How To Buy Your First Rental Property

how to buy your first rental property

I was recently quoted in a Fit Small Business article about how to buy your first rental property.

You can click on the above link to read the complete article.  But, here are two time-tested tips on buying a rental property along with some extra commentary.

When You Buy Your First Rental Property, Basic Is Better

Basic is always better when buying a rental property, and it also makes the real estate financing easier.

That’s because the more variables there are, the more things you have that can go wrong.

For example, a ‘plain vanilla’ house with very simple landscaping and inexpensive fixtures & appliances presents less of a risk to a real estate investor than does a luxury home with everything high-end, including a pool and a spa.

(Buying a condo to rent out is also a good option, but there are certain items to be aware of with this type of investment.)

While it’s true that a luxury rental will command a higher rent, there are also more things that can go wrong and more expensive repairs.

Often times, the bottom line or net income is exactly the same with a basic rental than with a luxury rental house.

Buy Where Renters Are

This is a common-sense item that new landlords and buyers often overlook.  They get so caught up in the house itself but they forget that they’re buying the house to rent out, not to live in themselves.

An easy way to know where the home renters are is to look in an area where there are a lot of apartment buildings.

Apartment developers and managers have already done all of the market research, so that you don’t have to.

Plus, when you have a rental house in an area where there are a lot of apartments, you’ll be able to rent to people who want to ‘move up’ from apartment living.

Even if you already own a rental house or commercial property, it’s always good to go back to the basics every now and then!

The Most Important Part Of A Property Management Business Plan

property management business plan

The people over as Hostfully were nice enough to include my thoughts about the most important part of a property management business plan.

As you’ll see from their article, there’s a lot that goes into creating a good property management business plan  as well as the overall real estate business plan for your company or investment portfolio.

But time after time I’ve seen new property managers overlook this key point when putting together their business plan.

Key Factor In A Property Management Business Plan

Here’s what I told Hostfully:

Jeff Rohde, author at JScottDigital.com says one of the most important things when developing your property management business plan is the focus on a “specific real estate asset class, and then ‘drill down’ to a specific sub-class.”

A residential example would be to decide if you’re doing for a single or multi-family homes. After that, narrow it down by price range, geographic area, and a number of units. A commercial example would be deciding on multi-tenant retail or office type of property. “After you chose that, focusing on the class of property (A, B or C), and the property size in terms of square footage.”

This is how you’d develop your niche, because, as Rohde puts it, “tenant personalities and issues, wants and needs, will be similar. Owner personalities and investment goals will be similar. And the skill set that the property manager develops will easily transfer to similar properties to manage.”

Getting Started In Real Estate Property Management

If you’re a new real estate agent or thinking about getting into real estate property management, consider going to work first for a firm that is already in the business.

It’s a good way to learn the ropes, so to speak, and to find out if property management is really what you want to do.  You’ll also discover some of the key ways to spot a problem property owner.

If it is, you’ll be able to hit the ground running.  Just remember, there are a lot of ways to make money in real estate property management!

Sample Real Estate Profile For LinkedIn

real estate profile for linkedin

Here’s an example of a real estate profile for LinkedIn . . . or for any other social media platform that you’re using to building your online real estate presence.

It can be used whether you work in residential or commercial real estate.  This sample real estate profile for LinkedIn is also good for both companies and individual real estate agents as a lead-in for your professional bio.

Real Estate Profile For LinkedIn

[Your company name] is a full-service brokerage serving the Greater [Your city] area.

Our brokers specialize in all asset classes of real estate including: single family, multifamily, mixed-use, retail, office, industrial, special use, property valuations, property management, fix-n-flips, JV equity sourcing, and note sales.

[Company] works with real estate investors of all sizes – from experienced private investors to beginning real estate investors.

We know from our years of experience in the business and successfully closing hundreds of transactions that maximizing the return on your real estate investment in [City or Market]’s competitive real estate market takes more than just one person.

That’s why [Company] utilizes a unique, integrated team approach when buying or selling real estate on behalf of our clients.

While other real estate brokerages in [City or Market] limit the opportunities that their clients see, [Company] thinks outside of the box. We understand the power of team work and cross-marketing.

Our proprietary global network of over 150,000 active investors allows us to reach as many qualified buyers and sellers as possible, as quickly as possible.

[Company] combines today’s high-technology with an old school, hands-on approach.

We’ve built our solid reputation in the [City or Market] real estate market the old fashioned way . . . one client at a time.

[Broker-specific copy goes here]

Three First Time Home Buyer Tips

first time home buyer tips

Buying a home isn’t as easy as it may seem.  Here are a few first time home buyer tips to make the process go smoothly and to help save on housing costs.

First Time Home Buyer Tips #1

It’s better to buy a smaller home in a neighborhood that you love, instead of a bigger home in an area that you don’t like.

There once was a couple who bought a new home that backed to a major highway.  Of course there was a lot of traffic noise.  But they figured it wouldn’t be a bother since they didn’t spend that much time outside.

Six months later they put the house on the market for sale.  Not because it had appreciated in price, but because they couldn’t stand living there.

They were so desperate to move, they were even willing to sell at a loss!

