Tips for Maximizing Profits Using a Rental Contract

Tips for Maximizing Profits Using a Rental Contract

When we buy rental property our primary goal is to make money.  In this article I would like to give some tips on how to maximize your profits by using the rental contract.  Not only can you increase profits, you can also increase the control you have on your property.  Let’s consider the following things you can do to help yourself:

  1. Consider when you make the rent due.  On most contracts the rent is due on the first of the month and then there is usually a three to seven-day grace period.  Stop allowing these grace periods.  Your cash flow is important and you should expect your money on the first of the month.  Understand you are making a free loan when you use a grace period.  None of us are in the business to provide free loans. 
  2. An effective way to maximize your investment is to offer a discount instead of having a grace period.  Let’s say we want to have a rent of $600 on our rental unit.  Tell the tenant that the rent will be $700 per month, but a discount of $100 will be extended if the rent is paid on or before the first of the month.  This will be beneficial to you in a couple of ways.  First, you are getting your rent paid on time.  Second, in the event there is a dispute regarding non-payment of rent, you will be able to claim the $700 as rent and not the $600.  At times judges may not allow all of the late fees, but rents are always allowed to be recovered. 
  3. Typically, we sign rental contracts for one year periods.  By so doing we are giving a lot of control of our property to our renters.  Try evicting a renter who is not taking care of the property, but is paying rent.  A solution to taking back control of your property is a month to month contract.  You can then raise the monthly rent each month until they leave or begin to take care of the property.  With the proper notice you will be able to raise the rent and have more control of your investment.  Also, consider the fact that the world’s greatest renter would break their lease in the event of a job transfer or other major life changing events.  Why should you be giving such control to someone else?  Instead you maintain control and maximize your investment.

   By taking a few simple steps you can make a rental contract more effective for you.  Be aware however, if you are going to have Section 8 renters you will have to use the government contract.  For all other renters use these simple techniques and have fun making your bank deposits!

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.

Tortoise or hare? Why buy and hold makes for a winning strategy.

buy and hold real estateTortoise or Hare? Why Buying and Holding Real Estate Makes for a Winning Strategy.

Buying and holding Real Estate is a long-term approach to real estate investment. Instead of flipping for a quick lump sum, you’ll hold on to your investment and use the rental market to earn a regular income.

Buy and Holding Real Estate – why should I be interested?

There are heaps of benefits for investors who choose to hold onto their property portfolio. Flipping houses can be lucrative but risky. If you’re unlucky enough to hit a dip in the market you could be left with the dilemma of either selling for reduced profit or paying off a high-interest loan until the market improves.

Buy and hold also involves fewer transactions – and the cost is spread over a longer period of time. It’s also good news on the taxation front. Not only can the tax paid on long-term capital gains be lower but might only be due if you sell the property.

How should I go about it?

Properties that need maintenance, reconfiguring or repairs create value from the get-go– your work has just increased its asking price. Your investment needs to start paying, so get the property ready for the rental market as soon as possible.

The highest rent you can achieve isn’t always the best strategy – go for a low but regular turnover, so you’re not constantly on the lookout for new tenants.

So why should you go with buying and holding real estate? Hanging on to your investment makes the most of long-term market stability and gives a good rate of return. Flipping might sound exciting but playing the long game can give you a solid financial income – without losing sleep.