1. The Right ApproachReal estate investment is a business. You need to approach it as such and devote as much time and energy to it as possible. Even if you’re only planning to have one rental property, it deserves your undivided attention. Should you decide to expand your investment business, you’ll need to devote even more time to attending open houses, researching neighborhoods, monitoring your financial state, and estimating costs in order to find good deals with high return on investment.
2. Dealing With HasslesBeing responsible for a rental property can be challenging, especially when tenants aren’t happy, or things need fixing. You can maintain a cordial relationship with your tenants by being discerning and smart. Avoid potential issues by building a network of reputable contractors you can count on when repairs are necessary. Furthermore, create a schedule for paying bills, insurance, and other expenses so you do so on time, and be sure to keep an emergency fund at the ready for unexpected expenses.
3. LocationIt’s much easier to manage a rental property that’s close by than one that’s in another town or state. If you’re very resourceful, you can pull it off, but problems of any kind can arise without warning, and being close to the problem makes it much easier and cheaper to solve.
4. Finding Good TenantsOne of the most challenging aspects of being a landlord is finding good tenants. It pays to do your due diligence when screening prospective renters. Do criminal background and credit checks and speak with previous landlords if possible. Renting to the wrong tenant can end up costing you big in terms of time and money. Should you need to start eviction proceedings, it will be impossible to rent your unit out again until they are finished, which could be several months. Furthermore, should your tenants be unhappy with your services or feel slighted in any way, they could take it out on your property, costing you way more in repairs than they’ve paid with their security deposit. Moral of the story? Don’t take shortcuts when screening potential renters. While the idea of making money being a landlord sounds easy, the reality is, it’s quite challenging. If you’re thinking of becoming a landlord, be sure to consider the four points above so you’re prepared.
1. Choose Properties In Up And Coming NeighborhoodsBuying rental properties is a great way to increase your wealth through real estate investing. Purchase the right property in the right neighborhood and you’ll enjoy huge returns on your investment. Up and coming neighborhoods offer the potential for growth as well as tax incentives for buyers.
2. Diversify GeographicallyThere’s a lot to be said for buying close by and understanding the local market. However, by purchasing properties in other areas, you diversify your investments and protect your portfolio from the volatility of a local market.
3. Don’t Spend Too Much On RenovationsYou don’t need to buy high-end fixtures and accents in order to make a rental attractive. Middle-of-the-road pieces are just as enticing to renters and a lot less damaging to a limited budget.
4. Don’t Over-Leverage YourselfSuccessful real estate investors have a combination of properties that they own free and clear and some that they finance. This creates a healthy balance that promotes profit while giving you the funds you need to grow your business.
5. Consider Investing In A Single-Family HomeMost people would love to live in a house, but some lack the finances to own one and others simply do not want to own. Whatever the case, a single-family home is a good investment as they have a history of appreciating quickly and profitably.
6. Get Ahead Of Big Maintenance ProblemsFinding and fixing minor issues before they become big ones can save you a lot of money. Unfortunately, not all tenants will alert you to small issues until it’s too late. Write a bi-annual walkthrough into the lease to give your tenants an opportunity to point out any potential problems they see as well as to give you a chance to spot anything that needs attention. You’ll come to look forward to these walkthroughs, especially when you spot a small water leak or two that could have cost you a lot of money had they gotten worse.
1. Long-term Rental PropertiesInvesting in long-term rental properties is maybe one of the best ways to make a profit in real estate. It takes a lot of capital up front, but the return on investment (ROI) is high, with the biggest benefit being the constant monthly cash flow.
Both single family and multi-family units have the potential for being great moneymakers, but it can be difficult finding just the right property in just the right area to really make this type of investing worthwhile. Most investors prefer to purchase single-family homes because there are more of them for sale, which increases the chances of finding the right one.
2. Fix and FlipMany beginning real estate investors start with fix and flips. They buy properties on the cheap, fix them up, and resell them at a profit. A lot of money is needed upfront for down payments and repairs, as well as the funds necessary for carrying costs until the house is sold again. It can be overwhelming managing contractors during the repair phase, as well as when trying to sell the house again when everything is complete.
The biggest mistake people make when investing in fix and flips is trying to do the repairs themselves. They think they are saving money, but in the long run, it costs more because it takes longer to finish repairs. It is best to hire professionals to make the repairs quickly so you can get to making a profit sooner.
3. WholesalingWholesaling is when an investor buys a residential property, and then turns right around and sells it to another investor without making any repairs. In some cases, the first investor never even actually buys the property, but obtains it under contract before handing it over to another investor. Wholesaling goes very quickly, and many real estate investors make hundreds of thousands of dollars a month doing it.
4. Vacation RentalsVacation rentals are those properties purchased in a great tourist-y area and rented out on a monthly basis. During peak seasons, vacation rentals can bring in quite a profit. However, during off-peak seasons, they sometimes barely cover the monthly mortgage, upkeep and management fees. The key to continually making a profit with a vacation rental is to set the rent at a level that keeps renters in it year-round.
5. Long Distance RentalsWhen investing in residential real estate, it’s important to look for the best deals possible to increase profits in the end. This isn’t always easy because some markets have incredibly high prices for real estate. Places like New York, for example, see purchase prices as high as $500,000 or more. This makes it very hard to buy property because it requires too much money upfront. What buyers are doing to avoid this issue is investing in residential real estate in another market.
A lot of work goes into investing in long distance real estate. You have to choose a good market, find a superstar realtor, hire a property manager, and then look for the right property. You have to trust the people you have working for you, and be willing to travel if needed to.