Two Are Better Than One

Although bigger isn’t always better, it is when choosing the number of bedrooms in your new home.

That’s the second most important of these three first time home buyer tips.

First time buyers tend to think only of their personal situation rather than how easy the home to be to re-sell.  Buyers who have a family, or are looking for extra space to rent out as a vacation rental property on websites such as  Airbnb, will automatically pass over a smaller home for sale that has only one or two bedrooms.

Creative Financing

Sometimes you have to be creative and think hard about how to make the best offer in a seller’s market.

As attractive as they might seem at first glance, interest-only loans can end up being a big problem for the first time home buyer.

Many people are used to a real estate market that only goes up.  But history shows that all markets – real estate in particular – run in cycles.

Financing with an interest-only loan means that none of the principle is getting paid off, and that the borrower thinks that interest rates will always be low.

Because interest-only financing options are for short periods of time, the buyer may end up having to re-finance the loan when interest rates are beginning to rise.

 

Does Buying Foreclosure Real Estate Make Sense?

buying foreclosure real estate

If you believe what you see on television, there’s a lot of money to be made in buying foreclosure real estate and flipping real estate.

But as with most things in life, if flipping and selling real estate full time was that easy everybody would be doing it.

Here are some of the things to think about before buying foreclosure real estate.

Is Foreclosure Real Estate Really A Good Deal?

Another word for bank owned property is REO – or real estate owned property.  But no matter the name, inexperienced real estate investors think that if the bank is selling it, then the foreclosed real estate must be a good deal to buy.

Usually that’s not the case.

When a bank sells an REO property to someone buying foreclosure real estate, the bank does an appraisal first.

The bank definitely wants to recover the loan amount that was on the property.  But the bank also wants to sell the property at fair market value.

People buying foreclosure real estate mistakenly think they will have instant equity.  They assume that all the bank wants to do is recover the old loan amount and nothing more.

This might sound good on TV, but that’s now how things work in the real world of foreclosure real estate investing.

Foreclosed Real Estate Needs Repairs

Perhaps one of the biggest cons in buying foreclosure real estate is that the property will need a lot of repairs and updating.

Owners who get foreclosed on sometimes take as much as they can with them.  The vacated property will be without appliances, mechanicals such as heating and air conditioning, and fixtures.

Investors buying foreclosed real estate need to carefully calculate the costs needed to bring the property into a condition for renting or resale.

 

Rate Hikes, Credit Scores And Real Estate

credit scores and real estate

Recently a reporter reached out to me to talk about a client project I was working on about the relationship between rate hikes, credit scores and real estate.

It’s important for real estate investors to understand the way these factors interact, especially in a market where home prices keep rising.

Here’s the link to the published article:  House Loan Blog – Changes To Credit Score.

Credit Scores And Real Estate

Credit scores and real estate work together to affect the price of real estate along with the rent that a landlord charges for income property.

There’s definitely a relationship between rising interest rates, credit scores and real estate.  But often times it isn’t what the general public believes.

Professional real estate investors know this, and are able to leverage these three factors to make their real estate investments a success.

Credit Scores Increase Real Estate Prices

Real estate prices actually increase as credit scores increase.

While at first glance this might seem counter-intuitive, there’s a reason that this occurs.  As credit scores increase buyers can qualify for a higher-priced property.  This in turn allows sellers to raise the price of the real estate that they’re selling.

Rental Rate Hikes Can Be Tricky

Higher credit scores also allow landlords to raise rents.  But doing this is a little trickier than simply raising the price of real estate for sale.

That’s because landlords and property managers of income producing real estate need to be aware of the time and expense of turning a rental property.

Also known as a ‘unit turn’, turning a property refers to the delay between the time an old tenant leaves and a new tenant leases, along with any repair or updating expense the property needs.

For example, let’s say the current rent on a unit is $1,000 per month and the new rent will be $1,100.  That’s a 10% increase per month, which isn’t bad.

But if the property ends up sitting vacant for two months during the unit turn there is a short-term rental income loss of $2,000 plus the cost of any needed repairs or updating.

 

 

Three Tips For First Time Landlords

tips for first-time landlords

Owning and renting real estate is one of the best ways to create wealth.  If you’re just getting started in real estate investing, here are three tips for first-time landlords that will help make your real estate investment a success.

Great Tips For First-Time Landlords

First, always charge prospective tenants a small fee for processing their application to rent your property.

This is the most important of the three tips for first-time landlords.

Collecting a small fee serves two purposes.  First, it covers the actual cost of running a credit report, verifying the tenant’s income, and doing a background check.

But just as importantly, it weeds out prospective tenants who really aren’t serious about renting your property.

Experienced property managers will tell you that there are actually people who go around town pretending to be tenants and applying for property that they have no intention of renting.

Never Negotiate On The Rent

Negotiating on the long-term rent with a tenant almost always backfires on a new landlord.

That’s because if you give the tenant a reduced rent, they will come back for more . . . and more, and more.

This is the second most important of the tips for a first-time landlord.

Now, in order to not negotiate on the rent, the rent has to be based on comparable rentals in the area.  This means the landlord needs to survey the market and set a fair rate for their rental real estate.

