It’s a science now…
Harkening back to the days of yore…
A tip that was an oldie but goodie…
The speed of change
Always be conscientious and wary of tenant data
Tenant screening services
Obtaining the quality tenant
Sealing the deal
Yes, global warming sucks…
An ounce of prevention…
Preparing for the worst
Review the siting of your property
Beware simplistic waterproofing solutions
Getting the right type of insurance
Crunching all your numbers
Go with a higher deductible for more savings
A burgeoning mess…
I have written here in the past about the burgeoning mess that short term vacation rentals have been creating over the last several years. Property investors looking to squeeze out revenue from unlikely sources, such as their own home, have in recent years been able to avail themselves of companies like Homeaway, Flipkey, VRBO and Airbnb that offer home rental as a lower-cost alternative to hotels and other traditional vacation lodgings. By going online and booking a vacation stay through private homes offered through these services, the average vacationer can ultimately save themselves a great amount when booking their vacation stay. However, as an investment, it can be risky business.
Homeaway as big business
To best understand just how pervasive these rental companies have become, consider Homeaway. This online service is an umbrella vacation rental marketplace with more than a million vacation rental listings in 190 countries, using several online monikers. Per Wikipedia, overall, this service operates through 40 websites in 22 languages. The company offers the most comprehensive selection of rentals for families and groups to find accommodations such as cabins, condos, castles, villas, barns and farm houses. Unfortunately, this vacation rental marketplace is still, by and large, left unregulated. So it is ripe for abuse. In addition, the hotel industry is constantly waging war with these online firms and the private homeowner/vacation rentals they represent. Most private vacation rentals do not require any local municipality license (though this has been changing – see below). In addition, most homeowners renting out their residences do not have to pay hotel bed taxes. This too has been slowly changing over just the last year or two. In my small upstate New York community, our local county supervisors just expanded their “bed tax” definition to include not only vacation lodging with area hotels, but also private homes as well. It’s a trend that’s sweeping the country, as municipalities look to expand their revenue base anyway they can. Now, enforcing this new bed tax law is another issue altogether…
In looking at the risks for a property investment, I have made note of this risk factor before, noting here that “in general, vacation rentals have been a secondary and riskier source of property investments for the experienced investor. They represent a greater degree of risk than year-round rental units simply because they tend to be seasonal in nature. So cash flows thrown off from any vacation rental property are not uniformly consistent throughout the year. Ultimately, this makes for a greater likelihood of negative cash flows on an annualized basis. In addition, vacation homes, and time shares as well, are difficult to predict performance over the long term, due to market fluctuations and the overall state of the economy – depending on where they are located. Certainly foreign investments are even riskier, having much greater market fluctuations abroad than in the United States. Values can drop unexpectedly based on demand factor fluctuations. After all, vacations are made up of leisure time dollars. Thus, trying to predict future rental income and cash flows based on prior historical data is a tricky proposition. Also, keep in mind that vacation homes and time shares can be difficult to sell quickly should you need to get out fast.”
A common trend
Keep in mind that local municipalities round the country have been slow to create legislation that clears up the murky waters that home rental vacation investors have to swim in. In a recent news report from the Short Term Rental Advocacy Center (stradvocacy.org, 7/28/15), an online pro-home rental advocacy group, they note about recent legislation in the San Francisco Bay area: “on July 14, supervisors in the Bay City passed an amendment that would increase scrutiny on short-term renters in order to ensure they are following local regulations. Two amendments addressing complaints by local residents were considered, but in the end the more lenient of the two was passed, giving the recently created Office of Short-Term Rental Administration and Enforcement greater power to impose existing regulations. It also leaves the maximum cap on the number of days people can sublet their homes at 90 days per year; the stricter proposal would have cut the number to 75 days and require STR-hosting sites to submit quarterly reports to the city. “Home-sharing is here to stay in our city,” said Supervisor Mark Farrell. “The proposal in front of me today builds on our current law.” Dale Carson, the leader of a group that opposes STRS said that even with the OSTRAE’s new powers, the 90-day cap will be difficult to enforce. “Pray tell,” he said “how is the city to determine when a host is sleeping in her own bed each night?”