Investing in residential real estate is definitely a great way to increase profits and save for retirement. There are several ways to do it, but it all depends on how much time and money you’re willing to put into the process. The five options above give an idea of just what it takes.
The good news is if you’re in the market for a new home, following the tips below can give you a leg-up on the competition and make it possible to secure the house of your dreams.
Get Pre-Approved For A MortgageBefore you even begin looking at houses, get pre-approved for a mortgage. It’s important to note here that pre-approved and pre-qualified are two different things.
Pre-approved means a lender has already looked at your credit, income, and expenses to determine how much home you can afford using their underwriting guidelines.
Pre-qualified simply shows the amount of house you can afford based on your income. It doesn’t mean that a lender will approve you for a loan.
Having a pre-approval letter in hand when looking at homes shows you’re a serious homebuyer.
Submit A Clean Offer With No ContingenciesIf you submit an offer with contingencies, the seller may pass over it for one that has no stipulations. Contingencies like needing to sell your current home before closing on the new one will quickly send your offer to the bottom of the pile. Try to submit an offer clean of contingencies to show you’re serious about buying a home and closing on time.
Make An Appealing Net-Price OfferThe net price is the amount the seller gets after everything is said and done. The less they have to pay for, the more money they put in their pockets when the home sells. Try to make sure they get as much money as possible by not making them pay for things like closing costs. Anything that makes them have to shell out more cash in the sale could cause them to turn down your offer.
Make A Sizeable Down PaymentSubmit an offer with a sizeable down payment. At the time of this writing, the average down payment is nearly 8 percent of the median sale price. The reality is, sellers are more likely to accept an offer with a larger down payment because they feel the bigger down payment will put the buyer in a better position to qualify for a mortgage.
Don’t Ignore The Fixer UpperMany homebuyers will pass over homes that need fixing up. It can be difficult living through a home renovation, but if you can purchase the house for a decent price, it may be worth it to get the house of your dreams in the end.
If you’re looking to purchase a home that needs more than just a coat of paint and some new carpeting, do your homework when it comes to hiring contractors to get the job done. Check with some of the non-profit housing organizations for recommendations on construction professionals for your renovation.
The housing market is a competitive one for homebuyers these days, but when you come prepared, you can beat out the competition to secure the home of your dreams. Use the tips above to be a serious contender in a hot real estate market.
There’s a lot to do when it comes to real estate investing. From finding good investment opportunities to managing them all, it’s a full-time job. Here are a few tips to help you get started on building a sizeable real estate portfolio.
Build a Team to Help Manage It AllBeing a landlord is a full-time job. Each property will require your time, and the more properties you own, the more time it will require. Begin building a team of people you can trust to help you manage it all. Professionals such as property managers, contractors, inspectors, etc. will help you stay on top of things and take some of the responsibility off your shoulders.
Spread Your Investments Over Several MarketsIf you’re managing everything yourself, you’ll likely want to keep all your investment properties close together for convenience. However, this is like putting all your eggs in one basket.
If you purchase investment properties in more than one market, it protects your money in the event that one market struggles, the other can keep things afloat.
Have Plenty of Available CashTo build your portfolio, you need to have plenty of easily accessible cash to take advantage of opportunities fast. There are a few different ways to ensure you have the cash you need on hand.
- Refinance or sell an existing property
- Partner with other investors
- Do a 1031 Exchange when you sell an investment property
Know Your Investment GoalsIt’s hard to achieve goals when you don’t fully understand what it is you hope to achieve. Before you begin looking for investment properties, ask yourself the following questions.
- Do I want to invest in different markets or stay local?
- Do I want to focus on the value of my portfolio?
- How many properties do I need to buy in order to reap a profit that exceeds my expenses?
- What do I hope to achieve? Higher monthly cash flow, more stability, or a combination of both?
Most real estate investors start out by owning a rental property or two. They quickly find out that real estate investing is quite lucrative and want to buy more properties. It’s a lot of work building a sizeable portfolio, so be sure you commit to memory the tips outlined above.
1. LocationThe location of the property you want to buy is of the utmost importance. This feature determines what type of tenants the property attracts and how long they stay. For instance, a rental property located close to a college will most likely attract college students who only need temporary housing during the school year. You may find yourself searching for new tenants every summer when the students return home at the end of the school year.
2. Property TaxesEvery property owner pays property taxes, but they vary from location to location. It’s important to check with the area assessment office for the tax history on a property you are considering. Keep in mind that high property taxes aren’t always a bad thing. If a neighborhood is really nice and tenants tend to stay there long-term, you can afford to pay higher property taxes.
3. RentThe rent you collect on your investment property is the whole reason for owning the property in the first place. You have to research the area to find out what the average rent is and then determine if charging the average rent will cover your mortgage, taxes and other expenses. If it doesn’t, you have to find something else. Furthermore, research further to find out where the neighborhood is heading in the near future. Check for upgrades and additions that might raise property taxes. What you can afford now may not be affordable five years from now.
4. SchoolsTenants with children or those who plan to have children want to live in neighborhoods with good schools. If the school associated with your rental property has a poor reputation, it could affect the overall rental rate of your property. While your monthly cash flow may not reflect the school’s poor rating, selling your property in the future may be more challenging because of it.
5. Crime RatesNo one wants to live in a crime-ridden neighborhood. High crime rates drive down rental rates, so check with the local library or visit the police station to find out about criminal activity in the area you’re looking to buy. Avoid asking the person selling the property about crime in the area as he’s hoping to sell and may not give a completely honest answer. Look specifically at vandalism rates, petty crimes, serious crimes, and whether there has been a recent decline or increase in criminal activity in the area.
