accepted them as inevitable, but the truth is they don’t have to be. Cracks in the floor are most commonly caused by things like shrinkage, settlement and exposure to cold and frost. They also have real effects and are subject to regulation, as demonstrated in industry standards manuals everywhere. The real issue with cracks is the extra damage caused by water seeping into them followed by freezing occurring in the winter time, which can cause expansion and excess pressure against the garage slab. This can lead to excess cracking and heaving. Try to eliminate exacerbating these cracks by utilizing a garage floor mat in your garage.

 

Staying organized

The clutter overflows, spring time comes around, and we finally decide to spend a day solely devoted to cleaning out the garage. The only problem is, this is a band aid on a larger issue, as next spring we will be doing the same thing. Sound familiar? One way to help with this is installing garage organizers. Purchasing some storage shelves and cabinets go a surprisingly long way in keeping your garage clean and clutter free. Just having the ability to put items away in a specific place instead of stacking them on top of each other leads to a more habitual upkeep of your garage, ensuring it stays organized.

 

Outdated or broken garage door openers

As with all technology in the last two decades, developments have been consistent and continuous. A unique issue has risen with garage doors, as they aren’t as easily replaceable as an iPhone or a pair of headphones. They also aren’t anywhere near the top of our list – until they are. Having an updated and fully functional garage door system is a necessity in this market, and goes a long way as far as presentation. They are after all, one of the most frequently used doors in the home.

 

You’ll find it surprising how tending to just these three simple aspects of your garage can be completely transformative. Potential buyers will see your house as much more valuable, and you’ll also feel significantly better as you return home every day. You may even be able to make it to the door without having to avoid stepping on any old toys or furniture

Follow “No-Fail” Checklist When Purchasing Your 1st Rental Property

Follow “No-Fail” Checklist When Purchasing Your 1st Rental Property

Every new real estate entrepreneur needs to understand the concept of “No-Fail.” Real estate investments have been proven to contain significant advantages in providing a way to both earn financial rewards as well as to protect personal assets. In the world of financial investing, there is no such thing as being a true “No-Fail” strategy. There are risks associated with all real estate investments, but rental property can be purchased in such a way as to approach the threshold of being a “No-Fail” strategy. In order to take full advantage of the benefits of owning rental property, it is recommended that the beginning real estate investor consider drafting and following a 7 Step Checklist when purchasing that 1st rental property.

Purchasing Your 1st Rental Property

Step 1 – Understand the Case for Owning Rental Property. When you make the decision to own rental property, you need to be aware of both the advantages and the disadvantages associated with this investment strategy. Yes, there are risks associated with rental property. Many of these risks can be reduced or even eliminated when a “No-fail” approach to ownership is adopted.

SEE ARTICLE “Understanding the 5 Risks of Investing in Real Estate

As we examine the benefits you receive by owning rental property, you will quickly realize that there are five power advantages that should be important for almost all real estate entrepreneurs.

  1. Power Advantage of Leverage. Leverage can best be described as using financial instruments or borrowed capital to increase the potential return from the investment. If you own a rental property that increases in value by six percent and you had purchased that property with “all cash”, your return on investment for that period of time would be six percent. However, if you had put down a 20% down payment and the property increased in value by the same six percent, your actual return would on the investment of 20% would be five times the original amount. This same power translates across all the real estate investments and is especially true for rental properties that generate a positive cash return. Keep in mind the fact that as you increase the leverage, you also increase your risk. A good rule of thumb is to keep the leverage at a level that allows you to be positive cash flow on the property.
  2. Power Advantage of Potential Tax Free Cash Flow. Every investor will have individual tax issues, but rental property has the ability to allow the investor to receive a positive cash flow while still being able to deduct depreciation and other expenses that in essence creates free cash flow.
  3. Power Advantage of Tax Deferred Investment Growth. Rental property will generally increase in value as a direct correlation with the increase in rental income and profits. While the property increases in value in real time, your tax obligation will not accrue until you dispose of the property.
  4. Power Advantage of Appreciation. As you pay down the loan on rental property, the rental property will actually increase in value. This power has been demonstrated long-term across almost all properties. The one major caveat to remember is that you must select the right property at the time of purchase. Rental property can in effect produce equity for the future.
  5. Power of Cash Flow for Retirement. Tenants pay rent, which increases in amount over time. This cash flow continues and increases in size as the rental rates increase. Well-selected rental properties can provide a retirement income.

Step 2 – Evaluate Your Personal Situation. The decision to own real estate comes with responsibilities and that is especially true for owning rental property. Even prior to beginning your search for the perfect property, you should examine two areas of your life.

  1. Personal Abilities and Desires. As soon as you purchase that first rental property, you take on the responsibilities of being a “landlord.” There are ways to mitigate this responsibility when you are in the position of obtaining professional management.SEE ARTICLE Five Keys That Can Open the Door to Professional Rental Property ManagementYou should be realistic when purchasing that first property by realizing that you will be a landlord with “hands-on” responsibilities at first. Yes, it may seem daunting, but the rewards can be significant. Ask yourself the following questions and decide if you are personally ready to get started.Purchasing Your 1st Rental Property
    • Do you want to be a landlord?
    • Do you have the experience to do the repairs or can you find someone who can?
    • Do you have the time to collect rent, do marketing, and complete repairs?
    • Can you manage that first rental by yourself
      It is important that you be realistic in answering those questions.
  2. Personal Financial Situation. When you purchase that first property you will be incurring added financial responsibilities. In order to make the purchase as “No-Fail” as possible, you should take the following actions:
    1. Pay Down Debts. If you have outstanding credit card obligations and short-term debts, you probably have large recurring expenses. When you purchase that first property you will most likely have additional expenses that need to be paid. If you are financially burdened by debt, you may not be able to make these expense payments on time, which will put your new rental property investment at risk. As much as possible, try and pay down your short-term debt. The more you do this, the better equipped you will be to make your rental property purchase a success.
    2. Secure Cash Requirements for the rental property purchase. In most cases, this is the down payment required to purchase the property. Additionally, you will need the earnest money deposit along with funds for immediate repairs and improvements to the property that will help in securing rental tenants. Don’t go into a rental property without the funds necessary to complete the purchase and get the property leased.

Step 3 – Find “No-Fail” Properties. Not all rental properties are equal in value and not all such properties make good first purchases. As a new real estate owner, you need to find the best properties that will attract the best tenants who will pay the highest rent. Because this is your first rental property, you need to decide whether you are looking for a single unit or multi-unit purchase. In most cases you will be safer in finding a great single-family home as your first purchase.

Single family homes have the advantage of requiring just one tenant, while multi-unit properties will need to be filled with more tenants. You will want to find a perfect tenant for the purchase and it is easier to find one great tenant than many great tenants. As you experience success with your first purchase, you will soon learn the skills to find more and more great tenants. Keep in mind the fact that when you purchase a single-family property, repairs are less, there is less upkeep and management involvement is much less.

Purchasing Your 1st Rental Property

When searching for the great “No-Fail” properties, it is important to remember that location is extremely important. When future tenants choose between comparable properties, they will compare them the same way you would if you were looking for a new home for your family. Search for properties that meet the following guidelines:

  • Near to Quality Schools. It has been proven that young families use the proximity to good schools as a major factor when choosing a home or rental. The closer you are to great schools, the faster your rental will lease up.
  • Near to Shopping Districts and Malls. If you can find a rental property that is within walking distance to good shopping, it is a plus.  When you separate yourself from the shopping, you are eliminating much of your market audience.
  • Close to Amenities. Your new tenants will want to be close to amenities like movies, entertainment, fitness centers, day-care, and personal services.
  • Near to Job Opportunities. If you can find a property close to major employment opportunities, you will increase your potential list of possible tenants.

Purchasing Your 1st Rental Property

Don’t forget the condition of the property itself. The more desirable the property, the greater chance for finding a great tenant.  Unless you are specifically searching for fixer-up properties, stay away from properties that need major repairs. There is a major difference between choosing a “fixer-upper” and being dumped into one when you weren’t looking for one. Make sure you know what you are getting by getting a competent house inspection.

Finally, look for a home priced below market with minimal repairs. A little bit of paint can go a long way. Curb appeal is important.

The best “No-Fail” property is one that can be purchased below market value. We don’t recommend buying in blighted areas or in economic distressed areas. Rather try to find a property that meets the criteria of a great property that can be purchased at a reasonable price. Your ability to negotiate is important in finding the right “No-Fail” property.

SEE ARTICLE Negotiation Real Estate

Step 4 – Believe the Numbers. If you are purchasing a property that has been used as a rental prior to your purchase, make sure you get access to the true expenses and rental payments on the property. If there have been major repairs made to the property, you need to know what they cost. Numbers don’t lie.

Start by doing an accurate proforma on the property in question.  If you enumerate all the potential expenses before you start calculating the rents, you will be more in line with real world figures.  Make sure you include all the expense items as well as a reasonable reserve for repairs.

Purchasing Your 1st Rental Property

Unless you have a property that is already rented, you will need to use rental income that is accurately based on comparable properties.  Look for other rentals in the area and your projected rental rates will be more accurate.

When completing the property analysis, you should avoid extreme assumptions on both the expenses as well as the income. The more accurate you make your analysis and pro-forma, the more realistic you will be in determining value. In the end, the key is to do the math.