Short term rental pitfalls
I’ve written in several articles here that vacation rentals are inherently riskier investments than year-round rentals. With the advent of Homeaway, VRBO, Airbnb and the like, and their extremely large following and popularity in this country and abroad, property investors should know all the pitfalls of this type of investment when considering all their investment opportunities in real estate. At the very least, read up on your local laws regarding short term rentals. These laws are changing fast from community to community around the U.S. As I mentioned in a prior article here, “be wary of one other story that has circulated in the news recently, providing Airbnb with some rather nasty bad publicity. The incident involved a host who rented out their unit to a traveler for a month, only to find that the traveler would not leave. Due to local law, once the traveler occupied the unit for at least 30 days, they were considered a “tenant.” And as such, they were afforded all protections due tenants in tenant law. And the host had to go through a very long, expensive eviction procedure to have the “traveler” removed.” As a vacation renal property investor, make sure you fully understand all local ordinances regarding short term stays, as well as landlord/tenant law before using a service such as Airbnb or VRBO.
Photos courtesy of trxglobal.com, fastcompany.com, wired.com, caribreezes.com
Why title insurance should be an imperative
As a real estate broker, I recently helped a buyer acquire a piece of property to develop in my area. However, the seller of the parcel had acquired the land at a county auction of properties. Many of these properties had prior owners who had unfortunately not paid their tax bills for a long period of time. As such, when they purchased the property, the county made no warranties as to the “cleanness” of the title on the property. It was up to the buyer to do their own due diligence and obtain an owners title insurance policy on any given parcel involved in the auction. So the current seller of this particular parcel my buyer wanted to purchase had gone ahead and put the property on the market for sale, figuring they would deal with any potential title issues down the road, once they found a buyer. This was a risky maneuver on their part.
The saga continues…
And this is where me and my buyer come into the picture. Unfortunately, after negotiating the sales price with the seller, we were then notified the seller would have to clear up any title issues before a closing could take place. Unfortunately, we were forced to wait another couple of months, while we were under contract, for the seller to have a title company review the exact chain of title records, and determine that the last owner of the property still had an outstanding mortgage lien that needed to be cleaned up. Luckily, the seller, his attorney, their title company and my buyer’s attorney were able to come up with a workable solution to the problem to allow our sale to go through.
However, this could happen only with my buyer having to obtain a new title insurance policy as “extra” insurance that there would be no future claims on the parcel. (In our area of New York state, title insurance is not a requirement.) Title insurance cost can vary depending on the parcel and area involved. Your title insurance company will usually utilize a title insurance calculator for your area to come up with your one time only policy cost that will be paid by you at closing. In the case of my buyer in this story, it only cost several hundred dollars for her title policy.
A complex process
I have written in a prior article here about the complexities of the title insurance process (see http://investinginproperties.org/rental-investments/purpose-title-insurance-rental-property/). In that article I defined exactly what is title insurance. I also noted that the title company’s title search will include “all records the local municipality has on file for the investment property. This will include…water or tax bills, special assessments, tax liens and any other item that could conceivably affect the title. Traditionally, building department records are also checked to ascertain any outstanding building permits (opened, but never closed as completed), or similar code violations. Once title is completed, a title report is prepared by the title insurance company. It is sent to all the attorneys in the property transaction for their review.
If there are any current problems (for example, an unaddressed easement that was never disclosed), the attorneys need to hash out a solution prior to a closing. Similarly, if a building code violation comes up in the title report, or, as another example, the title picks up an existing, illegally built shed (that was built without a building permit), the seller will need to obtain a building permit (or tear down the shed), prior to the closing. Once the buyer’s attorney is satisfied that all outstanding violations have been removed, and that his client, the buyer, will be able to purchase the property with no encumbrances on it, the title is deemed to be “clear.” And a closing can finally be set.”
