Five Real Estate Rental Property Expenses Not To Forget

real estate rental property expenses

Here’s a list of five real estate rental property expenses not to forget about when calculating your ROI.

As a good real estate accountant or bookkeeper will say, ‘Report all of your income and expense as much as you can’.

Tenant Credit Reports

Checking the credit and background of prospective tenants is a must-do and one of the most important tips for a real estate landlord or property manager.

While the cost of running an individual report is small, the annual real estate expense for credit reports can really add up.  Especially if you have a large multi family property or several single family rental homes.

Leasing Fees

Surprisingly, many beginning real estate investors overlook expensing out the finder’s fee paid for leasing the rental property.

One reason this happens is that the leasing agent will collect the upfront monies from the tenant – such as the first month’s rent and security deposit – then remit to the owner this money less the leasing fee paid out of those upfront monies.

The landlord mistakenly only accounts for the money he or she actually receives instead of the gross income from the tenant.

Back Office Property Management Time

The time spent on little tasks like answering incoming phone calls, balancing the bank statement, and endorsing rental checks can really add up over the course of a year.

One way to account for this time spent managing your real estate investment is to use a stop watch or timer on your computer.  Then, log the minutes on a spreadsheet along with the date and a brief description of the task.

Onsite Property Management

Just as with the back office time, onsite property management time can add up as well.  It’s also one of the most overlooked real estate rental property expenses.

This category includes tasks such as driving by or walking the property, meeting a vendor onsite, and checking out the competition.

Market Research

Speaking of the competition, don’t forget to expense the time spent researching your market.

This can include things such as dues and subscriptions, property drive-bys, shopping the competition, and online research.

Common Real Estate Rental Property Expenses

Some of the most common expenses with a real estate investment property include:

Top FSBO Commercial Real Estate Tips

fsbo commercial real estate

FSBO commercial real estate is commercial real estate being sold by the owner.  It’s not that uncommon in the commercial real estate business.

That’s because – unlike residential real estate – most FSBO commercial real estate is owned by professional business people.  As a result, the investment group holding the real estate includes an attorney, high-net worth individual, or even real estate professionals.

Here are a few tips for buyers thinking about investing in for sale by owner commercial real estate.

Buyer Representation For FSBO Commercial Real Estate

More often that not, with FSBO commercial real estate, or any commercial real estate for that matter, a buyer is buying problems that the seller can’t handle.

That’s not necessarily a bad thing.  Sometimes commercial real estate owners don’t have enough capital to make repairs or upgrades.  Other times they lack the property management resources to find and keep great tenants.

Situations like these can be a good deal for the buyer, if the buyer has what the seller lacks.

But whatever the reason, buying FSBO commercial real estate means that you’re buying someone else’s problems.

That’s why it’s important to hire a buyer broker to represent you in a for sale by owner commercial real estate transaction.

Commercial Real Estate Due Diligence

Commercial real estate investors should always be sure to do their due diligence.  It doesn’t matter if the property is a FSBO or listed on the open market.

There’s a lot more due diligence when buying commercial real estate than when buying a residential property.  Some of the things commercial real estate buyers should always verify include:

  • Tenant leases, tenant quality, and historical rent payments
  • Current zoning and potential business restrictions
  • New competition coming to the market
  • Discover why the owner is really selling

 

How Do Real Estate Leasebacks Work?

real estate leasebacks

Real estate leasebacks can be a great arrangement for both buyers and sellers.  They also work well with both residential and commercial real estate transactions.

What Are Real Estate Leasebacks?

There are three main elements to a real estate leaseback:

  1. Seller finds a buyer who wants an income property
  2. Buyer buys the property, and the seller remains as a tenant
  3. Buyer gets consistent rental income, seller frees up equity for other uses

How To Structure Real Estate Leasebacks

Real estate leasebacks aren’t seller financing and they aren’t like a lease purchase.  That’s because the real estate has already changed hands.

The buyer needs to do its due diligence on the seller, who is going to become the tenant.  Just because the seller owns real estate doesn’t mean they will have the money to pay the rent after the sale closes.

That’s what’s known in the real estate business as being property rich and cash poor.

Before closing escrow both the buyer/landlord and seller/tenant should have a written lease agreement in place, credit reports and background checks done, with monies from the sale forwarded to the buyer to cover any deposits and upfront rents.

Potential Problems With Real Estate Leasebacks

Real estate leasebacks can be a win-win situation for both the buyer and the seller.  At least for the time when the seller is leasing back.

But what happens when the lease is up and the seller vacates?  Buyers can suddenly find themselves holding a property that is difficult to rent to a new tenant.

Problems can occur with real estate leasebacks when the property is unique or has special deed restrictions placed on the property by the seller.

For example, convenience store operators often do sale-leasebacks as part of their normal business strategy.

But they will also put restrictions on the deed to prohibit the property being used as another convenience store for several years after the lease expires.  The result is that the buyer will be unable to lease to another convenience store and may have difficulty finding another good tenant.