6. Local AmenitiesThe more a neighborhood has to offer, the more tenants it attracts. Look at current amenities such as parks, malls, movie theaters, public transportation and other conveniences, as well as ones planned for future projects.
If you have made the decision to invest in real estate, you owe it to yourself and your future earnings to do a bit of homework before jumping into anything. Buying rental property can be risky, but knowing what you’re getting into before getting into it helps you determine a honey-of-a-deal from a bankruptcy-waiting-to-happen. Keep the above six features a profitable rental property should have in mind as you search for your next real estate investment opportunity.
Advantages Of Paying Down Your Mortgage
1. You’ll Pay Less Interest Over The Life Of The LoanEveryone knows interest is calculated by the amount and the length of a loan. That being said, the less time you take paying a loan off, the less interest you end up paying. Even though it’s a well-known fact, not everyone realizes the astronomical savings this amounts to when it comes to a mortgage loan.
Here’s an example. If you have a $100,000, 30-year mortgage with a 4.5 percent interest rate, and you pay an extra $100 every month, you will save $26,377.36 in interest over the life of the loan.
This fact alone is enough of a reason to pay down a mortgage, but here’s another.
2. You’ll Pay Off The Loan And Build Equity FasterObviously, if you pay more each month, you’ll pay the loan off faster. Using the example above, you would shave 8 ½ years off the length of your loan, which helps you quickly build equity you can use later on.
3. You Have More OptionsWhen you pay extra toward your mortgage, it opens doors that would otherwise be closed to you. For instance, you would be able to take out a home equity line of credit that gives you fast cash for just about anything you need.
As a general rule, you can’t get a home equity line of credit on an investment property, but you still have flexibility when it comes to who you rent to once the property is paid off. You could let someone stay rent-free if you wish because you don’t have to worry about making mortgage payments anymore.
4. You Can Refinance Easily For A Lower Interest RateThis advantage is most useful once the property is paid off, but even before that happens, paying extra sets you up for easy refinancing at lower interest rates to save yourself even more money.
Disadvantages Of Paying Down Your MortgageNow that you understand the advantages of making extra payments to pay your mortgage, it’s important you also understand the downside to making those extra payments. Every mortgage is unique, so you’ll have to weigh your options before deciding whether to put extra cash toward paying yours off early.
1. You May Sacrifice LiquiditySometimes it’s smart to hold onto your cash. There are instances where paying extra towards your mortgage principal does nothing to increase your cash flow. Here’s an example.
You are a real estate investor with multiple rental properties. You have $10,000 in your investment checking account, and all your properties have paying tenants. You have a total of $600,000 debt, but your lowest loan is just $30,000. Do you put that $10,000 toward paying down that lowest loan? Maybe not.
If that loan is a fixed-rate loan, paying down 1/3 of it won’t lower your payments, which does nothing to increase your cash flow. Yes, it decreases the length of the loan, but as an investor, you’re in it to make money, so it makes no sense to use that money to pay down the loan.
2. You Don’t Qualify For Tax BreaksWhen you pay interest on a mortgage, you can write that amount off on your taxes. The less interest you pay, the less of a tax break you get.
3. You Miss Investment OpportunitiesPutting your extra cash toward paying down a mortgage takes capital away from future investment opportunities. If you are trying to build a real estate investment company, you need any extra cash for new investment properties.
As you can see, there are several great advantages to making extra payments to pay your mortgage. On the flip side, there are a few reasons you may not want to, too. Assess your situation and decide if it makes sense to use your extra cash to pay down your mortgage.
1. Let the Property AppreciateDepending on the market, your home could appreciate quickly or slowly. For example, if you bought a home in 2016 for $185,000 with a down payment of $12,050, you would have started out with about 7-percent equity. Since market values rose steadily over the next two years, the equity in your home would have also risen to a whopping 23 percent by 2018.
2. Make a Big Down PaymentWhile making a bigger down payment definitely enables you to build equity faster, it’s wise to exercise caution with this method. Saving for a larger down payment may cause you to have to wait to purchase a home, which can cause you to miss out on market appreciation. It’s best to find a good balance between down payment, monthly commitments, and savings.
3. Put Windfalls of Money Toward Your MortgageWhen you come into lump sums of money, put them toward your mortgage to bring down the principal faster. When you make these lump sum payments, ask your lender if they are willing to recalculate your monthly payments based on the lower balance due.
4. Pay Your Mortgage Bi-WeeklyDivide your mortgage payment in half and pay it every two weeks instead of once a month. If you follow this payment schedule for a full year, you will end up paying 13 monthly mortgage payments instead of 12. This will cut 5 or 6 years off the length of your mortgage, building equity in your home faster and saving you tons of money in interest.
5. Take Out a Shorter Mortgage TermMost people opt for the traditional 30-year mortgage, which makes paying the monthly payments much easier. You can build equity much faster, however, by opting for a 15-year mortgage term instead.
There are two potential problems with a 15-year mortgage term, however. The first is that it may make it more difficult to make the monthly payments since they will be twice as high, and the second issue is that it’s much harder to qualify for a shorter mortgage term.
6. Make Improvements and Upgrades to Your HomeIncreasing your home’s value through improvements and upgrades will build equity. Keep in mind, however, that simply adding a coat of paint won’t be enough. Big renovations like a new kitchen or adding extra rooms or additional bathrooms will up the value of your home and build equity in it swiftly. Just be sure the improvements you make will be worth it once they’re complete.
As a homeowner, you should be working toward building equity in your home. From allowing the property to appreciate on its own to making home improvements and more, you can build wealth by building equity in your home.