Title insurance is crucial
This process illustrates the real need for title insurance. It helps protect any purchaser of property from a prior owner somehow coming into the picture at some point in the future, and claiming the land is actually owned by them. You can see the compound effect of how disastrous things could get without a title company involved as insurer. The title company basically would be guaranteeing they would be on the hook for any potential “damage” in the future from such a claim. Imagine a current owner building on the parcel, then a claimant from the past coming forward saying the parcel is theirs. The potential for a major real estate mess would be financially onerous, if not disastrous, to say the least. In effect, the title insurer makes a promise to make things right. They can afford to do so by being very thorough in their research of the existing chain of title. Though mistakes occasionally occur on the part of a title company’s research, they are very, very rare. After all, title insurance companies are in business to make money. So research thoroughness on their part is essential.
Photos courtesy of welchgroup.net, business-law-pa.com, gfmag.com, taylorinsuranceblog.com
Some anecdotal notes about millennial investing…
Recently my nephew, a millennial who is soon to be married, asked me for some basic advice when it came to property investing. He and his fiancée were not sure if they should get into the real estate market, and if so, where to start. He was overly concerned with finding a property first, and wanted to know how best to run a search, especially for investment renovation property. I tried to tell him that he was getting way ahead of himself…and here’s why…
Starting with your local lender
As I explained to him, the starting point always begins with an honest assessment of what you can comfortably afford. If you’re looking to rehab a house, it’s best to speak with a lender about a home renovation loan. So your first stop should be with a local mortgage lender – be it a local bank or mortgage broker. Online national outfits are OK (for example, Quicken Loans), however, as I’ve noted in many prior articles here, it’s best to develop a relationship with one local lender. They can get to know you in person, you can actually sit down and talk with them, and they will eventually become part of your team of professionals aiding you in your property investing journey. Try speaking with several lenders first, then see who you feel you can work with the best. In addition, make sure they are good listeners, and can recommend mortgage products that really address your particular situation.
Expect initial mistakes to occur…
If you intend to get your hands dirty, and are looking for home renovation projects, you’ll be numbers crunching all your estimated home renovation costs. Renovating an investment property will become easier over time, the more projects you get under your belt. But initial forays into the world of renovating an investment property can be fraught with many mistakes…especially underestimating your renovating costs. For this reason, it’s best to know how much house you can afford by speaking with your local lender before starting your search. Then, you should get several quotes for the repair work to be done from different local contractors as well. If the numbers seem viable, then, and only then, should you consider actually placing an offer in on the property.
A growing trend
According to a recent article in The New York Times, millennials are becoming one of the fastest groups now investing in rental properties (“Millennials Investing in Rental Properties,” by Lisa Prevost, The New York Times, November 20, 2015). In fact, many millennial property investors don’t even own their own home, preferring to purchase an investment property instead! In the article, the author notes that “for all the talk about the so-called millennial generation — often defined as those between ages 18 and 34 — being slow to move toward homeownership, some young adults are, surprisingly, drawn to real estate as an investment opportunity.”
A millennial’s rationale
Ms. Prevost interviewed several millennial property investors for her article. One summed up his rationale for this form of investing this way: “I’m interested in real estate investment because of all the ways you can make money — from appreciation, leverage, cash flow, tax benefits. I’m not looking to get rich quick. I’m just looking to have long-term income I can rely on.” The author also noted how he liked the concept of control over his investment dollars, relative to other forms of investment, like the stock market, for example.
Another interviewee added his summation, warning “inexperienced investors to proceed cautiously when considering a rental property. “There’s a lot of information out there that makes it sound easier than it is,” especially if you’re managing the property yourself, he said.” This particular investor also noted that “buying a multifamily home that you can live in can be a great way to go. Rent from the other units might cover your mortgage payments. It’s easier to manage the property because you’re right there, and if you want to move sometime down the road, you can then rent out your own apartment.” Many millennials are doing just that indeed. It’s a growing trend that’s seen the market for multifamily houses become quite hot over the past couple of years, with no end in sight.