Step 5 – Draft a “No-Fail” Contract. Once you have identified a great rental property, you need to negotiate a contract that will give you the highest probability of making a regular recurring profit and positive cash flow.  What you agree to with the seller of the property must be codified in writing as part of the earnest money agreement and subsequent closing documents.  The exact terms of your “No-Fail” contract will be determined through your negotiation process.  There are, however, some key elements to consider when drafting your agreements.

Purchasing Your 1st Rental Property

  • Determine Who Is Purchasing the Property. It sounds simple to say that the answer is yourself, but, you need to determine how you will take title to the property.  A great many real estate investors have found that they can establish a fence of litigation protection by taking title to the property through a properly organized LLC or Corporation.  If you are unsure of how you are going to take title to the property, a good option is to make the offer “under your name and/or assigns.”  If the seller questions why you put “and/or assigns”, you can honestly answer that you are consulting with your legal counsel on the best way to hold ownership.  One final thought on taking ownership is to allow yourself the option of bringing in a partner if the need arises.  The “and/or assigns” allows you to have this option.
  • Acquire Competent Legal and Brokerage Help. If this is your first rental property purchase, getting proper professional help for the final legal agreements is a priority.  Don’t make the mistake of thinking you know everything.  This contract is the key to setting up your future, so don’t skimp on the expense.
  • Allow Proper Timing for Closing. Once you secure the property through a well-drafted earnest money agreement, you will want to begin the process of finding tenants, preparing for needed repairs, and finishing your due diligence.  Make sure you have left enough time to get this done.  Finally, try and avoid the clause “time is of the essence” unless your legal professional has some sound reasons.  If the seller includes this clause and for some unforeseen reason you are unable to close by that specific date, the seller would be able to sell the property to someone else.  Remember, you are looking for properties priced below market and you don’t want to lose the deal because you are a day late in closing.
  • Include Escape or Exit Strategies. It is doubtful that you have been able to complete a full due diligence on the property when you make the offer, and you want to ensure that you can get out of the deal if the property isn’t what you thought it was.  You also want to make the offer “subject to” your financing unless you have already make financing that won’t fail.  The “subject to” clause can apply to financing, approval of a property inspection or a myriad of other things such as property zoning for rentals.  This is especially true if you are purchasing a property for short-term rentals and you aren’t sure if they are permitted in that area.
  • Include Access to Existing Property Expenses and Rental Documents. If the property has been rented in the past, you want to verify both the rental contracts as well as existing utility expenses, taxes, repairs etc. Even if the property hasn’t been rented before, you will want to review these same items.
  • Include a Survey and Property Inspection in the Agreement. You want to make sure that you are in fact getting everything you think you are getting.  The survey will document the physical aspects of the property and the property inspection will ensure that needed repairs are addressed as part of the purchase.
  • Include a Clause That Allows You to Start Showing Property to Prospective Tenants Prior to Closing. Your goal should be to have tenants in place as soon as you take ownership of the property.  If the property is not presently rented, make sure you can show the property to prospective tenants even though closing hasn’t happened.  Keep in mind the fact that your rental agreement will also be “subject to” closing on the property.

Step 6 – Identify “No-Fail” Tenants. Your future tenants are in fact going to pay off the loan on the property through their rent payments.  This being the case, you want to make sure that you can find the best tenants as possible.  If the property is presently being rented, take the time to interview the existing tenants and to verify their payment history.  If you are going to change the rent amount, you will want to see if the existing tenants will balk at the increase.  During the time you will own the property, you will undoubtedly need to find new renters.  The following tips will help select tenants who will protect the property, keep it in good repair, pay their rent on time, and avoid disputes.

Purchasing Your 1st Rental Property

  • Start with Verified References. Ask prospective tenants for three to five references.  If they have rented previously, ask for the information as to that property.  Then follow up with the references and ask probing questions like:
    • Did the renter pay rent on time?
    • Did the renter do minor repairs and keep the property in good shape?
    • Were there any disputes between the renter and neighbors?
    • Were there any legal problems with the renter.
  • Ask for Social Security Information and Get a Credit Report. Avoid Prospective Renters with Past Delinquency Issues.  This pertains to both past rent problems as well as credit issues.  If the prospective renter has a poor credit rating, chances are that your rent will be late or non-existent.
  • Ask for Employment Information. If the renter has a good job, then your rent will be a lot more regular.  In addition, the renter will not like a bad report to get back to his employer that he is not paying rent on time.
  • Do a Personal Interview. Don’t just accept anyone as a renter.  If possible, you want to make sure that you are getting people of good character.  When you interview them, take the time to find out their interests and hobbies.  Doing so will help you avoid having a renter dismantle a motorcycle on your new carpet, which I can tell you has happened.
  • Offer a Discount for Auto Payment of Rent. This discount will pay for itself each month.  The auto payment from their checking, savings, or credit card should also have a substantial penalty if the payment is not made or refused because of insufficient funds.
  • Require a Reasonable Security Deposit. When taking the deposit, you should specify how the deposit will be refunded and what charges will be taken from the deposit.

Step 7 – Prepare Yourself for Ownership. The purpose of a great “No-Fail” checklist is to ensure that your rental property purchase provides a long-term positive return.  Once you close on the property, your ownership responsibilities will fall into two different categories.

  • Management Responsibilities. As soon as the closing takes place, you will be a landlord and will assume ultimate responsibility of managing the property.  If this is your first rental property, you don’t have to start from scratch.
    • Enroll in rental property associations. These people will have suggestions on management based on personal experience.
    • Read books on rental property management. There are numerous books online and in the bookstore that include sample forms and ideas on keeping the books and being a landlord.
    • Attend seminars and webinars on property management. These forums will provide advice and guidance.  Pay special attention to new ideas on increasing cash flow through management techniques.
    • Become friends with other rental property owners. If you are purchasing a property in an area surrounded by other rental properties, find out who the other owners are and meet with them.  Become friends and accept their help when first starting out.
    • Start looking at professional management. If you have chosen a great “No-Fail” property, you will soon be looking at a second and then a third property.  It won’t take long and you will realize the value that comes with well-chosen professional management.  When the time comes that you are ready for professional management, you will already have someone in mind.
  • Financial Responsibilities. Yes, your tenants will be paying you rent and helping you actually pay down the loan on the property, but you will need to be prepared to pay for repairs etc on the property.  Make sure that you have the financial resources to make these payments.  Financial preparation is the key to finding both short and long-term success in rental properties.

Your success as a real estate investor in rental property can be increased dramatically by avoiding the dangers that come by being unprepared.  This checklist can be your guide to finding “No-Fail” rental properties that create wealth and prosperity.

Purchasing Your 1st Rental Property

Five Keys that Can Open the Door to Professional Rental Property Management

Five Keys that Can Open the Door to Professional Rental Property Management

It has been proven across continents and throughout centuries that real estate can be a true source of wealth and prosperity, and the person that owns the real estate generally comes out far ahead.  Unfortunately, not all people can afford to purchase real property, nor does everyone have the desire to pay for and maintain the real estate.  Yet, we all need a place to live, and that creates the roll of the real estate investor and landlord.

Purchasing Your 1st Rental Property

The first question you need to ask yourself is, “Do you want to be an investor and a landlord?  Sounds simple, but it’s really not.  Far too many entrepreneurs start their real estate adventure believing they will become rich by just owning a number of properties where other people pay them rent.  There is no doubt that the concept is true, but there is much more to the real estate strategy than simply collecting the rent.  The time will come when every investor/landlord discovers that there is much more involved than simply depositing the rent check.

As an experienced investor, I soon learned that I was troubled about becoming a landlord and experiencing the trials and tribulations associated with multiple tenants and rental properties.  John Quincy Adams was the sixth President of the United States and was formerly the Secretary of State.  In his lifetime he had become closely associated with the dilemma you may be facing today.  He once made the statement, “I inhabit a weak, frail, decayed tenement; battered by the winds and broken in on by the storms, and, from all I can learn, the landlord does not intend to repair.”  In one simple statement, he expressed many of the problems associated with rental properties and the role of the landlord.”

I decided that I would dedicate my time to improving my talents as an investor and find someone to help me manage the problems that are normally associated with being a landlord.  Through personal experience and the help of other property owners like myself, I soon found that I could offload almost all the heartaches and problems that come with rental properties to a professional real estate management company who had the experience and expertise to provide the management, while still creating great returns from my rental properties.

I know that I’m not alone when I was trying to decide if I needed professional help in managing my properties, nor was I the only one who didn’t know how to proceed in finding the right help.  It was from this experience that the Five Keys that Can Open the Door to Professional Real Estate Management was developed.  These keys are focused on the principle of two people working together for a common objective.  In musical terms this would be called a duet.

Five Keys that Can Open the Door to Professional Rental Property Management

The same principle is also true in owning and managing rental properties.  If you decide to engage a professional real estate management firm, the two parties to the duet are you and the management company.  In some cases, you might be dealing with multiple properties and more than one management company.  This being the case, the term DUETS can be a great acronym for understanding the keys to quality professional rental property management.  DUETS are, in fact, five keys that can open the door to professional rental property management.

