Top 5 Reasons To Invest In Rental Properties

They say that more millionaires made their money through real estate then through any other means. There are of course many avenues for investing in real estate, but I’ve always preferred rental properties for various reasons: Real estate investing can be simple and straight forward to get started

- The pathway to investing in real estate can be quite simple, you can start talking to experienced investors, read a few of the thousands of books available to learn the basics.

Once you have the down payment saved and an understanding of property management (or hire a professional to help you manage) you can start.

• Ability to invest with leverage- By using leverage you can spread your investment wider and be more diversified. Also, if interest rates are lower than what the current return on the property is, you will effectively be borrowing money for less than what you make on it, thus increasing your return.

• Utilizing your connections is a good investment- Utilizing your connections in the real estate industry is key to finding the right investments, in some other industries it might be considered insider trading.

• Stability and Predictability- The real estate market is one of the more stable and predictable investments you can make, do the proper due diligence and manage the assets with care and you will find that it will end up better than most other investments.

• Multiple ways to grow your investment- With a real estate investment you have multiple ways to help your money grow, rental revenue, tax deductions and appreciation.

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Tips On Handling Your Inherited Tenant

As a new Investor you will find that most of the time you will inherit a tenant from the previous owner and you think this is a great thing; you won’t have to pay for advertising and you have a built in rental stream already coming in.

This could be true however it is your responsibility to make sure this tenant is someone that you want to keep or legally have to keep.  Like everything else in a new acquisition, DO YOUR DUE DILIGENCE.

Estoppel Certificate

Make sure that you receive an estoppel certificate signed by the tenant.  An estoppel certificate is a document that outlines that everything is the way you were informed.  The certificate refers to the current lease and the terms of the existing lease (if there were any changes). The tenant signs off that they agree everything in the lease is as it seems and there are no additional terms agreed upon, nothing else is owed by either the landlord or the tenant. It should at the very minimum include the below:

1)      The lease dates (commencement and expiration)

2)      The date when rent is due

3)      The amount of rent

4)      Any deposit amounts

5)      If any modifications have been made to the lease

6)      If additional agreements have been made, a list of what those agreements are

7)      That no party to the lease is currently in default

Follow the Lease Conditions

Read the lease thoroughly, you may not love the terms of the current lease, but you are bound legally to abide by the lease until the date of expiration. At this point, you will have the chance to either renew and sign a new lease with existing tenants or give the proper legal notice that you will be ending their tenancy with you. If you decide to start over with a new tenant at the end of their lease, you will want to give yourself plenty of time to market the property.

Set up your own criteria for picking out a new tenant. Complete a rental survey for the area so you can determine what rent amount you will be requiring going forward.

Raising Rents

If you find that your rents are below market, there are several items to consider.

1)      Will you lose tenants if you raise too much?

2)      How much can you legally raise them

3)      Should you offer some sort of concession ie: accent wall or an upgraded appliance?

4)      How long will it take to release if you do lose your tenant

5)      How much will it cost to make the unit ready to relet if you lose the tenant

Lastly, keep in mind that not all of these tips will apply to everyone, be aware of any local ordinances that may affect what you can do when inheriting a tenant, and don’t forget, to introduce yourself!

What to Consider when Buying a Single or Multifamily Investment!

Many first time investors have the idea that their first investment should be a single family home due to the cost of entry and ease of management, however, this may not always be the best path to go down. One of the main issues that you have to consider is the fact that if the single family homes goes vacant you will have to cover the entire mortgage until you find a new renter, now if you have a duplex, triplex or fourplex that mortgage will be spread out across more units giving you some cash flow to help with the mortgage.

Another reason the first time investors tend to like the single family homes is that you can put a lot less down then you can on a commercial loan and the residential loan can be amortized out over the life of the loan. Residential loans can be on properties that have 4 units or less and can be acquired with as little 5% down, however, commercial loans are on 5 units or more will require at least 25% down and you will need to show a business plan plus as well as management experience and cash flow. When shopping for a commercial loan, be prepared to answer a lot of background questions regarding the property. Some of these questions include:

Who pays the utilities?

What types of maintenance are required?

Numerous questions regarding cash flow will also be asked. Commercial mortgage borrowers should be prepared to provide proof of business revenue and profits as well as a detailed plan for how the commercial property will generate enough income.

Where an investment in a residential property can be attractive is in the maintenance costs, you will have only one tenant in stead of multiple so it makes sense that your costs should be less providing you have a good tenant; however, multifamily properties typically afford synergies of scale (one yard, roof, etc…) so your overall cost per unit vs. rent will be lower.

When deciding on which direction to go with your first investment really look at your appetite for risk as having a home go vacant for a few months and having to cover all the expenses on your investment can be a big drain on your savings.