Photos courtesy of immersiveyouthmarketing.com, worldpropertychannel.com, profitindetroithomes.wordpress.com, propertymanagerpsg.com, screenmediadaily.com
Protecting your investments…
Having the right investment property insurance, not only in type of policy but amounts as well, is crucial when acquiring rental properties. You’ll want to protect yourself should disaster strike – in any form. Whether a fire is started from a faulty electrical outlet, to having a tenant create a fire simply by cooking improperly, you’ll absolutely need insurance to cover you. Otherwise, you could get wiped out financially when the worst happens. You’ll find that rental property insurance is integrally important to have whenever acquiring a new investment. But, it needs to be the right kind of insurance protection. And finding insurance for rental property is pretty straightforward. It first involves locating the right insurance agent.
Your insurance agent as part of your crew
As I’ve written here before in prior articles on the subject of insurance, I have said that “selecting the right property investment insurance starts with having an excellent, trusted property investment insurance agent as part of your overall crew of experts on your property investing team of professionals… And your crew has to be selected well before you even begin searching for new properties to acquire. Once you find a suitable property to invest in, make an offer, negotiate, then are able to close on it, you’ll need to trust your insurance agent with helping you select the best insurance for that particular property.”
Property conditions are important
Remember too that “a good property investment insurance agent will factor in the condition of the property, and where it’s physically located (for example, is it in a flood zone or not; or, is it prone to other natural disasters that could harm it?). In addition, they will take into account tenant’s being foolish, and starting accidental kitchen fires, or slipping and falling on ice on a walkway, and then suing you. Having the right amount of coverage is essential: too much means you’re overpaying for your insurance, whereas too little leaves you with a personal exposure that could ruin you. Of course, any good property investment insurance agent will recommend personal liability insurance as well as property insurance. This personal liability insurance is an absolute necessity when dealing with tenants in such a litigious society as ours.” I’ll come back to liability insurance a little later in this article…
Choosing your insurance agent
To help you determine how to insure a rental property in the best way possible, I have noted before here that you should “make sure you shop around for insurance agents, and go over with them how they would handle various negative occurrences that might befall any investment property. Remember, you need an agent that understands very well that insurance for a business like property investing is far different than insurance for a home.” A good agent will point out the differences between a standard homeowner’s insurance policy and homeowners insurance for rental property. And they need to protect you at all costs, at the best price. So make sure you take the time to shop around for a property investment insurance agent you trust. Be sure to put them in place with your other investment property crew members before you begin searching for your next property.”
Don’t be shortsighted
I have also noted here that “many investors undervalue their insurance when they are purchasing any piece of investment property…especially those investors that are just flipping houses. Too often property investors will consider the expenses that only add to the value of a property. But it’s also just as important to consider the “soft” costs of investment property acquisition when crunching all your numbers. These represent the costs not normally associated with what the potential buyer (or tenant) will not see. For property investors, underestimating the cost for insurance is simply foolish.” I have also reminded property investors that they “should be considering getting full replacement cost for property in case of something catastrophic. If your asset is wiped out because of a flood or fire you do not want to be woefully under-insured. Thinking that you’re only going to hold the asset for a very short period of time in the case of flipping, or that your tenants don’t care what kind of insurance you carry is terribly shortsighted.”
Full replacement value insurance
I’m a big advocate of obtaining full replacement value insurance on any and all of your rental properties. Spending a few hundred dollars a year more to cover yourself in case of dire circumstances and a total property loss due to fire, for example, makes smart business sense. Having full replacement cost means you won’t have to worry that you won’t be able to rebuild should you want to, in the case of a total property loss. I’ve written here in the past that “it’s foolish to shortchange and not fully protect yourself financially in the event of a real catastrophe to your investment property. Better to be prepared and be safe than sorry. Always protect your assets and add an inflated figure for insurance to your list of expenses that you’ll have to satisfy on a monthly basis. Your investment property is too valuable to risk taking such a huge loss (the difference between full replacement value and market value in insurance parlance) in case of catastrophe.”