Five Keys that Can Open the Door to Professional Rental Property Management

D – Key #1 – Define the Underlying problems. It’s critical that you go into the proposition of owning rental property with your eyes wide-open.  Yes, there are a number of economic advantages that come with ownership, but there are also some very real factors that should concern every prospective investor/landlord.

  • Investment Funds. It is possible in some situations for the investor to get started with creative “no money down” strategies, but these opportunities are not the norm.  In most cases, the investor will be required to have a down payment of approximately twenty percent (20%).   If you are going to occupy at least a portion of the property, you may be successful in applying for an FHA 302K loan.  Regardless of the exact amount of the down payment, you will have both capital and credit invested in the property.  You must decide if owning rental property is the best alternative for these funds.  The decision is a personal one that will vary depending on your personal situation.
  • Preparing and Maintaining the Property. Rental properties are entirely different than purchasing raw land.  You need to be aware of existing repairs required on the property.  These repairs might include structural items such as roofing, drywall, and plumbing issues.  You should also take a close look at any appliances that will be included with the rental.  Are those appliances in good working order and will there be other repairs coming in the future?  Wise landlords learn to maintain a reserve to cover ongoing repairs.  As a future or existing landlord, your financial obligation and the personal time required to make these repairs should be at the top of your list of potential problems.
  • Collecting the Rent. Renters need to be notified of the due date of their rent.  When you draft your rental agreement, you should include exact instructions on how the rent will be collected.  Renters are notorious in being late on the rent.  Anything you can do to improve this situation is a plus.  Landlords have found that collecting the rent can be time consuming and even impossible at times.Five Keys that Can Open the Door to Professional Rental Property Management
    One way to ensure that your rent is made on time is to structure an auto payment from the prospective tenant’s checking account.  A discount on the monthly rent has been found to be an excellent incentive to get this auto payment accepted.  This auto payment is not always feasible, but, should be attempted whenever possible.  Additionally, your rental agreement should include a reasonable security deposit along with financial penalties if the rent is not paid on time.
  • Tenant Problems. Naturally, you will always try to get the very best tenants.  When selecting tenants, always ask for references.  A strong recommendation is to get at least three references and to make personal contact with each of them.  Your goal is to avoid as many tenant problems as possible.  This includes much more than just the person’s ability to pay the rent.  If the prospective tenant has been a problem to previous landlords, you want to know it.  A good practice is to ask references if they know anyone else who has dealt with the tenant.  The more you can find out about the tenant before they move in, the less problems you will have in the future.  In dire situations you may be faced with the eviction process.  You need to know how to manage this problem and you should be aware that any eviction will cost you time and lost income from the rental.  In most states there are governmental fees that have to be paid as part of the process.  Finally, tenants can become dependent upon the landlord and call upon them at all hours.  Are you prepared for this?
  • Personal Financial Situation. Are you prepared to meet unexpected expenses and large one-time obligations?  These could be tax obligations, reserves for repairs, and legal expenses.  It’s important that you manage all of the financial payments including any utility payments and associated expenses in a timely manner.  If your personal financial situation will put you at huge financial risk if one rent payment is not made on time, you should know this in advance because not all rent is received on time.
  • Security. Is the property safe from vandals?  This sounds simple, but it’s not.  You need to ensure that the property is safe and that the renters are also safe.  In essence you have a responsibility to both.  The first thing you need to do is to review the property and be confident in the security of the building using proper locks and similar things.  Second, and most importantly, you need to acquire adequate property insurance and usually an umbrella policy to protect you in the case of lawsuits.

All of these problems may seem daunting at first, but they don’t need to be.  Once you have identified the problems, you can find and implement strategies and policies to move forward.  The rewards are yet to come.

U – Key #2 – Understand the Rewards. As you review the potential problems associated with owning and managing rental property you may believe that the problems aren’t worth dealing with.  Nothing should be further from the truth if you decided to open the door to professional rental property management services.  Professional management is not cheap and the exact benefits you will receive will be determined by the amount of involvement you retain and how much you are willing to spend.

  • Investment Funds. When you purchase the property, the financing arrangement you make are your sole responsibility.  The professional manager doesn’t get involved until you actually take ownership of the property.  You should, however, consider looking into the benefits and expenses of retaining management as you investigate rental properties.
  • Preparing and Maintaining the Property. The professional manager can offer excellent advice in regards to which appliances to offer with the rental, which major repairs should be done on which schedule, and can provide the resources to complete all maintenance on the property.  You will ultimately be responsible for paying for the maintenance, but the property manager can alleviate many, if not all, of the day to day maintenance problems.
  • Collecting the Rent. A competent professional manager can solve many of the rent collection problems.  In most cases, they have had the experience to overcome renters’ excuses.  As a third party, they can relieve you of the personal one-on-one confrontation problems.  Many rental property owners have found that this benefit of collecting and managing the process pays for the entire cost of professional management.Five Keys that Can Open the Door to Professional Rental Property Management
  • Tenant Problems. Here is where the professional manager relieves you of the day-to-day worries and hassles of owning rental property.  Regardless of the problem, the contact with the tenant is with the professional manager.  When the water heater breaks or the heating is acting up, the tenant deals with the professional manager.  You, as the owner, don’t have to interact and become personally involved with personal problems and tenant disputes.  Naturally, the professional manager will keep you as updated as you want to be, but the amount of involvement in tenant problems you want to hear about can be determined in advance.
  • Personal Financial Situation. This area is still in your total control.  You don’t need to involve the professional manager in any financial matter outside of the property itself.  What is important to you are the records that the professional manager will keep on the property.  These records are critical for filing out tax forms.  Additionally, you can determine in advance how you want the rental income deposited and managed.  It is highly recommended that you stay personally involved in the record keeping process, but a quality professional manager can help tremendously in keeping up-to-date accurate records.
  • Security. A good property manager will maintain regular contact with the tenants and make security tours of the property.  This will help you know what problems exist and which potential problems need to be addressed on an immediate basis.  The manager can also make the payments for all insurance payments along with paying the regular expenses associated with the property.  Never allow the property manager to make financial decisions affecting the security of the property without your express approval.

E – Key #3 – Educate Yourself. There is no doubt that professional real estate management can solve many day-to-day problems, but you still need to know what your manager is doing.  It is important for you to be educate yourself to every facet of the duties of the professional manager.  Take the time to attend seminars, enroll in online webinars, and participate in forums and communities among property owners.  Not all property managers are competent and not all property managers are experienced.  When you take the time to educate yourself about the complete landlord experience, you will be able to select the proper management solution.

T – Key #4. Timing. When are you ready to choose a property manager for your rental property?  Timing is a question that confronts almost all rental property owners.  A better question might be: “Are you ready and do you need the help of a professional management company?  The best way to determine the answer to this question is to answer a series of additional questions.

  • Number of Properties. How many properties or rental units do you own?  The more units you own, the higher the probability that you will need property management.
  • Proximity to the Property. How close are you to your property or rental units?  It is much more difficult to manage a property when you live along ways away from the property or even in another city.
  • Time Constraints. Is your time limited as to the amount of time you can spend dealing with tenants or dealing with problems?  Do you have the time available to go to the property or properties and continually collect rent?
  • Personal Talents. Do you have the skills necessary to complete regular maintenance on the unit or units?  If not, do you know who to call to make these repairs?
  • Existing Management Problems. Are there existing management concerns that are consuming most of your time?

S – Key #5 – Select the Right Property Manager. The choice of the property manager for your property may be the single most important decision you make after you purchase the property.  Once you determine the amount of involvement you want to have, you can then start the process of finding a competent and qualified professional rental property management person or company.

  • Comparison Shop. There are numerous companies and individuals who offer professional management services.  Don’t be satisfied with an interview of just one company.  Compare prices between different companies along with an evaluation of just which services they offer.  Make sure you are comparing oranges to oranges when evaluating the different companies.
  • Get Recommendations. If you belong to an association or community of real estate investors or property owners, solicit their help in identifying different management companies.  As you get the recommendations, ask for both the good qualities and bad qualities.  In some cases, you may get recommendations from friends or family.  In these cases, make sure you compare the management candidates in the same way as you would any other candidates.
  • Get References from the Management Companies. Once you have identified the top management companies or individuals, make the effort to get references from them.  These references should include other property owners or clients, like yourself.  The references should also include some of the companies that the management company uses to do repairs and complete maintenance.  The final word of caution here is to follow up on these references and make personal contact.  The more you know and understand about the professional management company, the better equipped you will be to make the final decision.
  • Get It in Writing. A competent and qualified professional rental property management company will have a contract that is fairly lengthy and detailed.  It should enumerate exactly what the management company will do and won’t do.  Your responsibilities as property owner should be explained in detail.  The agreement should include how finances, expenses, and rents are handled.  Don’t rely on just your “understanding.”  Get it in writing and you will avoid unexpected decisions.
  • Make the Selection. In the end, you must make the decision as to who will manage the property.  After a period of time, according to the terms of the agreement, you can re-evaluate the management arrangement.  If you are satisfied, then renew the agreement, but if you’re not, don’t be afraid to make a change.

These five keys will help you open your eyes to both the advantages and concerns that come with professional rental property management.  Remember that your rental success starts with you.