If you’re starting your real estate investing portfolio later in life, you may not have as much time to be as successful as you’d like to be, so be sure you consider the following points first.
Time is More Important than Money in Real Estate InvestingAs stated before, it takes time to really be successful in real estate investing. You can always make more money, but you cannot make more time. You get the time you get and that’s it.
Using the example below, which one would you choose?
Example A: You’re 30-something with $10,000 in the bank. You have the ability to save another $10,000 a year after that.
Example B: You’re in your early 60s with $500,000 in the bank, but you only have the ability to save about $50,000 a year after that.
Most people would choose Example A because there is more time to save a greater amount of money. The younger a person is when they begin investing, the more opportunity there is to take advantage of compounding options to increase wealth. Later in life, these options are limited as there is not as much time.
The Older You Get the More Conservative You BecomeFor most people, age brings with it conservatism. This isn’t to say that if you’re a natural risk taker that you all of a sudden become conservative but getting older does tend to make people more conservative and less likely to take risks. This switch is likely due to the shrinking time frame you have to accomplish your goals.
As an example, if you’re in your 30s, you have a good 30 years to make investments, take a loss or two, and land back on your feet financially before retirement. If you’re only a few years from retirement, you’ll be less likely to take that kind of risk knowing there isn’t enough time to recoup. To compensate for this limitation, some older investors think that taking on a higher-yielding investment is the right idea. Unfortunately, higher yield usually means higher risk, which is exactly what you don’t want to do at this stage in your life.
Age plays a huge role in real estate investing as the younger you are, the more time you have to build a strong portfolio. Time is far more important than money in this case as you can’t make or buy more of it. And since time is not on your side as you grow older, your options for investing become limited as well.
If you’re thinking of getting in on real estate investing later in life, make sure you’ve considered the points listed above as it’s very likely you won’t achieve the results you’re looking for.
You can reduce your tenant turnover and avoid the high cost of vacancy by keeping good tenants in your rentals longer. Here are four tenant retention strategies you should know in order to be a more profitable landlord.
1. Treat Your Tenant RightMost landlords don’t go the extra mile to make their tenants feel special. You can greatly improve your relationship with a tenant by simply remembering and acknowledging special dates (birthdays, anniversaries, etc.) and by alerting them to standing discounts from local businesses. You could even make it a standard practice to give each new tenant a coupon book for the surrounding area when they move in.
Think about going one step further and give a small gift at Christmas time, too. This small gesture sticks in your tenant’s mind and makes them feel appreciated and special.
2. Make Upgrades To The Property And LandscapingAnything you can do to improve your property reduces your tenant turnover. When tenants ask, apply a fresh coat of paint. Don’t be afraid to allow them to choose the color as long as it’s not too crazy.
Nice-looking landscaping makes people happy. You can update your rental’s landscaping for cheap by doing the work yourself. Buy flowers for window boxes, trim trees and bushes, clean gutters, and fertilize the lawn to give your tenants a sense of pride in their residence.
3. Improve SecurityConsider installing smart locks. Smart locks are going to be the new standard in the near future, so it pays to do it now. Smart locks allow you to grant temporary access to maintenance workers, and they give your tenants a better peace of mind.
Something else you may want to consider is installing an alarm system on your rental property. Most alarm companies will install their systems for free, and you can pass the monthly service fee on to your tenants. Most won’t mind paying this fee knowing they will sleep better at night.
4. Make Your Rental Energy EfficientOne of the biggest complaints from tenants, especially in older rentals, is the cost of utilities. You can help reduce utility costs for your tenants by making a few changes.
Energy efficient lighting is one option while adding new insulation to the home is another. Lastly, purchase a water heater blanket. For about $20, this blanket saves your tenants money every month.
Tenant retention is a big deal, especially when you consider the staggering cost many landlords incur when a tenant moves out. You can’t predict when life takes a tenant somewhere else, but you can help keep good tenants in your rental by making it a better place to be. Consider the above tenant retention strategies to keep your best tenants happy.
Real Estate Investing – Pros and Cons
When you invest in real estate, you own physical property. Whether it’s a parcel of land, a residential property, or a commercial building, it’s something you can touch and use. This aspect is why real estate investment is more appealing than stocks for many investors. Pros
- Investing in real estate is tangible. You can touch it, live in it, and drive by it with your friends
- It’s more difficult to fall victim to fraud when you invest in real estate because you can see your investment, conduct background checks on tenants, and ensure the building exists before purchasing.
- Using leverage in buying real estate is much safer than buying stocks on margin.
- Real estate investments make great inflation hedges.
- Real estate investing is a lot of work when it comes to maintaining and managing properties.
- If your investment property is unoccupied, you still have to pay monthly expenses like utilities, taxes, insurance, etc. without any rent coming in.
- Real estate doesn’t really increase in value very fast. What makes it attractive is the power of leverage and its potential to increase in value if inflation rises.
Investing in Stocks – the Pros and Cons
When you invest in stocks, you are buying a percentage of a company. It doesn’t matter what the company does, if the company makes a profit, you receive dividends based on the number of stocks you purchased. Pros
- Despite the risk, history has repeatedly shown that investing in stocks is the fastest way to increase wealth. By reinvesting dividends over a long period of time, you increase your chances of amassing virtually unlimited wealth.
- Stock investing requires little work beyond researching the companies you invest in.
- Investing and reinvesting in high-quality stocks can create an impressive residual cashflow that requires no work on your part.
- Investing in stocks requires less money upfront than real estate investing.
- It’s much easier to sell stocks than it is to sell real estate. You can sell stocks over and over in a matter of minutes, whereas it could take weeks or even months to sell a property.
