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11 Fundamental Tips for Successfully Investing in Rental Properties

Aug 14, 2015
11 Fundamental Tips for Successfully Investing in Rental Properties 

This post was taken from: http://bit.ly/1DKQWGf

Buy Close to Home

One of the most valuable things in life is your time. Do not underestimate how valuable your time is. With that in mind, I suggest buying close to home. Not necessarily next door, but not an hour away either. Doing so will save you tons of time, especially if you are managing the properties yourself. If a property is an hour away from you, that is two hours just to get there and back. Remember, your time is very valuable. Learn to conserve it.


You may also consider the value of a property management company. Using a property manager will reduce your drive time, reduce your headache, and you have a trusted company to run your property if or when you decide to move out of state. 


Keep Properties Clustered


This tip also focuses on saving your time. Do you want to be driving all over your city to show or maintain your properties? Would it not be easier if they were clustered in one or two neighborhoods?


Don’t Buy Somewhere You Are Afraid to Visit


Seems rather obvious, but the cash flow numbers can look really appealing in rougher neighborhoods. Why? Because of two words: increased risk. Risk to your property and risk to you. If you can handle the risk, go for it. If not, think twice before buying.


You will always get a better return on your investment if you buy in an area you wouldn’t mind living.  This ensures that tenants will feel safe and neighbors are pleasant. 
Save for Expenses

Stuff breaks. It breaks all the time. And if you don’t repair it, you and your property can quickly fall into a downward spiral. You simply have to keep some money set aside for repairs.

Remember: Cash Flow is King

The rental property business is all about cash flow. If a potential deal does not cash flow, do NOT buy it. You do not want to be in the situation where you have to write a check every month rather than cashing one. Cash flow is king. That said…

Don’t Bet on Appreciation

Some think they can forgo the cash flow because they will be able to sell the property later for a profit. And while that can happen in red hot markets, markets are tricky and fickle. You are making a bet that you can time things perfectly. It can happen, and if it happens to you, great. Do not forget the crash of 2007 and 2008.

Write Down Your Rental Policies

Do this before you get started. What is your rent going to be? What will your income requirements be? What about past criminal offenses or evictions? How about pets? Smoking? The thing is, if you are wishy-washy about these criteria, you can be accused of discrimination and potentially fined. Determine your rental criteria now, write them down and stick to them.

This is really where a property manager comes in handy. A property manager usually has this sort of criteria in place and they would be the ones to enforce it, instead of you knocking on someone’s door.

Know the Law

First, know that Federal Law states that you cannot discriminate based upon the seven protected classes, including race, religion, color, creed, sex, familial status and national origin. Turn someone away because there are “too many” kids, and you might be in big trouble.

Plus, there are a myriad of state and local laws that spell out the eviction process, how much rent or late fees you can charge or add additional protected classes. Seems like a lot to cover and it is, but running afoul of any of these laws can be a hard lesson to learn.

Get Your Lease Reviewed

The lease is your most important document in this business. It is the contract between you and your tenant that spells out the numerous details related to renting out your property. Should you trust some boiler plate document you bought at Office Max? No, you should not. Find an experienced real estate attorney in your area and have him or her review your lease. The few hundred bucks this will be money well spent.

Start Small

Please do not go out and buy a 30-unit building as your first purchase. If you do, you are most likely setting yourself up to fail. Managing rental properties can be a tough business, and I suggest you start small, get a feel for the business and then build your way up.

If you start small you will have a better understanding of the kind of properties you would like to own, plus only dealing with one tenant at the beginning is ideal. 

Think of Your Exit Strategy

One day you will likely be ready to sell these properties and move on. Who will you sell them to? Most likely to another investor. What will that investor be looking for? The same thing you were looking for — a cash flowing deal. Be sure you think about that now when you buy, rather than later when you are trying to sell.

These 11 key tips are a lot to think about and digest, but one should not blindly march forward into the real estate investing arena. The more you do on the front end, the more successful you will be on the back end.

Have more questions about real estate investment? Contact The Stiles Company t

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Stop Dreaming & Start Doing: How to Turn Big Real Estate Goals Into Actionable Steps