 

 

Due Diligence Checklist for Buying a Rental Property

Due Diligence Checklist for Buying a Rental Property

When you invest in real estate, you are investing in a physical asset.  For your investment to be successful, you need to ensure that your asset is in workable condition.  While the property doesn’t need to be perfect, you need to do your best to avoid unexpected expenses.  If you skip your due diligence, you could be setting yourself up to lose money down the road.  Due diligence falls into three categories: financial, physical and legal.

Complete all these items, and you can ensure that your rental property will meet your expectations.

Financial Due Diligence
Financial due diligence is much more than making sure you have enough money in the bank to make the down payment.  Before purchasing a rental property make sure:

  • The property qualifies for conventional financing (if you aren’t paying all cash)
    • You receive a copy of the past 12 months of utilities and/or any other expense items
    • You have copies of the lease and rental history if the property is currently rented
    • You research the tax history of the property

All of this financial due diligence will lead to you being able to complete this equation:

Rent – (Monthly Expenses + Mortgage Payment) = Cash Flow

You want the final cash flow number to be positive after your due diligence.
Physical Due Diligence
A home inspection is an important step in the real estate process.  Unless the property is a brand new construction, it is unlikely that it is in perfect condition.  As an investor, you should expect minor cosmetic renovations with each purchase; however, it’s the big-ticket items you need to look out for.  A home inspection will reveal when you need to replace expensive items such as the:

  • HVAC
    • Roof
    • Furnace

Major repairs like this can dramatically impact your monthly cash flow as an investor. The condition of the home contributes to its value, so make sure the condition of the home matches your monthly cash flow goals.

Legal Due Diligence
If you are purchasing a distressed property, legal due diligence is incredibly important. Make sure that there are no liens or judgments placed against the property.  Many liens convey with ownership of the property and will be your responsibility once you own it.  Consider hiring a professional title company to research the title and ensure it is free and clear.

Due Diligence + Buying a Rental Property
In the fast-paced world of real estate investing it’s easy to see a low-priced property and have the urge to jump on it! Making a snap decision on purchasing a rental property can have long-term consequences so be sure to complete this due diligence checklist before submitting an offer.

How to Run Numbers to Get Your Desired CAP Rate

How to Run Numbers to Get Your Desired CAP Rate

When investing in cash flow or rental properties it is important to understand what your return on investment is going to be. Investors refer to this as a CAP rate. Investors will target a specific CAP rate to make sure the properties they are buying are going to give them the desired return they are targeting. We will go through numbers to show you how your offer amount will be able to give you your desired CAP rate.

CAP rate is defined by Net Operating Income (NOI) divided by the cost of the asset. I’ll call the cost of the asset the all-in cost, which may include rehab costs as well. To get the NOI, I have to know the amount I can rent the property for minus all the expenses associated with owning that property. Let’s go through some numbers to show you how to calculate CAP rate.

Let’s say I need an 8% CAP rate to buy a rental property. The property will also need 15K worth of work to make it rent ready. Once it is fixed up, the property will rent for $1,100 per month. Taxes and insurance will cost me $150 per month. This is information I will need to get my numbers dialed in.

First, let’s get our NOI. We are getting $1,100 monthly for rent but we have to take off the monthly expenses.

  • $1,100 – $150 (taxes and insurance) = $950
  • $950 – $110 (10 % property management company) = $840
  • $840 – $110 (5% for maintenance and 5% for vacancy) = $730
  • $730 * 12 = $8,760 (Yearly NOI)

Now we have our NOI. Here is the rest of the calculations to get our offer amount:

  • $8,760 / .08 (desired CAP rate) = $109,500
  • $109,500 – $15,000 (rehab cost) = $94,500
  • $94,500 – $2,835 (3% closing costs) = $91,665

This formula has given me an MAO (maximum allowable offer) of $91,665. This offer will give me an 8% CAP rate. Now, if we go one step further and want to wholesale this to an investor that wants an 8% CAP rate, we only have to subtract our assignment fee.

  • $91,665 – $3,000 (assignment fee) = $88,665 (MAO for an assignment)

By using this formula you should be able to calculate whatever CAP rate you or your investors are hoping to get from a rental property.

How to Accumulate Rental Properties with Very Little Money Down

How to Accumulate Rental Properties with Very Little Money Down

Do you want to own rental properties but have very little money or none at all? Then you need to listen to the following article on buying rental properties using seller and existing financing. In today’s seller’s market, it can be difficult to purchase properties to fix and flip because you have to buy the property for a price that allows you to make a quick turnaround profit and that usually means making offers at 25-30% below the asking price with very few offers accepted. Rental properties, on the other hand, can pencil out financially, even if full price offers are made, as long as the rental income is sufficient to justify the investment and especially if seller’s financing is put into place.

Here is what you do. Look for properties that are already rental properties with tenants that are taking good care of the property so there are no rehab costs. Then make offers on the property at no less than 90% of the asking price so that sellers are interested. Ask the seller to carry a note for 99% of the offer price. Then take the property subject to the existing loan so that the owner is only carrying paper for the difference between the 1st mortgage and your offer price minus the 1% down payment. An example is as follows:

The asking price is $100,000 so you offer $90,000 and ask the sellers to carry a note for $89,000 with a $1,000 down payment and take the property subject to the existing 1st mortgage of possibly $75,000. You will then pay the seller a month fee based on the total loan amount of $89,000 at an agreed upon interest rate amortized over 30 years with a balloon payment at the end of 5-10 years. You will set up an escrow account with a bank or title company (neutral third party) who will collect your payment and make the payment on the 1st mortgage. You now have a rental income property with a loan in place for 1% down, no origination fees and a reasonable monthly loan payment in place. You have no out of pocket cost for rehab and the place starts paying rental income immediately.

All you have to do is make sure the rental amount is sufficient to return a positive cash flow that makes you a sufficient return on your investment. An example is as follows:

The house cost $90,000 to purchase with only $1000.00 down. The monthly payment on the seller’s financing at 6% interest amortized over 30 years is $539/month or $6,432.00 annually. The rental is $1,000/month or $12,000.00 annually with a net income after expenses of $7,800. 00. The net income minus the mortgage payments equals $1,368.00 annual income along with paying the principle debt off. Since your investment is only $1,000.00, the income of $1,368.00 equals a 136% return on investment.

With $10,000.00 you can purchase 10 homes and let them pay themselves off over time until you eventually have 10 homes bringing in $7,800.00 each annually for a total annual rental income of $78,000.00. Plus the original value of each home will increase over time by 3-5% annually.

Common Tenant Issues

Common Tenant Issues

Each of us encounter problems every day. Sometimes we enounter the same problems every single day. For example, a landlord may have to deal with the same issues over and over again. As a landlord, you would love to have the best tenants to occupy your properties: tenants who pay rent on time, keep the area clean and pleasant, treat their neighbors right, and so on. But, more often than not, no matter how well you maintain your properties and how much you care for the welfare of your tenants, some problems will arise and, if you are unfortunate enough, these problems may bug you every day.

Rental Payment Issues

One of the main issues causing disputes between tenants and landlords is delayed payments or withheld rents because of countless reasons: temporary unemployment, health issues, cash flow shortages, repair or maintenance refunds, and a lot more. Whatever the reasons are, cases like these can’t happen all the time. What landlords and tenants can agree upon to solve issues like these are: transfer to smaller and cheaper units, an improved payment arrangement, and adding penalties for late payments. It is up to you on how you will react and solve this issue.

Maintenance and Pest Problems

To avoid high turnover in properties, it is the landlord’s duty to maintain the property in the same condition as it was on day one. On the other hand, it is the tenants right to have a surrounding that is well-maintained and conducive for living. Pest problems can easily be solved with the help of exterminators and a clean environment. Both parties are in-charge of maintaining the areas in the property that are within their scope of liability. Responsibilities such as maintenance, repair and redecoration may also depend on their lease agreement.

Neighbors

If you’re a tenant who lives in a building with other neighbors, you may find it both a good and a bad thing. It may be good to have others to talk to, spend time with and enjoy the pleasure of belonging to and living in a community. On the other hand, others may find it bad because sometimes your neighbors may give you headaches and things to worry about like excessive noise, dirty or smelly surroundings, security issues and more.

Knowing the troubles that can come from tenants can help you ready yourself for being a landlord.

The Importance of Rental Market Prices to Purchases Prices

The Importance of Rental Market Prices to Purchases Prices

If we are going to decide between renting a house or flipping one, we only make the right decision when we consider the appropriate guidelines. These guidelines include the aspect of home prices, mortgage rates and rental rates. By considering the above aspects, you will be able to understand if it’s more sensible to flip or rent a house on a long-term basis, economically.

We are dealing with prices, which automatically means doing math. And it is very important that you do the math correctly to avoid financial waste in the end. This is where the rent ratio comes in. A certain property will always have a fundamental price, and that fundamental price will be divided by the rental price. The product is the rental ratio. And according to experts, the tipping point of rent ratio is 15-20. The higher the ratio, the more it would require a spike in housing prices in the coming years to justify the price you are paying today. For example, in a market where a 2-bedroom house costs $250,000 and the annual rent for a similar home is $12,000 ($1,000 per month), then the ratio is about 21. It would make sense to consider flipping the property.