- You can borrow against your stocks a lot easier than you can borrow against your property. It’s called borrowing on margin and it’s almost as easy as writing a check against your bank account.
- Investing in the stock market is stressful. Most investors are too emotional and fickle to really be successful in playing the stock market.
- The cost of investing in stocks can fluctuate drastically.
- Sometimes it’s difficult to see a return on your investment when you invest in stocks. However, if you reinvest your dividends to buy more stocks in a company, you’ll own a bigger portion of the company and receive bigger returns over time.
If you currently invest in real estate this way, that’s great. The reality is, however, that most investors rarely have that kind of cash for a down payment. In fact, the most successful investors are extremely creative when it comes to financing their deals. You can buy an investment property with very little cash on hand, and below are five ways to buy your first investment property for cheap.
Seller FinancingSeller financing is one of the most popular ways for someone to buy investment property. Essentially, as the name suggests, the seller provides the financing and sets the terms of the deal. In most cases, an investor needs little to no money down in order to obtain ownership of the property in a seller-financed deal. This option is especially beneficial for investors with less-than-perfect credit or those who lack enough capital for a traditional down payment.
WholesalingWholesaling is another way investors make a profit in the real estate market. In this venture, the real estate investor never really owns the property, but instead, contracts with the seller to find a buyer. Once the investor finds a buyer, he then signs the contract over to them and collects his profit, which is the difference between the seller’s contracted price and what the buyer actually pays.
Equity Joint VentureThis is one of the best ways to own investment property without having to put a lot of money down. In an equity joint venture, two or more parties contribute funds to make the down payment. Percentage of ownership depends on the number of parties involved, but each shares gains and losses according to his or her percentage.
Private LoanOf all the strategies for buying investment property for cheap, this one is the most beneficial. A private loan is a loan between a private lender and the investor. Terms of the loan are much more negotiable than traditional bank loans, and you often have the option of negotiating a no-payment period for up to one year, which allows you to make repairs and get the property ready for occupancy before making any payments.
Home Equity Line Of CreditIf you have equity in the home you live in, you can purchase an investment property using that equity. This type of loan typically carries a very low interest rate and payments are usually low as well since they are interest-only payments.
Many investors use this strategy to buy investment properties by obtaining a line of credit on a property that’s already paid off. Banks like this type of loan because they are usually first mortgages. The best way to utilize a home equity line of credit is to purchase and repair the rental property, and then refinance it with a more permanent type of loan.
There are many ways to buy your first investment property for cheap. If your dream is to own investment property, don’t disqualify yourself just because you don’t have enough capital for a 20-percent down payment. Consider the options above to make your dream a reality.
1. Do Your Part To Support Neighborhood Watch ProgramsWhether you’re a local landlord or one that lives in a different state than your investment property, you can still support the local neighborhood watch programs that work to keep your tenants safe. You can encourage your tenants to become active members, and contribute physically (if you can) and financially to the cause.
2. Sponsor Local Youth ProgramsIf you have long-term goals as a landlord, you need to do your part to support the youth in the surrounding community. Look for local boy and/or girl scout troops to donate financially to or contribute to an after-school program in the area. The benefits of supporting and encouraging today’s youth go far beyond increasing the value of your investment.
3. Take To Social MediaYou don’t need to spend hours upon hours tweeting on Twitter or posting on Facebook, but every once in a while, it’s nice to share good news about the community with the people who care. As a landlord, it’s your job to encourage your neighbors and share the news that affects them most.
4. Take Care Of Your Front YardHow your property looks to others is almost as important as the amenities you offer inside. When your front yard is well-manicured, it shows your tenants and your neighbors that you care as well as increases the security of the property. If you don’t have the time it takes to maintain the curb appeal of your rental property, it’s a wise and financially sound decision to hire a professional for the job.
5. Don’t Ignore NeglectIf you notice obvious signs of neglect in the surrounding neighborhood, don’t ignore it. Speak up and let the right people know about it. Even if it’s just a burnt-out street light or an overgrown lawn, make sure it’s taken care of so the rest of the neighborhood doesn’t follow suit.
When you own an investment property, your obligation doesn’t end at the curb. The surrounding neighborhood plays a big role in the value of your property, so it’s also your obligation to put effort forth to encourage and foster its growth. Use the tips above to build equity by investing in the community surrounding your property.
It takes a special know-how to be a successful landlord, and with the tips below, you can be one yourself. The trick is to “train” your tenants to do things the way you want them done and be willing to take the tough road, if need be. Without further ado, here are six best tips for new landlords.
1. Make Collecting the Rent a PrioritySince your tenants’ rent money is the whole reason you do what you do, collecting it on time every month should be priority. If the rent is due on the first of every month, each tenant should be paying by the first of each month – no excuses.
You have to be willing to charge a late fee if they don’t pay rent on time, and you have to be willing to go further with eviction proceedings if they fail to pay altogether. Getting lazy or passive on either of these points lets your tenants know they can do what they want without consequences, and some tenants will definitely take advantage. Before ending up in bankruptcy because your tenants don’t pay on time, let them know upfront that timely rent payments are mandatory and expected.
2. Learn Everything You Can and Know the LawLandlording requires more than just collecting the rent once a month. It requires you have an on-going education, as well as a complete understanding of fair housing laws. The more you know, the better equipped you are to handle situations that arise. Knowing and understanding fair housing laws ensures you never come out on the wrong side of a lawsuit brought on by an angry tenant. It’s in your best interest to read books, take courses and speak with seasoned landlords to gather as much education as possible to make your job easier.
