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.

Thank you for reading and be sure to read more of our articles or subscribe to my YouTube Channel

Successful Real Estate Investors Know These Pitfalls

Not Giving It 100%

If you feel you are ready for your first real estate investment and you think it will be an easy source of passive income then I would recommend you sit this one out. There are certain asset classes such as Single Tenant Net Lease investments that have less risk, but most other investments come with a degree of risk and are definitely in need of supervision on a regular basis.

Your first investment is most likely the one that will set you on a solid path so if you do not give it 100% you may end up missing out on the future opportunity to really create some satisfying wealth

Knowing The Numbers

Over the years I have seen new Investors focus their attention on numbers that are less critical to your investing success, you must know what numbers are the true outliers to making a critical investment decision. Here’s some examples.

1) Rent Ratio - The rent ratio is calculated by dividing the monthly rent by total cost of the property (purchase price + financing costs + rehab costs);

2) Cap Rate - Cap Rate = Net Operating Income / Total Cost – This will show you what your investment will generate if you paid cash. Also, a lower cap rate compared to similar properties in the same asset class, with similar rent ratios, may show you that there are areas to decrease your expenses, and thus increase your income.

3) Cash on Cash Return -Cash on Cash Return = Pre-Tax Cash Flow / Total Cash Invested – This is the return you realize immediately on the cash invested. It does not take into account taxes or appreciation that you may receive. You should recalculate this as your investment hold time grows, so that you can take into account the appreciation of the property, so that you are maximizing your returns. It can show you when it is time to sell.

Underestimating Rehab Costs

If you buy an asset that is in need of a rehab you must know how much it’s going to cost, you will need to get multiple bids during your due diligence phase and when you receive your bids you will want to go item by item to compare.

When doing the rehab make sure you do it to your market, you don’t want to put cheap fixtures, appliances or flooring in a high end property and you don’t want to waste money on really high end fixtures, appliances and flooring on a mid level property as you won’t get the return back. Also remember to calculate rehab and capital expenditure costs into your cash investment/return, unless you are financing all of it.

Needed More Experience

This one catches many new investors and it’s also why I highly recommend you mentor with someone that is doing what you want to do before you go it alone.

If you are not confident that you know all the ins and outs maybe consider partnering with an experienced investor, buying your first investment and having to be responsible for tenants is a whole new ball game. I am a firm believer in jumping in the deep in and figuring it out but with a real estate investment there are many variables that can cost you thousand of dollars if you don’t know what to look for.

10 Questions a Landlord Should Ask When Interviewing Management Companies

Finding a reputable property management company can be quite daunting as it is difficult to really know how well the company is run. We have put together a list of items you should ask when interviewing a potential property management company.

1. How long have they been in business?

You want to associate yourself with an established company, as this speaks to a company’s length of service in the community.

2. Do they manage other assets in your area?

A property management company should have a presence in your local area, managing properties that are in the same asset class as your property. For example, if you own an apartment building in West LA, you should look for companies that manage apartments in West LA. The properties they manage may be available on the webpage, if not, ask this question while interviewing them in your initial conversation over the phone.

3. Are they carrying the proper insurance coverages?

The company should at a minimum carry general liability and workers compensation for their business. In addition, it is always wise to look for a company that also carries Errors and Omissions insurance.

4. Do they have their own experienced maintenance team or do they have to hire maintenance companies?

Many times smaller property management companies will outsource their maintenance. In addition to asking if there is an additional service charge for this, also ask how the management company vets their vendors (do all of their vendors carry liability insurance, are licensed, and have workers compensation insurance).

5. Do they have emergency services?

The ability for a property management company to handle every property incident, particularly emergencies, is crucial. At any time, day or night, a property manager must be equipped to handle emergencies that occur on your property. Communication is key in any tenant / landlord- management relationship – a toll-free number that is answered by a human 24/7 should be a mandatory service provided by any reputable management company.

6. What kind of reporting do they offer the property owner?

Are the reports sent monthly, or do the owners have online access? If the management company offers online access to the monthly reports, do they charge extra for this?

7. How do they set up the bank accounts for your property and will you have access?

Is there one trust account, or do they offer individual property accounts for each of their clients?

8. How often will they visit your property?

You want to make sure your property maintains its great shape. A world-class management company will ensure the grass is being cut, maintenance requests are fulfilled, and property regulations are followed. Visiting the property on a regular basis will ensure all maintenance work has been completed to the highest quality, as well as check to see that any other issues are addressed.

9. How detailed is their tenant screening process?

A reputable management company should thoroughly screen their prospective tenants, running a background and credit check, as well as looking for any prior violations committed on other apartment properties, available with Incident Reporting from providers such as theRRD.

10. Do they keep up to date with current laws?

Different municipalities have different laws related to rental units. Are they familiar with the laws, do they update their information/forms to comply with these laws, and are they up to date on any changes in the labor laws?

11 Types of Common Notices for Managing Rental Property

Managing a rental property involves knowing when to send out notices in order to communicate with tenants and protect yourself legally as a landlord or property manager. Whether you have a tenant who has failed to pay rent or need to let a tenant know about upcoming renovations, it’s important to familiarize yourself with the types of notices property managers and landlords send out.

1. Notice of Repairs – This type of notice informs tenants that repairs or renovations will be made on the property on a certain day. It also lets tenants know about any outages that will occur, such as having the electricity shut off.

2. Notice to Enter – With this type of notice, landlords let tenants know that they will be entering the property. Whether landlords are doing an inspection or checking on repairs, most states require this notice to be sent to tenants at least one day before visiting the property.

3. Notice of Lease Amendment – This notice informs tenants that there has been a change to their lease. If the change was negotiated between the landlord and tenant beforehand, this serves as a formal document stating that the lease has been amended.

4. Notice of Rent Increase – This type of notice announces an upcoming rent increase that will take effect on a certain date. These notices must be sent to tenants between 30 and 60 days before the new rent takes effect, depending on state laws.

5. Offer of Renewal – This notice lets tenants know that their lease will expire on a certain date and provides them with a renewal offer.

6. Notice of Non-Renewal – With this type of notice, landlords let tenants know that their lease is set to expire on a certain date and will not be up for renewal. It also includes a date by which tenants must vacate the property.

7. Unconditional Quit Notice – With this type of notice, landlords let tenants know that their lease is being terminated within a certain period of time for a specific reason, such as illegal activity or major property damage. Tenants do not have the opportunity to remedy the situation.

8. Notice of Intent to Dispose of Abandoned Personal Property – This notice announces that tenants must pick up their personal property or it will be disposed of. Some states require advance notice, such as 30 days, while others do not.

9. Notice of Returned Payment – This notice informs tenants that their rent payment was returned due to insufficient funds. It also typically includes a returned check fee that the tenant is responsible for paying.

10. Notice to Pay or Quit – This type of notice gives tenants a certain number of days to pay rent that is overdue or risk having their lease terminated. The amount of time you give tenants to pay up varies by state.

11. Notice to Cure or Quit – This notice gives tenants a certain number of days to fix a violation, such as having pets that are not allowed or unapproved roommates, or risk having their lease terminated. This only applies to violations of clauses or conditions included in the lease agreement.