One more thing that should also be taken into consideration is our current financial stand. Buying a home always comes with a financial impact, especially when we are talking about mortgage rates, property taxes and homeowner’s association fees. If you are compromising future plans when buying a home, then it’s best to set aside rental ownership for the time being.

We will never know when high levels of economic uncertainty hit us. It is just prudent to make lifestyle changes that would suit your financial status. Be knowledgeable about the proper guidelines when deciding whether to rent a house or flip it. The financial income that comes with renting is always assured if you know how to calculate certain elements together with rental market prices and purchase prices.

Why Hire a Property Manager

Why Hire a Property Manager

Having a competent property manager on your power team can add substantial value to your investment. I would recommend investors who are planning on doing a buy and hold strategy to get a good property manager to work with them. They can save you time, money and legal issues from tenants. I will outline eight reasons you should hire a property manager.

Screening Tenants: PM’s (Property Managers) have a lot of experience in screening for the right tenants for you. They know how to quickly analyze a good tenant from a bad one, saving you hassle in the long run.

Tenant Retention: It will be important for you to have long term tenants and one way to insure the tenants are happy is to have a good PM taking care of the tenants needs. A good PM will have general business practices that will ensure good tenant retention, so be sure to ask them what programs they have in place.

Rent Collection: Too often when investors try to manage properties themselves they let tenants walk all over them. A good PM will be your barrier between yourself and your tenants. PM’s are doing a job and will follow the terms of the lease and tenants know they don’t make the final decision, you do, and they don’t have access to you. Therefore, this process keeps you out of the light and lets the PM do their job.

Maintenance Cost: Knowing who to call to fix problems with your property is huge. Most PM’s know experienced contractors who have already been vetted by them, who can also give you price discounts on repairs. Keeping the properties in good condition will save you on costly repairs and keeps your tenants happy.

Vacancy: Shorter vacancy time is better for your revenue. A good PM can help improve and prepare the property for rent to maximize profits. They can determine proper rental rates to maximize the units. Lastly they can effectively market your properties to potential renters via many advertising mediums.

Legal Problems: Seasoned investors can tell you that a troublesome tenant can cause enormous legal problems. That’s why a good property manager is important to have because they will have knowledge of the most current landlord-tenant laws and can save you from any potential law suits.

Taxes: Most PM’s can help you understand what tax advantage you can claim. They can also help organize all your paperwork to give to your accountants.

Owners Benefits: A good PM will keep your stress level low because they will handle all the day to day activities on your properties. They have a network of people they will utilize so you don’t have to go searching around. They can free up your time so you can focus on other aspects of your business.

It will take time to find the ideal PM, so use this outline to find the right one for you. They can help protect your assets and keep your cash flow coming in. Make sure to interview several to get an idea on whom to go with.

Buying a Rent Ready Property

Buying a Rent Ready Property

When looking for properties to purchase as rentals, many investors prefer to focus on “rent-ready properties”.

The first and most important part of buying a rental property should be to learn about the current market conditions of the area. Always keep in mind that this is a rental, not a high end home. However, the way that your property stacks up to the direct competition in the area determines your rental amount and occupancy rate. You should make an effort to learn about what type of rental properties you’ll be competing for renters with, to make sure that you’re buying a property that’s in a comparable condition. This should of course be done before you even make an offer on the property to begin with.

 

Always keep in mind that this is will be your own property even though you are not going to live in it yourself. Make sure that the outer shell of the property is sound and in good condition and that all necessary improvements are completed. If the exterior of your building is compromised in any way, then the inside will be at risk as well.

Also decide what appliances you are going to provide by learning what other rental properties in the area are providing. As you evaluate a prospective property, look for possible liability risks more than minor blemishes. If you can’t physically visit the property yourself make sure that you get a copy of an inspection report.

 

Here are some issues to look for

  • Are all of the electrical plates present and in good repair?
  • Are there enough smoke detectors and are they placed properly?
  • Are there any issues with lead paint, mold or asbestos?
  • Check the handrails for a good tight fit.
  • Assure that the there are no plumbing leaks.
  • Pay particular attention to the big replacement cost items such as:
  • the Heating system – boiler, furnace, heat pump, etc.
  • air conditioning/cooling system
  • water heater
  • dish washer
  • garbage disposal

 

Make sure that the house you’re buying looks good so that you can retain the best tenants but you shouldn’t expect custom cabinets and granite countertops in a rental. High end fixtures are typically not required. Just make sure that it looks nice and clean. It’s ok to buy a lower grade home to use as a rental but make sure that it is actually livable.

 

Remember, if you agree to buy a property in “as-is condition” then you will need to make any necessary repairs that are needed. If you don’t want to do that, you should negotiate with the seller to fix things before closing.

 

Once you’ve owned the house for a while you may need to replace or repair some things. When you need to replace something in the house, try not to be too cheap. Some investors will take the attitude of “It’s a rental, we’ll just put in the cheapest products that they make and call it good. After all, renters typically are not as careful with houses as they would be if they owned the place.” Unfortunately for you, plastic faucets and cheap door locks break easily and can cost you more in the long run. If while your renter calls you to say that the faucet is leaking, or a locked door handle won’t turn, {because they’re cheap}, you have to fix it. Consider putting in just a bit higher quality than the absolute cheapest, especially if it doesn’t cost a whole lot more.

Selective Tenanting Through Marketing and Promotion

Selective Tenanting Through Marketing and Promotion

Tenants have a “Shelf-Life,” because they need to be replaced from time to time. They move on or you move them out. Show me a cash-flow investor with a two-year track record of making money and paying the bills and I will show you someone who bankers want to take to lunch and discuss low interest mortgages. There are plenty of rental properties where the numbers can work. The key is having quality tenants who take care of the property and pay their rent on time.

All the promotion you may need for a rental unit that caters to University students might be a giant big screen TV and computer with high speed Wi-Fi. A property on a busy street may only need a simple sign in the front yard. But, in most cases, to rent for top dollar and select the highest quality tenants you want to reach a lot of people in a hurry.

Response
Selective Tenanting Strategies

Anyone can throw money at the problem with lots of expensive ads. Here are some things you can do on a ZERO or near ZERO-dollar budget:

  1. Zillow.com/Rental-Manager – Here you can place a complete ad with lots of pictures and full disclosure information. You will get a link to your own page that you can even email to people while you’re visiting with them on the phone. Zillow may be the biggest name in real estate. I have never run an ad here that didn’t get my phone to ring.
  2. CraigsList.org – The secret is in timing. Place your ads at 11:45 AM and/or 6:30 PM so you can stay “above the fold” during peak view times. “Above the fold” means your ad can be see without scrolling. People click they don’t scroll. Do not repeat the same ad or anything close to the same ad before the required 48 hr. wait time. They tend to not post ads till they are “below the fold” for people who abuse their system.
  3. Print flyers that present not just your rental unit but puff up the neighborhood as well. The back of your flyer can include Elementary, Jr. High, and High School Principals or Vice-Principals contact information. Do the same for Churches, Boy Scouts, Girl Scouts, Town Hall Meetings, Health Clubs, Little League, Police, Fire, etc.
  4. Be creative in where you place your flyers. Got a washer and dryer included? Hit the laundromat bulletin boards. Got the big screen TV? Hit the University bulletin boards.
  5. Visit other rentals especially where your property appeals to a different kind of renter than they cater too. They could send you leads. Visit the Section 8 Housing Department. They will give you the lay of the land on how to work with them so you can have half or more of your top dollar rent put in your checking account on the first of each month.

 

Regardless of how you market or promote for tenants, your future depends on getting good tenants who take care of your property and pay you on time. History repeats itself so here is what you can do to protect yourself:

  1. Have prospective tenants fill out and sign an application allowing a credit report.
  2. Run a credit report. Anyone under 600 probably has late rent pays.
  3. Walk out to their car with them and see how they take care of their car.

Section 8 Vouchers

Section 8 Vouchers

A Section 8 Voucher, also known as Housing Choice Voucher is a program set up by the federal government to assist low income, elderly and disabled Americans to rent properties at a reduced rate by subsidizing a portion of the monthly rental fee. This program is available in every major housing market within the country and is administered by local public housing agencies. Those who qualify for this assistance can find housing available almost anywhere in the city, not just in subsidized housing projects.

Pros

  • Landlords like the program because they don’t have to hassle with collecting monthly rent, following up on late payments or dealing with excuses about why tenants can’t pay.
  • Renters that have financial hardships, like a job loss or illness, that cause them to have unpaid absences from their work, don’t need to be evicted. Instead, the Section 8 Voucher program will pick up 100% of the monthly cost, until the tenant is able to work and pay again.
  • The Section 8 Voucher program matches prospective tenants with 1, 2 or 3 bedroom properties. The rent is pre-set by the local public housing agencies and tends to be higher than non-Section 8 rental properties.
  • In order to qualify for this program, tenants must consent to annual property inspections. These inspections are performed by a third party at no cost to the property owners. Although these inspections will turn up repairs that are needed, they also help spot damage done by tenants and will assist the landlord in getting rid of the abusive tenants.
  • With over 3 million low income households participating in this program, there is no shortage of possible renters. Many areas have huge waiting lists for Section 8 Housing, so vacancy time is virtually non-existent.
  • Some states provide websites that can be used to advertise properties at a substantially lower cost than other marketing methods.