3. Make Appropriate Renovations and RepairsMany new landlords make the mistake of putting too much money into renovations with the hopes of charging higher rent. Unfortunately, if the rental is located in a low income area, charging higher rent isn’t usually an option. It’s important to make repairs and renovations that don’t cost more than you can recoup with typical rent payments from the tenants. Make sure the end justifies the mean.
4. Set Office Hours and Have a Google Voice NumberYour tenants will “need” your assistance 24 hours a day, seven days a week, if you let them. You’ll never get a moment’s peace. Setting strict office hours with a Google Voice number for emergencies is the best way to get a good night’s sleep and reduce stress on an very stressful job.
5. Hire Outside HelpAs an investor and landlord, you probably look for every way possible to save money. This might include making repairs around the rental property yourself. If you’re a handy person, and you like making repairs, then go for it. However, if a repair is too difficult, or you simply don’t like making repairs, hire a professional to handle it. There’s a lot to be said for enjoying what you do, so leave it to someone else when the task isn’t your cup of tea.
6. Keep OrganizedOne of the keys to any successful business is organization. This holds especially true for landlording. Keep all your forms neat and handy in a file cabinet, have all procedures and policies clearly written out and have all your maintenance contacts organized for quick retrieval. Be up-to-date with your accounting, and keep your desk and office clean. While these things sound trivial, they are actually the exact organizational tools that make landlording an enjoyable and successful venture.
An Ideal SituationThere is no rule that says you have to be a certain age to buy multiple properties, but if you’re a parent, the ideal age is in your 50’s. By then, your kids are grown and likely out of the house. You have more time to devote to another home and probably some disposable income, too.
Important Questions to Ask YourselfBefore you contact your real estate agent, ask yourself these important questions.
Am I ready to commit?If you’re buying a vacation home, will you like vacationing in the same place 5 or 10 years from now? If you’re buying an investment property, are you up for the responsibility of being a landlord?
What are my financial obligations?Just because you have the extra money doesn’t mean you should spend it. Think about how buying a second property will impact you financially. What does it mean at tax time? How much money will you need to maintain it? What about monthly bills like utilities? If it’s a rental property, will it generate enough money to make it worthwhile? If it’s a vacation home, will you be able to use it enough to justify buying it?
Do I have enough money upfront?Buying a second home is expensive. You’ll need at least 25 percent upfront to cover the down payment and closing costs. Can your bank account handle that kind of deduction? What about emergency expenses? Will there be enough left to cover any emergencies that may arise?
What is my exit strategy?If you decide that owning a second home isn’t for you, what is your exit plan? Can you rent it out or sell it quickly to recoup your money? It’s always a good idea to have an “out” should something happen, or you simply decide that owning a second home isn’t for you.
Buying a second home is a big undertaking that’s not right for everyone. If you’re in a position to buy and are thinking you might want a second home for vacation purposes or investment purposes, be sure you ask yourself the questions listed above first. Really exploring the answers will help you figure out if you’re ready to buy a second home or not.
Below, we explore several helpful tips to make the home inspection process easy.
Get the Most Out of the Home InspectionIn most cases, a home inspection isn’t required, but having one done protects you (the buyer) from purchasing a home with underlying, expensive issues that’ll be your responsibility to fix after you sign on the dotted line. Here are a few tips to help you get the most out of your home inspection.
- Be present – you aren’t required to be at the home inspection but being there when it takes place lets you see the issues for yourself.
- Prepare yourself – bring a blank checklist and write down any questions you may have to ask the inspector once the inspection is complete.
- Review seller disclosures – take some time to look at any disclosures the sellers have made. Ask the inspector to pay special attention to these areas. If the home is a foreclosure, there likely won’t be any disclosures.
- Don’t interrupt the inspector – Allow the inspector to do his job. Reserve questions until after the inspection is complete.
- Ask questions – after the inspection is finished, ask any questions you may have before the inspector leaves. Have the inspector point out any major issues so you can see them for yourself.
A Personal Home Inspection ChecklistHaving your own checklist of things to look at during the inspection will help address any concerns you may have. You can pass these concerns on to the inspector so he can pay special attention to these areas.
- Water damage – Look for evidence of water leaks or damage. Stains, bubbling, cracks, etc. in walls, ceilings, cabinets, attic, basement, below windows, etc.
- Appliances and major systems – make sure everything works
- Signs of age – old wiring, old windows, few outlets, cast iron plumbing
- Roof – look for damage or stains. How old is the roof? How soon will it need to be replaced?
- Water damage – foundation damage, mold, mildew, rot
- Foundation – cracks, raised foundation/walls, trees near the home (roots cause damage you can’t see)
The Cost of a Home InspectionBecause the home inspection is designed to protect the buyer, the buyer is responsible for the cost of the inspection. With that said, you can expect to pay between $300 and $500 for the inspection depending on the location of the home and its size and condition.
If you suspect anything like pest infestation, you’ll need a specialty inspection, which will cost extra. Specialty inspections aren’t usually included in a pre-sale visual home inspection.
Don’t let the cost deter you from getting a specialty inspection if you suspect something is wrong with the property. The last thing you want to do is end up with a home that needs major work before you can even move in.
The home inspection is an important, straightforward part of the homebuying process. Keep the above tips in mind as you prepare for your home’s inspection.
The problem is, however, charging too much can cause your rental to sit vacant for weeks – and sometimes even months – before someone is willing to pay what you want, and charging too little means you earn less of a profit.
How do you know how much rent is appropriate? Follow the tips below to figure out how to set the correct rent prices for your rental properties.