 

Real Estate Loan Scams

real estate loan scams

Whenever a real estate market heats up, real estate loan scams also rise.

Here are three common real estate loan scams to watch out for if you’re buying – or selling – real estate.

Seller Financing

Now, seller financing in and of itself isn’t a real estate loan scam.  But, this method of buying and selling real estate can be, if you’re not careful.

For buyers, seller financing can turn into a real estate loan scam if you pay the seller directly.  To protect yourself, always go through a independent third party such as an escrow company or attorney.  They will track payments received, the loan balance, and money disbursed to the seller.

For sellers, always remember that you are the bank, since you are carrying the note.  Sneaky buyers can turn seller financing into a real estate loan scam by providing you with bad credit information or selling the property to someone else without your knowledge.

Lease Purchase

Lease purchasing – real estate can also turn into a type of loan scam if you’re not careful to have everything in writing.  Also be sure to have written in your lease purchase contract what dollar amount or percentage of payment is applied toward the purchase price of the property.

Remember, a lease purchase agreement is different from a lease purchase option.  With an option, the tenant/buyer has the option to purchase at a predetermined price, but doesn’t have to.

Interest Only Mortgage As Real Estate Loan Scams

Using an interest only mortgage to buy real estate can also end up being a real estate loan scam if you’re not careful.

With an interest only mortgage, payments by the buyer only go toward interest and not principle.

In a real estate market where prices keep rising that’s OK.  But if the market suddenly drops, buyers can quickly find themselves upside down with negative equity on the property.

How To Market A Pocket Listing

pocket listing

A pocket listing is a listing that isn’t on the multiple listing service. Pocket listings are found in both residential and FSBO commercial real estate.

Sellers and real estate agents have pocket listings for a number of reasons.  But regardless of why, pocket real estate listings can be difficult to sell.

Here are three great ways to market a pocket listing.

Get Neighbors To Market Your Pocket Listing

Everybody loves a secret, especially neighbors who know that a place is for sale.

By letting the neighbors know you have a pocket listing, you’re putting word-of-mouth advertising to work for you.  It’s also the ultimate way of putting six degrees of separation to the best possible use.

Internet Real Estate Sites

The internet is the perfect place to market pocket listings that aren’t on the MLS.

Websites like Zillow, Trulia, and even Craigslist are great places to advertise a pocket real estate listing without having to go through the trouble of putting the property on the MLS.

This is also a good technique to use when you really want to zero in on qualified, serious buyers.

Most of the real estate agents on the multiple listing service are weekend warriors.  At most they’ll do one or two transactions a year, which means you’ll quite likely end up dealing with an amateur and their buyer client.

Social Media Real Estate Marketing

Marketing your pocket listing on social media is another great way to let people in your sphere of influence know you’ve got a great off market property for sale.

Part of your circle of friends probably includes real estate agents making six figures a year.  These are the types of agents that you want to share your pocket listing with.

They’ve got the experience and the contacts to help get your pocket listing sold to the most qualified buyer.

How To Buy A Home In A Safe Area

buy a home in a safe area

Buyers are often surprised to find that if they want to buy a home in a safe area, they oftentimes need to do their own research.

That’s because many laws – especially in the U.S. – prohibit real estate agents from telling buyers about the safety of an area.

Here are three easy things that can help you to buy a home in a safe area.

Buy A Home In A Safe Area With Multiple Visits

Many home buyers make the mistake of only visiting the home they are buying once or twice.  And that’s usually at the same time on the same day of the week.

To make sure that you’re buying a home in a safe area it’s important to make multiple visits are different times.

Going by the house at midnight on a Saturday is a great way to find out if there are a lot of noisy parties.

Visiting in the early evening or weekday mornings is a good way to see what the neighborhood is like when people are home.  It’s also a good way to meet your potential new neighbors.

Talk To The Neighbors

Speaking of which, there’s nothing wrong with introducing yourself to your next door potential new neighbor.

In addition to making new friends, it’s also a good way to gather intelligence about the home you’re thinking about buying.

Online Research

There’s so much information on the internet today that can help you to buy a home in a safe area.

Things like crime statistics and locations of sex offenders are important.  Aerial views of the neighborhood, and the locations of schools, churches, and shopping centers are also just a few key strokes away.

 

How To Get Buyers To Pay More

get buyers to pay more

Here are three easy ways to get buyers to pay more for your property.

These tips work in both a hot real estate market and cold real estate market, and for both commercial real estate and residential properties.

First Impressions Count

Experienced negotiators understand that first impressions are lasting impressions.  Once people have made a subliminal decision, it’s very difficult to get them to change their minds.

That’s why making a positive first impression is key to get buyers to pay more for what you’re selling.

In real estate that’s also known as curb appeal.  Well kept landscaping, no litter, and if you’re selling commercial real estate no vagrants hanging around the property.

You’re going for what’s known as the ‘Wow Factor’ when prospective buyers pull up the curb.