Cons

  • Section 8 Voucher programs, like any other program managed by the government, has its share of regulations and paperwork.
  • Each property is required to be inspected before a tenant moves in and annually thereafter. The inspection criteria are stringent and sometimes can be costly.
  • Depending on the area that the rental property is located, the Section 8 housing rental caps may be less than the going rate for renting the same property in the normal market. In this case, it may not be financial feasible to go with Section 8.

The Section 8 Voucher program is a win-win situation for by landlords and tenants. It ensures the tenants are getting move-in ready properties and the landlord is guaranteed rent.

Buy and Hold Strategy

Buy and Hold Strategy

The Buy and Hold strategy, as it applies to real estate, is a more passive strategy which requires a little faith in the market and time.

What is Buy and Hold Strategy?

It is basically a long-term investment approach. A buyer will purchase a property when it is priced low, and then wait for a number of years until the value of the property has gone up. When the buyer is happy with the price increase, they sell the property and make a profit.

Why Does it Work?

The key to using this strategy is understanding the long term life cycles of the housing market. Three telltale facts that make it likely that investors will get their money back are as follows:

  • First, the long-term population is growing, so homes are in need continuously.
  • Second, costs of construction rise, which ensure an increase in housing costs.
  • Supply and Demand rules apply and all markets normally move this way. Although politics can affect this, so investors must keep an ear to the governmental changes.

 

Benefits

The buy and hold strategy presents a relatively low risk investment, assuming that all trends follow their normal path. When buying a property low, it is most probable that over time, the value will increase.

The buy and hold strategy can be very valuable, although there is a considerable amount of research to perform before jumping in. If the time and price is right, and you have extra income you can invest for a set number of years, the buy and hold strategy may be the investment option for you.

Here are 3 Reasons Why you Need a Property Manager

Here are 3 Reasons Why you Need a Property Manager

As you invest in real estate, there may be times where you find it difficult to manage your property. Hiring a property manager can help you better manage your time. Here are 3 reasons why you need to consider hiring one.

-Experience Matters

You need to keep in mind that as a landlord you will need a distinct set of skills to aid your cause. It is entirely possible that you may not have the skills or the experience to deal with most matters. Things like repair and maintenance, marketing and even book keeping are complicated and require your utmost attention at all times. However, if all of this is new to you, it is high time you consider hiring a property manager immediately. Property managers have the necessary skills and experience to overcome any obstacle they may face primarily because they have been dealing with these tasks on a daily basis.

-They Are Willing To Deal with Stress

Regardless of what you may have heard, dealing with tenants can be an excruciating endeavor. It takes a special kind of person to deal with the needs and requirements of the tenants, all the while being patient and understanding at the same time. Even though you might see yourself as a calm and tolerant individual, you need to be rational and ask yourself whether you could deal with scenarios where you have to deal with a tenant damaging your property.

-They Can Effectively Manage Different Properties At The Same Time

If you own more than one real estate, you are in for the ride of your life. The larger the number of real estate properties, the more difficult it is going to be for you to manage all of them. But if you are not willing enough to spend the required time managing your real estate investments, then there is no harm in hiring a property manager to do it for you.

Now that you know the importance of a property manager, you will come to realize that they are worth the price. Not only will they be able to deal with all of your problems effectively, but they have the necessary experience required to ensure your real estate investment actually pays off for you in the long term.

Here is How You Can Make a Great Real Estate Investment

Here is How You Can Make a Great Real Estate Investment

Seeing success in real estate depends primarily on the choices and decisions you choose to make. In order to make it work for you, you will need to make the right choices and know where best to spend your time in maintaining your newly acquired property. Here are some things to keep in mind when investing in real estate.

-Look for Real Estate Properties with a Decent Return on Investment

When you choose to invest in a real estate property, you are actually tying up money from your liquid assets into something that is illiquid. Your financial assets allow you to earn a rate of return but this is not necessarily going to be the case with your real estate property. However, you need to do whatever it takes to get a decent return on investment from your property, which is possible by renting it out.

-Lower Real Estate Risks

Like other investment strategies, real estate carries with it risk. That being said, it is possible for you to know how to navigate those risks so that you are able to work the markets to see the positive returns you’re looking for. Obtaining a quality real estate education from professional and experienced trainers, using proven real estate strategies, better enables you to go forward and see success in your investments. Many of those who get involved with real estate and don’t end up seeing success are those who did not take the time to get educated to further their financial success.

-Use Time Effectively

You will come across a lot of properties that are affordable. However, these properties demand a lot of your time and attention before you can convert them into a smart investment. Some examples include, low quality properties or vacation rentals. Finding the properties that are not just right as far as price, but right as far as the time expected before you see a return on your investment, is an important factor to consider when getting involved with real estate.

Rehab properties – a short or long term investment?

Rehab Properties – A Short or Long Term Investment?

Buying a property that needs work can be a great way to start your real estate investment portfolio. With careful planning, the math can really stack in your favor – but do you flip for a lump sum or buy and hold to see a steady return on your investment?

Rehab for Resale

Renovating a property for the resale market is a common project for many first time real estate investors. A quick turnaround means that first trust deed loans are a viable source of funding for you – keep focused and the loan will be paid off before the rate of interest really starts to hit.

Of course, any investment comes with risks, but today’s market is relatively stable, so the chances of being knocked by a sharp drop in value are much less than in recent years. That being said, it’s still important for you to know how to navigate the risks present in today’s market.

Rehab for Rental Income

For rehab properties that require a lot of work, the interest rates of a trust deed loan won’t work – but don’t dismiss the project right away. Decide to renovate for the rental market and the rehab can be done in stages while you lease the property. Your investment will be safer for having tenants living there and the rent you collect can be used to fund the next stage of the project.

Opting for a buy and hold rental also means that your investment will be protected from any market volatility and almost always secure you good rate of return.

Whether you decide to sell or rent, taking on a rehab property can be hard work but ultimately incredibly rewarding. Not only can rehabbing give you a great return on your investment, but also contribute to neighborhood regeneration – and that’s a great way to showcase your property management talents.

Value of Land Banking

Value of Land Banking

Land banking is a very valuable process. It offers a solution to the common real estate problems of foreclosed properties and abandoned buildings. But what is land banking exactly and how can it benefit communities?

What is a Land Bank?

A land bank is basically a public or community owned entity. This entity specializes in acquiring, managing, maintaining and repurposing empty, foreclosed and abandoned properties.

Value of Land Banking

What are the benefits of land banking and how can it deliver some return to the community?

Increase in tax revenues

By turning useless properties back into valuable ones, and taking the properties back to the market, local governments will be able to collect taxes again. This leads to more money back into the community.

Cost Savings

Another great benefit is cost reductions for local governments who will not have to spend money on emergency protection, inspections or police services, given the fact that the property is functional again.

Maintenance Services

Neighborhoods can also directly benefit, given the fact that these entities provide many maintenance services to vacant properties, immediately increasing the land value of the surrounding neighborhood.

Demolition

Land banks can also take immediate action by demolishing buildings beyond repair.

Funding

Entities taking advantage of the land bank system are able to acquire additional funding.

Parcel Assembly

Land banks are also able to purchase multiple properties in a less valuable neighborhood and turn these into valuable assets again.

Liability

The land banking system ensures that the pressure is off the local government, since responsibility is carried by the private or community-owned entity.

Speed

Land banking entities are able to shorten foreclosure times. The additional advantage is that these entities can make vacant building available again more quickly

Affordable Housing

Many of the land banking properties end up in the hands of non-profit community organizations, which will directly benefit low-income families.

Land banking has many benefits, not only for the people investing in them, but also for the people in the community.

Property Management – Every Property Needs It

Property Management – Every Property Needs It

Property management is the overall efficiency brought about in the administration and oversight of real estate concerning facets like property value, requirements, facilities, accountability provided during the life span of the property to keep it alive and in good condition.

Property management also involves the processes, infrastructure and labor required to manage and organize the tenure of a property right from acquisition till disposition.

Real estate brokers in states like Colorado, New York, and Texas are to be license if they have to collect rent, list properties for rent or be the third party in negotiating lease and inspections. All property managers are required to work under a licensed real estate broker even if they are licensed real estate salesmen.

The requirement of needing a license to perform the duties of property manager changes from state to state.

When it comes to owners managing their own properties, most states do no insist on having a real estate license, but if the owner intends on renting the property, a business license is required. For the property owners who do not stay near the rental property have to mandatorily hire a property manager to manager their property.

Most property owners with multiple properties prefer to hire property managers to manage their properties for rent collection, handling/maintenance, catering to tenant’s complaints/evictions, and most importantly keeping the property healthy and alive.

Starting Out in Residential Real Estate – How to assess the market?

Starting Out in Residential Real Estate – How to Assess the Market?

More and more real estate investors seem to be under the impression that one can get rich by using a loan to buy and renovate low value property. It is true that for most investors traditional real estate can a better investment option than the volatility of trading stock. The localized market, inefficiencies and long term prospects all make investing in property a wise choice.

However, to become a true real estate professional, you must understand some key elements of the market. Today we deal with number 1: Understanding when the national market is strong.

Assessing the Market

 

Some seasoned professionals will be able to make money, no matter how weak the economy is. However, it is tough to enter the game as newbie when the market is in a bad shape. Rising interest rates and reduced demand for real estate leads to falling property prices. A disheartening situation.