Research ListingsThis may sound like common sense, but you’d be surprised by the number of landlords not willing to put the time and effort in to do this important step. While it may be time consuming, knowing what other landlords are asking for rent in a given area goes a long way to letting you know what you should charge.
You can take it upon yourself to research listings yourself, or you can incorporate specialized sites to do it for you.
Ask Someone Who KnowsAnytime you want to know something, it’s always best to talk to someone who’s “been there, done that.” Experience breeds success, so talk to others who have prior experience setting rent prices.
Fellow landlords are a great place to start. Try to find ones that have similar properties as your own (same number of bedrooms, similar square footage, etc.). Watch out for the landlord that hasn’t raised rent in several years, though.
Real estate agents are another great source for rent pricing knowledge. Not all agents are created equal, though, so be sure to speak only with those who have experience working with rental properties.
You can find a host of real estate professionals by joining associations that cater to such groups. Landlord clubs, real estate investment clubs, and rental housing associations are all great sources of knowledgeable people who can help you figure out what price to set for rent.
Compare Actual Rent Prices In A Given AreaThe majority of the listings found online and in newspapers give rent prices the landlord hopes to receive, not what he or she actually receives when a tenant agrees to a lease. It can take some time to gather actual rent prices in any given area, but it’s worth the time to get accurate prices so you know if yours meets the standard.
If you want to set the correct rent for your rental properties, you have to take the time to do your homework. The more you understand about the other rental properties in your area, the more able you will be in setting a price that generates you a profit while making your tenants happy. Use the information above to figure out how to set the correct rent price for your rental properties.
Sales Comparison ApproachThe sales comparison approach (SCA) is simply an estimated comparison of similar residential properties that have sold or rented out in a given area over a particular amount of time. This method is one of the most commonly used methods for valuing real estate.
As an example, if a 2,000-square foot property rents for one dollar/square foot, it’s safe to say that an investor can expect the same return on his investment when he purchases a similar property in that area at that time. Of course, every home has features that make it unique and sometimes hard to quantify, so the SCA is really just a generic measurement and shouldn’t be relied upon as fact.
Capital Asset Pricing MethodThe capital asset pricing method (CAPM) takes into consideration the risks associated with investing in real estate. This method helps you decide if it’s worth taking the risk to rent a particular piece of real estate.
When figuring the CAPM, the potential return on investment (taken from the rental income) is compared to other risk-free investments such as real estate investment trusts. If the expected risk-free investment return is more than the expected return on investment from the rental income, it just doesn’t make sense to take the risk on that property.
Income ApproachUsed commonly for commercial real estate investing, the income approach details what the potential income of a rental property is in relation to what the initial investment is. Using the annual capitalization rate, the income approach divides the projected yearly income from the rental income by the current value of the property.
For example, if a commercial rental property costs $120,000, and the expected monthly rent is $1200, the expected annual capitalization rate is 12 percent.
The downside to this calculation is that it only takes into consideration one year’s worth of income, and it does not include any additional expenses such as mortgage interest and the like.
Cost ApproachThe cost approach is typically used to place a value on vacant land. This method tells investors that an investment is only worth what it can reasonably be used for. It is determined by adding the land value and the depreciated value of any improvements.
A good example of the cost approach is if you are an apartment developer looking for land to build condos on. If the land you want to purchase is surrounded by oil fields, and the closest residents live 20 miles away, it makes more sense to not use the land for condominiums, but instead, to use it to expand drilling rights to find more oil. The value of the land is based on its best use.
Real estate investing is a great way to fund a better lifestyle or save for retirement. Understanding how investment properties are valued is the first step in getting your feet wet as an investor.
A Dedicated WorkspaceWorking from home is something many companies embrace. As such, a large portion of the population now works from home, at least on a part-time basis. For millennials, a home must contain a dedicated workspace complete with plenty of outlets and room for shelving.
If your home contains a spare room, adding a few tweaks here and there to make the space feel like a home office is recommended. If no spare room is available, a nook or something similar in a kitchen that has good lighting works, too. The space doesn’t have to be large, just something an up-and-coming remote worker can picture themselves using daily.
A Smart HomeMillennials are all about the digital age, and as a result, they crave smart technology. From smart thermostats and keyless locks to smart doorbells and more, millennials appreciate the convenience and added security these smart options bring to a home.
If you’re hoping your home appeals to the millennial generation, be ready to discuss your smart home features as well as the wi-fi carriers and signal strengths in your neighborhood.
Charging PortsThe younger generation has their smartphones with them all the time. As such, these devices need regular charging to keep up. Switching out some of the regular outlets in your home with USB outlets will be a huge plus with the millennial generation.
Adding USB charging ports in bedrooms, living spaces, and in the kitchen is a great way to market to the millennial generation.
Neutral Color PaletteA neutral color scheme is very popular among millennials. If you want to appeal to this group of buyers, consider giving the rooms in your home a fresh coat of paint in a palette of gray variations, white, and soft neutrals throughout. If your kitchen has cabinets in vibrant or dark hues, think about painting them a lighter, neutral color and switch out the hardware for a look most millennials will appreciate.
Outdoor Living SpaceIf you want to hook younger buyers, having an outdoor living space where they can spend time entertaining family and friends is a must. Whether your yard is big or small, millennials will be able to see themselves hanging out in it around a fire pit in comfortable seating under some urban-chic lighting. Even if you’ve never used your yard like this before, it pays to stage a space like this in your backyard while selling your home.
Since millennials make up a large portion of homebuyers, it makes sense to market to them as much as possible when selling your home. Add a few of these upgrades and/or renovations to your home to appeal to this generational group.