Know The Landlord-Tenant Law

Some markets are landlord-friendly, and some are tenant-friendly.

Sometimes this varies by asset class as well.  In a given area the laws could be tenant-friendly for residential real estate, but decidedly landlord-friendly for commercial real estate.

Or there may be ways for tenants to break a lease that will catch you completely off guard.

As a first-time landlord it’s important to know the landlord-tenant law for both the market and the property class that you own, operate, and rent to tenants.

Five Tips For New Real Estate Agents

tips for new real estate agents

Whether you work in residential or commercial real estate, it an be tough getting started in the business.  Here are five great tips for new real estate agents just starting out.

Proven Tips For New Real Estate Agents

One of the most important tips for new real estate agents is to start part-time.

That doesn’t mean putting less effort into your new real estate career.  What it does mean is to make sure you have enough income coming in while you’re ramping up your new business.

The last thing you want to do is to run out of money just before the big dollar real estate sales commissions start flowing in.

Focus On One Area

The second most important tip for new real estate agents is to focus on a single area to work in.

This could mean a specific neighborhood, zip code, or even a single building in your city.  It just depends on what real estate market you are working in.

Focus On One Product Type

In real estate there are different product types or asset classes.  Single family, multi family, free standing commercial, and multi tenant retail buildings are a few examples.

The third most important tip for a new real estate agent just starting out is to focus on a single type of real estate.  Then, become an expert in that asset class for your chosen marketing area.

Do What Fits Your Personality

Most brand new agents fresh out of real estate school begin by selling resale homes.  But that’s not always the smartest choice.

Understandably new real estate agents make this choice because there is more inventory in the resale market than in any other segment.

But selling homes may not be the best fit for your personality.  Other areas of real estate include new home construction, land, commercial, and property management.

Real Estate Is A Business

Just as investing in real estate is a business, so is deciding to work as a real estate agent.

It’s important to have a business plan, and to track all of your income and expenses.  Successful real estate agents also know that it is critical to always underestimate the cash coming in, and to always have money in the bank.

After that, marketing your new real estate business is a key factor to success.

Social media sites such as LinkedIn, and writing and publishing real estate books are two of the many ways new agents can market themselves in the competitive real estate industry.

 

How To Break A Lease To Buy A House

break a lease to buy a house

Renters often times reach the point where they decide it’s time to break a lease to buy a house.  This is especially true in today’s real estate market where home prices keep rising.

Here are a couple of ways that tenants can break a lease to buy a house that will also be a win-win situation for the tenant, landlord, and property management company.

Break A Lease To Buy A House – New Home Construction

New home builders can usually be a big help to tenants wanting to break a lease to buy a house.  As long as the house they are buying is the new home that the builder is selling.

That’s because new home construction usually has a lot of latitude in the pricing.

Granted, the tenant may need to pay termination fees to break its lease.  But the builder can sometimes reduce the price of the new home by the total amount of termination fees the tenant needs to pay to break its lease to buy a house.

Real Estate Agents Can Help Break A Lease

Another way that renters can break their lease to buy a home is with the assistance of their real estate agent.

Landlords that own income property, and property managers that handle the rented property are mainly concerned with keeping the property rented.

That’s where the help of a real estate agent can come in.

If the tenant is using a real estate agent to find a new house to buy, then the agent can also help the tenant break its lease.  The real estate agent can do this by finding a good, qualified new tenant to rent the property.

Many real estate agents will also offer to waive their leasing fee for doing this, since they’re getting paid a nice sales commission from the new home builder for selling a house for them.

How To Make The Best Offer In A Seller’s Market

make the best offer in a seller's market

There’s nothing more disappointing to a real estate buyer trying to bid in a hot real estate market than being constantly outbid.  Here are some tips on how to make the best offer in a seller’s market.

Make The Best Offer In A Seller’s Market

Nothing scares a seller more than buyer contingencies.

Obtaining financing, property inspections, and having the down payment and funds needed to close are all examples of normal contract contingencies.

But in a hot real estate market the seller can call the shots.  That’s why smart buyers and people who sell real estate full time know that to make the best offer in a seller’s market, the fewer contingencies the better.

It’s Not Just About Price

Sure, the sales price of the property being sold is important.  Sellers usually want to sell their home for the most money.

But before the seller can get their money, the transaction has to actually close.

So from that perspective, it’s not always about price.  It’s more about the buyer’s ability to actually close the deal rather than having it tied up in escrow and then falling out at some point.

For example, everything else being equal, a cash sale would be better than financing.

But if there is financing involved, is as much proof provided as possible that the financing won’t fall through and/or has the buyer waived that contingency?

As-Is, Where-Is

Buying a property ‘as-is’ is another technique that buyers can use to make the best offer in a seller’s market.

But this doesn’t mean you have to accept the property with all of its flaws.  Nor does it mean that the seller doesn’t have to disclose any known issues or defects.

An as-is property condition simply means that the buyer isn’t supposed to ask for any repairs or concessions from the seller if there are defects found.  But, the buyer can still walk away from the transaction.