Hence, you should start out when the economic climate leads to dropping interest rates. You are likely to get cheaper loans and more potential clients. Similarly, growing gross domestic (GDP) rates are a sign of improving economy. When you are looking at a minimum of 2.8% annual growth, you can be confident that the real estate market will be going strong for some time. Finally, another way to assess the market is by looking at the official unemployment data in your chosen region. When people lack opportunities in their city/state, sooner or later they will move. This of course quickly leads to the reduction of home price appreciation (HPA).

To sum up: When starting out on the real estate market, look for a local market with strong GDP and acceptable unemployment rates. Making sure to keep on top of these numbers could determine if you make it or break it in real estate.

Tips to Keep in Mind as a First Time Property Investor

Tips to Keep in Mind as a First Time Property Investor

If you wish to make an investment, investing in real estate is a great option. Real estate investment is all about increasing your overall wealth. Additionally, it is also about securing your financial future. However, many people make the mistake of assuming property investment to deliver positive returns at all times. While it’s true that the value of land does not depreciate but there are certain other factors which you have to keep in mind. That being said, here are some important tips to keep in mind as a first time property investor:

Do the Math

First and foremost, you need to understand that cash flow is the key. Even though property investment is your best bet at creating long-term wealth, you still need to make sure you can afford it in the long run. Investing in a property is of little use if you will not be able to maintain your mortgage payments later on. This means you will need to learn all there is to know about owning a property. You need to find out about the different expenditures and taxes you will incur and then decide whether you can actually afford it without any significant financial stress.

Find a Reliable Property Manager to Work With

There is no better way to ensure your success as a first time property investor than by finding a reliable property manager to work with. These individuals are licensed real estate agents and have the necessary experience and knowledge required for keeping things in order. Their advice is invaluable and they will assist you in getting the best possible value from your property.

Check the Condition and Age of the Property

Before you go ahead and make the purchase, it is wise to have the property inspected and valuated. You need to check the condition and age of the property as well as the amenities and fixtures installed there to make sure it is worth the price. Via a thorough inspection of the property, you can uncover potential problems that can affect your decision. Even though there is nothing wrong in buying a property that is not in peak condition but you need to make sure it is worth your while to fix the place up.

Keeping the aforementioned factors in mind, you have enough information to get started with investing in your first property. However, you need to understand the importance of doing your homework. The better your research is, the better the results you can expect.

Tips for First-Time Property Investors

Tips for First-Time Property Investors

The goal of any property investor is to make money, whether short or long term. Especially for first-time property investors, it is important to learn as much as possible so this goal can be accomplished. Whether investing in commercial or residential real estate, there are definite wrong and right ways to get things done.

Helpful Tips

Following are a few helpful tips for first-time property investors.

  1. Right Property/Right Price – Because real estate investment is about capital growth, it is imperative that you choose the right property at the right price, which increases the chance for better value. For this, you want to conduct in-depth research on not just the property but also the market and entire geographical area to get a more realistic view of property worth.
  2. Cash Flow – When investing in property, there is always the risk of major financial challenges. For instance, if buying a distressed property to flip, high-dollar expenses may be uncovered during the demolition process. If investing property to rent long-term, there could be periods of vacancy. To avoid financial stress, you need available cash flow for repairs, upgrades, insurance, taxes, and to cover mortgage or rent payments.
  1. Mortgage Type – For first-time property investors, it is critical to work with a reputable lender, one that can offer different types of mortgages but also the best terms and rates. This will ensure you receive trusted financial advice about things like tax-deductible interest on an investment property loan.
  1. Repairs and Upgrades – A common mistake made by first-time property investors is going too far with repairs and upgrades. There is nothing wrong in taking pride in the work done, but there is also a budget to consider and not all changes may be warranted. By performing an analysis of the property and the area, you will be able to focus in on specific repairs and upgrades deemed the most important.

To Rehab or Not – Real Estate

To Rehab or Not – Real Estate

There are two types of rehabbing when it comes to rehabbing a property. Partial and Gut. Partial rehabbing is where some portions are renovated. Gut rehab is where everything is taken down to bare minimum so as to redo the place completely.

The process of rehabbing depends on which category of preference you come under – namely personal, rental, and flip.

Most property owners/investors hire professional rehabbers for the simple fact that they do it a lot faster than the non-professional can.

Time is money: The faster the place is rehabbed the better. Every day spent in the process of rehabbing a property is a day without an earning.

Sample and proceed: If you are not sure what kind of rehabbing you require, consult with a local property expert first. Your real estate agent will know plenty of rehabbers. A known source is better than an unknown. If you do hire a new rehabber, give a sample area/project to work on, see how they do it and if it is according to your satisfaction proceed.

Gut rehab or partial rehab: If the previous tenants have totally disturbed the composure of the property, it is necessary for you as an investor to rehab it if you wish to find suitable long term/credit-worthy tenants or sell to the top buyer.

Again, whether or not to rehab a real estate depends on a few other factors like the market conditions, the kind of buyers you are looking for (they may want to do their own renovations, etc.). Unless you personally have experience rehabbing properties, it is recommended to leave the process to professional rehabbers.

Advantages of the buy and hold strategy

Advantages of the Buy and Hold Strategy

Imagine being involved in a business deal based on a product whose value had been increasing steadily over a certain time frame. If you are the seller of the product, you will obviously be happy because of the amount of profit you will be able to generate. This scenario is a practical example of the buy and hold strategy. The buy and hold strategy is associated with both advantages and disadvantages.

One notable advantage of the strategy is the fact that it can be applied to many forms of real estate. You can buy real estate at a low price during a period when real estate prices have drastically dropped. However, you can sell the same real estate at a much higher price after holding the property over a certain period of time as it appreciates.

When you buy and hold, you stand a good chance of making more money after the sale than if you had sold your real estate asset immediately. This is mainly because you may come across better offers in future as the value on the property increases. Knowing when to buy, and how long to hold, depend on each individual market, and continually keeping up to date on which way the market trends as time goes on.

Tenant relationships – the key to successful property management.

Tenant Relationships – The Key to Successful Property Management.

Many landlords hand over the management of their property to outside companies. This not only eats up a big portion of your revenue, but misses out on building a good relationship with your tenant – and this can be the key to keeping them long-term. Here’s how to make sure the lease works for both parties.

  1. Be selective

Working within your state’s fair housing laws, it’s crucial to get to know prospective tenants before agreeing a lease. Accepting that people can sometimes fall behind on payments, professionals who can pick up extra hours often make very reliable occupants.

  1. Wise up

Landlord and tenant laws can vary tremendously from county to county, so it’s essential to know the local landlord and tenant act for your property. If you don’t, you could end up with a tenant who knows his way around the law better than you – and knows how to live rent free for a few months.

  1. Be clear and consistent

Clearly state your payment terms and conditions – and make your tenant accountable. So if rent isn’t paid on time, make sure you charge the stated late fee.

  1. Be efficient

Have a business account to process payments directly from your tenant’s checking account. It’s also worth getting authorization to process the rental payment on their credit card, in case their account does not have sufficient funds.

  1. Be a good landlord

A rental portfolio needs regular attention. Regular inspections and maintenance are essential to prevent small problems getting worse. And by making sure you’re keeping the property to a high standard, you’ll have happy tenants and a continuous turnover.

Staying on top of your tenant-landlord relationship might seem like hard work at times, but it’s easier than searching for new occupants – and easier on your finances too.

Getting Started with Real Estate Investing

Getting Started with Real Estate Investing

You can make profit with real estate investing, but before any purchase is made, there are things to consider. Investing is a serious business that can lead to great success or cause major financial failure. Therefore, it is to your benefit to learn the fundamentals so you always make good choices.

Critical Factors of Real Estate Investing

 

-Personal Finances – Real estate investing is not for everyone, but if your personal finances are in order, including money in the bank, steady income, and better-than-average credit, you may be in a position to invest in real estate. Generating cashflow in real estate can take hard work and time, so having your personal finances in order is critical.

Good Planning – A major reason that investors fail is a lack of planning. With appropriate planning, you will understand the market you are most interested in, the process of securing loans, who to go to for needed repairs and upgrades, proper marketing/advertising strategies, and more.

Property Choice – You need to determine the market segment you are interested in (residential, commercial, retail, or industrial), as well as the type of property that will be purchased. You can use the property for long-term rental income or rehab it for a quick sale and nice profit.

Investment Expenses – There will be different expenses incurred when buying a property. For real estate investing, you must be prepared for everything, including the mortgage loan, utilities, legal fees, scheduled maintenance, capital improvements, and more. A good rule to follow is that over time, on average the expenses of a property will equal 50 percent of the income.

Vacancy Rates – For real estate investing, the vacancy rate is also important. The last thing you want to do is purchase a piece of property anticipating a long-term tenant or quick sale, only to be left with a vacant building that yields no income or profit. As stated, with real estate investing, it is important to have a healthy bank account and steady income so expenses during periods of non-vacancy can be covered.

Property Management

Property Management

The operation of administering a real estate property is known as property management. In order to conserve the value of the real estate property and at the same time generate profit, the property manager is assigned by the owner to act on his or her behalf, if the manager is not the actual owner. Administered properties may include vacation homes or other areas of residential real estate, commercial spaces, and buildings. Property managers accept compensation from the percentage of the rent that is provided by the property while under administration.