1. You Don’t Have to Work So Hard to Market Your PropertyThe sheer nature of a college town sells itself. With high walkability ratings, these towns are full of restaurants, entertainment, and shopping. Finding renters in a college town is really easy because there’s always an abundance of people hoping to find housing close to the school and all the activity.
2. There’s No Shortage of Potential RentersMany students relocate when they enter college. A good majority of them come from far away, which means they need somewhere to live while they attend school. Renting is the obvious option since most of these students will either return home or move away after graduation. Even if a renter moves out of your unit, there’s always another waiting to move in immediately.
Aside from the student body, there’s also the school’s staff and faculty, as well as graduate students. While many of these people are longer-term residents, they may still prefer to rent rather than buy.
3. You Can Maintain Competitive Rental RatesBecause there’s such a high demand to live in the area, you can set and maintain competitive rental rates that keep up with the going market value.
4. Vacancy Rates are LowRenting in a college area is a balancing act because vacancy rates tend to climb during the summer months when students return home for the break. You can avoid this pitfall of renting to college students by making them sign a year-long lease. This obligates your renters to year-round occupancy, so you don’t have to worry about vacancies during the offseason.
The Risks of Buying Property in a College TownAs with any investment, there are risks to be aware of when buying property in a college town.
1. College Students are Notorious for Causing Property DamageWhile renting in a college town has many benefits, no landlord is immune to the property damage college students almost always cause while living in a rental unit. You can offset this damage by factoring it into the security deposit you require when they sign a lease.
2. You May Have to Dedicate More Time to Finding RentersCollege students move around a lot, so you may have to spend more time looking for new renters than you would in another area. The good news is, there’s usually no shortage of prospective tenants waiting to rent your property.
3. It Can Be Difficult Finding Renters for the Summer MonthsAs stated before, summertime tends to result in more vacancies as students return home for the break. Having tenants sign a year-long lease solves the problem of seasonal vacancies in a college area.
4. College Students Can Be DemandingBecause they’ve never lived away from home before, college students tend to have a lot of questions and be quite demanding when it comes to needing something. It’s easiest if you live nearby so you can address their needs quickly, or if you can’t live nearby, hire a reputable management company to handle all the landlord responsibilities in your place.
If you’re an investor looking to increase your earning potential, consider buying rental property in college areas. While there are some risks involved, there are ways around them to make investing in college town real estate a smart move.
Vacant Or Unoccupied PropertyVacant and unoccupied properties are typically found on the outskirts of town, in rural areas, and sometimes, in the city itself. Examples of these types of properties include farmland, orchards, timberlands, and ranches.
From a price standpoint, vacant and unoccupied lands are often more expensive than other types of real estate properties. They vary so greatly in size that it’s difficult to estimate a general price range. For an up-and-coming real estate investor, however, purchasing such a property is a great way to make a profit while gaining more contacts and experience.
Residential PropertiesResidential properties are any that serve as homes to people. These properties include duplexes, apartment complexes, condominiums, and single-family homes. These examples vary greatly in structure and market value, which means many investors choose to deal with just one or two types, depending on location. Furthermore, many real estate investors prefer investing in residential properties over other types because there are always plenty of potential tenants waiting to rent their units.
Commercial PropertiesCommercial properties are those where commerce and/or business takes place. However, they can also be sites where business and commerce are meant to take place such as empty lots, shopping malls, parking structures, etc. Industrial properties are often commercial properties, too, although it is less common. Investors looking to deal in commercial properties need to know the property’s history for generating a profit, as well as it’s potential to keep making a profit.
How Should You Handle Your Real Estate Investments?Aside from deciding which type of property to invest in, you also need to figure out how you’ll handle the properties you buy. Renting out your properties is the fastest and easiest way to see a return on your investment. However, it also requires more of your time.
As a rental property owner, you have two options: manage the property yourself or pay someone to do it for you. The latter frees up your time but costs you more. Doing it yourself demands a great deal of your time, but if you don’t mind, it allows you to keep more of your profits.
Another way to invest in real estate is to buy, fix, and sell properties at a profit. Again, you can opt to do some or all of the work yourself to save money, but many investors hire contractors to complete repairs and renovations. This option requires a greater cost up front but requires less of a commitment over time.
Whichever type of property you decide to invest in, and how you decide to manage it is a personal preference, but ultimately, real estate investing is a great way to make the kind of money that allows you to do the things you want and to retire comfortably. Commercial properties, residential properties, and vacant land each offer good investment options for real estate investors.
Here are six risk factors of real estate investing that every investor should be aware of.
1. Market RisksEvery market ebbs and flows depending on the current market trends. Interest rates, the economy, inflation, etc. all have a part in the ups and downs of the real estate market. While no investor can control the market, he can strategize based on market conditions and build a diversified portfolio.
2. Asset-Level RiskAs a general rule, the less risky an investment, the less return it delivers. In real estate, the same holds true. For example, there’s always a need for apartments regardless of the economy. This makes multi-family dwellings a low-risk venture and also a low-yielding one as well. On the other hand, hotels that rely on seasonal traffic and tourism are a much higher-risk investment.
3. Idiosyncratic RisksIdiosyncratic risks are risks that are specific to a particular property. For example, construction of any kind (renovations, repairs, new constructions) add risk to a real estate investment because they usually halt rent payments during that time. Other idiosyncratic risks include things like not being able to acquire the proper permits, environmental risks such as soil contamination, and budget overruns.
Another idiosyncratic risk has to do with the location of a property. For example, in Chicago, owners of buildings behind Wrigley Field lost big when a new scoreboard was erected, blocking the view of the field and halting private rooftop parties during the games.