No Deferred Maintenance

Deferred maintenance items are things that need to be fixed or repaired but haven’t been.

Items like peeling paint, a loose shingle, or a small graffiti mark on the fence can be innocent enough.

But they can also make a buyer wonder why they haven’t been taken care of – especially if you’re selling your property.  Even worse, deferred maintenance that a buyer can see will also make the buyer think about things that can’t be seen.

Take a loose roof shingle for example.

A loose shingle means that water can get into the inside of the roof, which means dampness and potential mold issues.  Which in turn means potential health issues for the occupant and unknown legal issues for the new property owner.

Get Buyers To Pay More With A Good Story

Another key to getting buyers to pay more is by having a good story to tell.

As a seller you’ll need to be honest with yourself about the problems with your property.  Look at your real estate from a potential buyer’s point of view.

This doesn’t mean you need to apologize.  But it does mean you should foresee as many potential objections or questions as possible, and know ahead of time what your answers are going to be.

A smooth, practiced response goes a long way to convincing a potential buyer that they’re making the right decision to purchase the real estate that you’re selling.

Secrets Of Running A Real Estate Business

running a real estate business

Running a real estate business that’s successful isn’t as easy as it might seem to be at first glance.

Here are a few secrets to running a real estate business.

Have A Real Estate Business Plan

It’s surprising how many businesses – both in and out of the real estate industry – don’t actually have a business plan.  Owners of business start-ups oftentimes take the ‘fly by the seat of your pants’ approach and make things up as they go along.

Running a real estate business without a detailed, long-term plan is a recipe for disaster.

Business planning pros always suggest that after putting together the profit-and-loss statement for your real estate business, you should decrease your projected revenues by 50% and double your expenses.

If you’re still cash-flow positive after this exercise, your real estate business is very likely to succeed.

Strong Administrative Support

Most people that think about running a real estate business do so because they’re good at sales.

And in real estate, the more you sell the more money you make for yourself and your new real estate brokerage.  If you’re the rain maker – the person that’s great at attracting new business and closing deals and working with lenders – that’s fantastic.

But running a real estate business also requires strong back office people and administrative support to assist with your time management.  Tasks such as answering the phone and distributing leads, making sure bills get paid on time, and paying agent sales commissions are just a few of the countless items that fall into this category.

Choose Your Real Estate Niche

Businesses they try to be all things to all people end up failing sooner rather than later.

One of the keys to running a real estate business that’s successful is to pick a niche and stick to it.

Examples of real estate business niches include residential or commercial, buying & selling or leasing, property management, and vacation rentals.

Three Easy Ways To Increase Your Home Value

increase your home value

Here are three very easy ways to increase your home value and get buyers to pay more for it.   After all, like the saying goes, why spend (a lot) of money when you don’t have to?

Best Way To Increase Your Home Value

Real estate is all about location, location, location.  But real estate is also about appearance, appearance, appearance.

Improving the curb appeal of your home and its appearance is easy and relatively inexpensive.  Things you can do to improve the appearance of your home and increase its value include routine landscaping, decluttering, and fresh paint in today’s designer colors both inside and out.

Updated Fixtures

New faucets, electrical outlets and switches, and door handles are pleasing to the eye of the new home buyer.  Replacing these items is also pretty inexpensive and can usually be done without using a high-priced handyman or contractor.

You can increase your home value by thinking of updating fixtures as improving the curb appeal of the inside of your house.

Energy Efficient Appliances

For home owners who have a little extra money in their budget,  upgrading to LEED certified, energy efficient appliances can pay off in both the short- and long-run.

Are you thinking about selling your home in the not too distance future?  First-time home buyers will appreciate – and pay extra for – the work you’ve put into updating the appliances in your home to today’s Energy Star standards.

If you’re more of a buy-and-hold home owner, then the money you save by having energy efficient appliances will quickly add up over a few years.

Highly-rated air conditioning units, heating furnaces, water heaters, and kitchen appliances can help save a surprising amount of money with today’s energy efficient standards.

 

 

Real Estate Time Management Tips

real estate time management tips

Here are two real estate time management tips to help take running your real estate business to the next level.

Emails Take A Lot Of Time

There are certain tasks in any business that are affectionately called ‘time sucks‘.

Time sucks are things that, well, take up a lot of time without giving you anything in return.  Like more income, for example.

Email can be a huge time suck in any business, but especially in real estate.  That’s because real estate agents only get paid when a deal is done . . . and not by the hour or on a salary.

Even for correspondence that is time sensitive, checking, sending & receiving emails should be limited to two or three times each day.  Many people schedule their email times for first thing in the morning.  Then again around lunchtime, and toward the end of the day.

Have A Routine & Stick To It

Another good real estate time management tip is to have a routine and stick to it.

Devote a certain amount of time each day – at the same time each day – to tasks such as real estate marketing & prospecting, or client outreach, and administrative work.

Remember, having a successful real estate business isn’t about how many hours you work each day.

It’s about how smart you work!