15 Oct, 2015

16 Common Investment Terms

02 Sep, 2015
14. Personal Guarantee This is another one that’s very common, a term most people think they understand. It carries a lot of weight, and I take it very seriously. A Personal Guarantee is something that’s offered on a loan. It means that even though a mortgage loan is probably given to an LLC or other business entity, an individual(s) is being asked to pledge their own personal credit and assets to the loan as well. That means that you are putting your personal home, bank accounts, and any other assets you own on the line when you sign one of these. Take these seriously when you sign them! 15. Amortization Most mortgages don’t get paid down evenly over time. Most mortgages are amortized, meaning that each month, a little more of the money you pay goes towards principal and less towards interest. At first the principal portion is not much at all. Over time, the principal side goes up and up, to the point where you build a big snowball of debt pay down each month. If you are a visual person, do a Google search for “Amortization Charts” to see this in graphic form. 16. Capital Expenses and Capital Expense Reserves (Cap Ex) So this is another one that gets tossed around a lot. Some expenses are applied the moment you have to pay for them, like a maintenance man unclogging a toilet, an electric bill, or property insurance. Larger expenses that are considered to be a contribution to the long term value of the property are called “capital expenses.” It seems frugal but is actually unrealistic for an owner of a single family or small multi to set aside money each month for a potential roof repair or heater replacement 15 years down the road. For larger real estate, these types of expenses come up more frequently. You need to set aside money each year for things like roof replacements, a new boiler, new windows, repaving parking areas, and common area upgrades. There should be a line item in your expenses for Cap Ex. There are plenty of rules of thumb out there depending on the type of property we are talking about. You will find numbers in $/SF or $/Unit, and they should reflect the cost of these Capital Expenditures in your local area. When you don’t know what your real estate agent is talking about JUST ASK THEM. They do this full time and can’t remember what it’s like to know nothing. It’s their job to help you, so let them. Cheers!

Property Manager? Or Asset Manager?

07 Aug, 2015
Property management. Real Estate. Rentals. Rent Houses. Norman, OK. This post was taken from http://www.biggerpockets.com/renewsblog/2015/07/27/manage-property-answer-these-questions/. I added in my own thoughts as well. Don’t be a PROPERTY manager; be an ASSET manager instead. What’s the difference? If you’re the property manager, you are the manager. If you’re an asset manager, you manage the manager. You could manage your property(s) yourself, perhaps in order to learn how it works so that you can outsource it to a property manager later. Or perhaps you want to create your own property management company. Before you attempt to manage your own property, ask yourself these 5 questions. 5 Questions to Answer Before You Self-Manage Your Property Question #1: How valuable is your time? Is it really the best use of your time to answer the phone at 10 o’clock at night when a tenant calls you that there is water coming through the roof and you have to rush to the property? Or to process applications, do background checks, show the property or collect the rent? Couldn’t you delegate these activities to other professionals charging $15-$30 per hour? Wouldn’t your time be better spent looking for more deals and raising money? What is an hour of THAT kind of activity worth? Fifty dollars, $100, $500 per hour? Spend your time on HIGH VALUE activities and delegate everything else. Your time is valuable and it is something you can never get back. EVER. Question #2: What are your strengths and passions? Are you good at repairing stuff? Do you love dealing with tenants and their problems? Do you love the property management business? If you answered “yes” to these, you might want to consider starting your own property management business, which would complement the real estate business. However, chances are you answered “no” to these questions, so why do them? Why not focus on what you’re good at and love: being a real estate entrepreneur, making deals happen, putting it all together? Hire a property management company. They make the detail stuff easy for you. Question #3: Are you relying only on yourself, or are you leveraging the strength of your team? Do you have experience managing a property like this? If you don’t, do you really want to learn? If you have investors in the deal, how would they feel about you managing the property that you bought with THEIR money? Chances are, you don’t have property management experience, and therefore the risk of the project just skyrocketed. What should you do? Leverage the experience of a professional property manager. Use your manager’s resume to complement your own. This “partnership” makes you look stronger to banks and investors because instead of having no experience at all, you bring a track record to the table. You can say, “Here’s my team, look at our experience.” You’re mitigating the risk of the project by leveraging the strength of others. Question #4: Is it consistent with your goals? Didn’t you get into this buy and hold real estate thing because you were looking for passive income and to grow the business? Then why would you want to work IN the business versus ON the business? Why would you do something (property management) that doesn’t bring you closer to your goal of passive income and growing your portfolio? Also, with regard to goals, you want to make money as quickly as possible, right? Why try to learn on the job and make a bunch of mistakes when you can hire a professional who will do a better job than you will? Just saying. Question #5: Are you running it like a business? You should approach your real estate career from the perspective of an entrepreneur who wants to create and grow a business. As the CEO of this business, you’ll want to delegate those lower-value activities that you’re not good at or don’t like to do and focus on the high-value activities that actually grow the business. Plus, real estate like apartment buildings (what I focus on) already has property management built in to its business model! It just makes sense. Unless property management is strategic to you, it should be one of those lower-value activities that you delegate. If you do, it will free you up to do the things you’re good at and that will grow the business: looking for more deals and raising money. Does your business work without you? What do you think about this? Manage yourself or manage the manager?
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