Save by using a higher deductible
One of the easiest ways to save on your insurance premiums is to utilize a higher deductible amount for all your properties. So, for example, instead of a $500 deductible, consider going with a thousand dollars for each claim’s deductible amount. This will at least help defray the added cost of getting full replacement value insurance on the property. You can save a much greater amount if you continue to bump up your deductible amount. If you can go with a two thousand dollar deductible for any given claim, the policy savings on your rental buildings will be even greater overall than a one thousand dollar deductible will allow. Crunch the numbers with your insurance agent to determine the best deductible amount for your situation.
Don’t forget liability insurance
Liability insurance is a necessity when investing in rental properties. The “umbrella” of protection it affords if one of your tenants sues you is tremendous. And it protects you from their going after your personal possessions and accounts as well. One of my previous tenants in a four family house I used to own sued me once for a “slip and fall.” They had fallen on ice leading from the driveway to their unit’s entrance. With liability insurance, the insurance company hired a local attorney to defend me since I carried a liability insurance policy with them. In most cases, attorneys for both sides negotiate out a settlement to avoid a trial. However, as the insured, you’re not involved in the negotiations. (Though, in my case, I did have to come in to give depositions.) It’s one of the great benefits of securing liability insurance for your investment property….peace of mind. I always recommend a minimum of a one million dollar liability policy for landlords. Make sure you check with your insurance agent for his recommendation for your particular set of properties. Keep in mind that one policy can cover all your rental properties. As you add any new rental property to your stable of investment houses, you can simply add them to your liability policy.
photos courtesy of gfmag.com, mrinsuranceinctx.com, imggood.com, generoagency.com, en.wikipedia.org, floridianpropertyconsultants.com, orlandoinsurancestore.com, licensedatabase.com
The all-important learning curve…
When you’re just starting out acquiring investment property, it’s a good idea to attempt to manage your own units. There’s no better learning curve than to make mistakes on your own properties. It’s not to say “will mistakes occur,” it’s “when will they occcur.” And if you have a single family or duplex, or even a three or four unit building, you should find self-management to be pretty straightforward. Now, you may not have the right temperament for such an endeavor, but you should let your experiences in the real world of landlording help guide you to any future decisions as to how best to answer the question, “when should I hire a property manager?” You may find that dealing with tenants is just not your forte…and so your decision-making as to when to hire a property manager will become easier and easier.
Property management takes a certain skill set
Rental property management is an acquired set of skills. And I would dissuade any novice investor from hiring a property management firm right after the purchase of their first investment property. It really is best for you to better understand the rigors that come with managing your own properties. And in the process, you will develop a finer appreciation for the sheer amount of work and expertise required of the job. Even with property management software readily available online, it’s still going to be a learning experience for you. And this experience will only help serve you in good stead as you move forward, and purchase your next investment property. You’ll know from limited experience how demanding property management can be – and time consuming as well. You may find that it will be much smarter for you to hire a property manager as you grow your investment property empire. By doing so, the extra cost for their services should be outweighed by your time costs, as a property management company will aid in providing you more time to search for new property acquisitions.
Why hire a property manager?
I’ve written here on several occasions about the time commitment property managing represents. In prior articles, I’ve noted that you should not underestimate the time commitment required to do a proper job. You’ll have to place ads for potential tenants, show the units, screen prospective tenants, and choose them. And repeat the process each time a tenant leaves. Or worse, if you chose a tenant poorly, and they end up not paying their rent in a timely manner, or at all, you’ll have to go through the time and major expense of evicting them. In addition, you’ll have to make regular visits to the property to make sure the grounds look in proper order, ensure operating systems are in good order, no new dangers have arisen on the property (for example, loose steps or broken walkways ( a major source of lawsuits by tenants against landlords), all common area lighting is working, etc.
