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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!
14 Aug, 2015
11 Fundamental Tips for Successfully Investing in Rental Properties This post was taken from: http://bit.ly/1DKQWGf Buy Close to Home
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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