There are certain duties that must be duly exercised by a property manager. One is the market and financial function where the comprehension of operating costs and budgeting must be understood. From this area of responsibility, proper rental rates must be established. Marketing strategies must also be conducted to attract tenants.

Another is the understanding and meeting the needs of the tenant. Facility management is vital, including the physical administration of the structures and outdoor spaces of the property. The execution of building maintenance falls under this certain function to make sure that all facilities are in good condition at all times. Property managers also handle risk control, including the proper documentation activities. This is where all government reporting requirements must be executed and submitted accordingly.

How to make the right investments in the right places

How to Make the Right Investments in the Right Places

If you’re trusting the real estate market with your money, you’ve got to understand the local and regional conditions you’re investing in. Start by taking a moment to get to know the basic types of markets in the US.

-Linear Markets

Characterized by a ‘flat’ growth curve, linear markets tend to enjoy steady growth with no major highs or lows. If you’re looking to flip, then you’ll need to find a refurb property to make your gains, but sit tight and hold onto your investments and you’re likely to get some of the best returns on the market. This type of market is commonly found in the Middle-American heartland, as well as some of the southern and southeastern states.

-Cyclical Markets

These markets are the direct opposite of linear – and you’ll be in for the ride of your life. Found along the US coasts, property prices can change fast – we’re talking ‘boom and bust’ on a grand scale. When times are good, flipping can bring big rewards, but judge it wrong and you’ll have to hold onto your property for years before you can make a profit – each cycle lasts for between 7 and 10 years.

-Hybrid Markets

Some markets, like Florida and Illinois, never quite boom – or bust – but are characterized by slow growth followed by moderate periods of cycling. Properties that need a lot of work or can be developed might suit a quick turnaround, but in general it’s usually better to go with a buy and hold strategy.

Now you can match the type of investment you’re looking for with the right market – get ready to start reaping the rewards of real estate investments.

Rehabbing a Property

Rehabbing a Property

Rehabbing is a term commonly used in real estate, which means to renovate or fix-up a home. Most every home that is purchased will need some kind of rehabbing, whether miniscule or large. The costs of rehab are an important factor in the profitability of a home, because you’ll ultimately want to make more in selling the home than you spent on your purchase and renovations. Otherwise, you’re going to be in the negative. Let us take a closer look at what rehabbing actually entails.

Rehab Overview

When rehabbing a property, whether your own home or an investment property, it is important to estimate the total costs involved. It is easy to end up over or under investing in rehabbing, so rehabbers will have to find the right balance.

It is important to consider what renovations will be most appealing to a wide audience of potential buyers, and how those renovations will affect the home’s value. When done properly, a house can be bought low, strategically rehabbed and sold to earn a profit.

Rehab Categories

Rehabbing is generally performed for one of the following situations:

  • Personal Use– In this scenario, you will be living in the home you are rehabbing, which creates less risk and fewer time restraints. You can make the renovations based on your personal tastes; keeping future resale value in mind of course.
  • Rentals- Investors typically will rehab rental properties in order to make them more appealing or valuable to renters, to in turn charge a higher rent.
  • Flipping- Many investors will buy properties for a low price, with renovations in mind that will increase the value, and complete them with the intention to resale and make a profit.

Rehabbing can include painting the interior or exterior of the home, re-shingling the roof, adding new appliances, replacing windows, and much more.

Tips

Before you start your rehab project, we have some additional tips for you.

  • Always have a cost estimate
  • Decide if you are going to need contractors
  • Ensure that you have the proper permits in your possession
  • Find a place to get your supplies

Rehabbing a property is a tactic that is often times necessary, and can also be very profitable for property owners.

Real Estate Investing Mistakes to Avoid

Real Estate Investing Mistakes to Avoid

Real estate investments are pretty lucrative, but there are some common mistakes that can cost new investors. Read on and discover what to avoid when making real estate investments, so you can make your next project a success.

Lack of Research

Some new investors jump right in without doing sufficient research. This mistake can cost them quite a bit in terms of time and profits. Before you make a decision, ensure you know everything there is to know about the surroundings, if there are any nearby flood zones or problem areas, or if there are any permit issues connected to the property. Also, always ask the property owner why he is selling and how much he paid for the property when he bought it.

Poor Financing

If you have to take out a loan to purchase a property, make sure that you have a decent loan option. Try to avoid loans with rising interest rates, and ensure that there is some flexibility in your acquired finance plan.

Not Seeking Advice

Asking advice from professionals is absolutely essential for first time investors. Speak to selling agents, contractors and all other people who have something to do with the real estate business in order to acquire the necessary information. Obtaining a real estate education from experienced mentors and educators is ideal.

Paying Too Much

Overpaying is another common mistake that new investors tend to make. Research definitely contributes to avoiding this mistake, because it will tell you what you should be paying.

Underestimating Costs

Buying a new property is not the only big expense you are going to have to make. Before you buy your intended property, ensure that you have a cost estimate ready and find out if you can afford all the costs coming your way, particularly the necessary rehab renovations.

New real estate investors that take the above tips into account, have more of a chance to make their project a success. Make sure you do the proper research and have sufficient funding available to make your real estate investment a success.

Property Management

Property Management

Property management has emerged as an extension of real estate investing. As soon as properties were built and sold, property management came in the picture. So let us have a closer look at property management, its primary roles and benefits.

What Is Property Management?

Property management is a very broad term and consists of everything from the operation of real estate to its control and oversight. Such a broad term also surrounds a great number of processes, including maintenance, building and repairs.

Primary Roles

So what does property management actually entail in direct terms? Property management can be divided into various primary roles:

Screening Applicants

One of the most common tasks that fall under property management is the screening of applicants. This includes screening the credit of the applicant, checking their criminal history, rental history and their ability to pay.

Lease Contracting/Accepting Rent

A property manager is also responsible for the lease contracting and collecting the rent. In order to ensure the legality of this process, several legal documents must be drafted.

Maintenance

Property management also entails the maintenance of the property. Maintenance costs are usually limited to a pre-determined amount that is displayed in the lease agreement.

Benefits

Property management comes with a number of benefits. Property management can cause less legal issues and is also cost-effective. Proper management will also lead to shorter vacancy cycles, and can allow you to better manage your time as the investor. Taking on a property manager or taking property management into your own hands can yield a great ROI (return on investment).

Real Estate Investing Mistakes to Avoid

Real Estate Investing Mistakes to Avoid

Real estate investments are pretty lucrative, but there are some common mistakes that can cost new investors. Read on and discover what to avoid when making real estate investments, so you can make your next project a success.

Lack of Research

Some new investors jump right in without doing sufficient research. This mistake can cost them quite a bit in terms of time and profits. Before you make a decision, ensure you know everything there is to know about the surroundings, if there are any nearby flood zones or problem areas, or if there are any permit issues connected to the property. Also, always ask the property owner why he is selling and how much he paid for the property when he bought it.

Poor Financing

If you have to take out a loan to purchase a property, make sure that you have a decent loan option. Try to avoid loans with rising interest rates, and ensure that there is some flexibility in your acquired finance plan.

Not Seeking Advice

Asking advice from professionals is absolutely essential for first time investors. Speak to selling agents, contractors and all other people who have something to do with the real estate business in order to acquire the necessary information. Obtaining a real estate education from experienced mentors and educators is ideal.

Paying Too Much

Overpaying is another common mistake that new investors tend to make. Research definitely contributes to avoiding this mistake, because it will tell you what you should be paying.

Underestimating Costs

Buying a new property is not the only big expense you are going to have to make. Before you buy your intended property, ensure that you have a cost estimate ready and find out if you can afford all the costs coming your way, particularly the necessary rehab renovations.

New real estate investors that take the above tips into account, have more of a chance to make their project a success. Make sure you do the proper research and have sufficient funding available to make your real estate investment a success.

Key Principles for Real Estate Investing Success

Key Principles for Real Estate Investing Success

Real Estate investing may seem like a daunting process at the beginning but by following some basic rules, the road to success becomes much easier.

What follows are five of the most important factors to consider:

  • Investing in real estate is not for everyone. Think about your character traits and personal qualities. Would you be willing to take the time to study the market and the principles of investment? Apart from closing deals, could you see yourself as a property manager taking care of everyday maintenance?
  • Having a reputation is crucial, and it needs to be an excellent reputation. There are a lot of property dealers out there and the only way to distinguish yourself is by bringing the best and most reliable service to your customers. This can be extremely tough, but nonetheless, it is essential.
  • Start with residential real estate. You already live in a house and thus you have experience with finding, buying and servicing a home. These experiences will be invaluable when starting out with your investments. Also, the residential property market is the largest in real estate.
  • Invest where you live. In the beginning, you will want to keep things under your control. Buy properties within a couple of hours distance so you can check on them regularly. Once you have gained experience and maybe found a reliable estate manager, you could look for opportunities further away.
  • Research, research, research! Look in particular at the health of the regional economy and unemployment rates. These numbers will all influence the cost of the property.

Understanding these five points will give you an easier start as in real estate investing. However, most learning in this sector happens through the day to day experiences. So don’t be afraid to launch out!