Rent collections and tenant selection
I’ve also mentioned in past articles about property managing that you will also be responsible for collecting rents. If you’ve chosen tenants well, no problem. If you haven’t – big problem. After all, this is a business you’re running, and it needs to be humming along, or else you’ll have cash flow problems paying your expenses. As part of your job as your own property manager, you’ll also want to stay in regular (at least once a month) contact with your tenants. Many times, tenants will not tell you about “small” problems they’ve been having with your property – until it’s a big problem. By being pro-active, you can scope out these problems when they are indeed small. So, for example, you can ask each tenant each month if there are any issues you should be aware of – for example, any small leaks going on in the unit, any bug problems they’re seeing, any safety-related issues (say, a constant flickering light that would indicate a potential electrical wiring fire hazard). By asking you’ll stay way ahead of the curve – and be able to jump on any potentially big problems when they’re still small – and easily (and cheaply) corrected!
Property manager fees
If you decide to use a managing agent, know that their fee (usually between 10 and 15% of rents) is yet another expense to be crunched to see if it makes sense for your situation. Clearly, it will reduce your positive cash flow on each of your buildings. However, as mentioned earlier, using one will free you up to continue building your real estate empire…And your time will be better utilized to create more wealth. In this way utilizing the services of a property management company makes much more sense in helping your business show long term growth.
Photos courtesy of realestate-byowner.net, lifeenrichmentrealty.com, propertymanagementva.com, screenmediadaily.com
Pros know how to diversify…
I was recently at a social gathering where a woman I knew, a licensed nurse practitioner, began telling me about her real estate investment holdings. As she went on and on, I was completely floored by her expertise, talent and farsightedness in planning out a long term plan for her real estate investments. She also property managed all her holdings, which included single family houses, duplex property, as well as three and four family homes. What shocked me most, aside from the fact that this was her avocation and not her primary means of income, was that I considered her a fairly shy, retiring individual. I could not see how she was able to handle so well the necessary dealings with all her tenants. I just couldn’t imagine that she had the temperament to do so and be successful. Boy was I wrong…and I got a good lesson in “don’t judge a book by its cover” in the process of our discussion on real estate investing.
Creating a plan
Frankly, she was an uber-pro at property investing as it turned out. She had been properly following a plan of using a local real estate agent to help her scope out possible acquisitions on a regular basis. A benefit of working with one agent through the years, she was able to develop a great long term professional relationship with him that created an easy shorthand when a potential investment property came on the market. It also made it easy for her to obtain market research as to current valuations for any different area or even street within the communities she invested in. And she would acquire her properties slowly, over many years, in a planned manner of acquisition.
My acquaintance also really optimized her use of duplex investing in particular. Many investors who look specifically for a duplex for sale are interested in living in one unit, and renting out the other unit. (What is a duplex, you say? Simple…a two unit building, most of the time with each unit side by side, with an adjoining wall between them.) For those investors, it’s hard to create a positive cash flow when living in one of the two units. Duplexes (especially duplex nyc or duplex in any metro area) are great for individual homeowners who are trying to lower their overall housing expenses. However, experienced investors realize that renting both units out is the best way to maximize profits from any style duplex.
Choosing the best tenants for her duplex units
In addition, she knew how to choose the best tenants for her units. In so doing, she kept away from bad tenants who don’t pay, or were late payers. It also kept her away from having to do expensive and time consuming evictions. It also helped that she kept her geographical focus close to home, only investing in properties within a short 30 minute drive of her home. This made staying on top of her tenants, their issues or questions, as well as building maintenance and repair problems, much, much easier to handle.
Knowing when to sell
She also was adept at knowing when to jettison an under-performing property – be it a duplex or any other style she owned. Instead of waiting many years to sell off any investment property that was not throwing enough income off to hit her target ROI (or worse, that was throwing off a negative cash flow), she was very good at understanding it does not pay to hold onto a bad-performing building. Better to sell it off, even at a small loss, and reinvest in a better property, or at least one that looks good on paper. She also was a master at time management – an imperative for someone who is investing on a part-time basis. She also had her tenants properly trained to let her know of problems with their units – but only at reasonable hours when she could be reached.
photos courtesy of activerain.com, denalipm.com, digonline.org, lets4u.net, tenantchecker.com
What makes a good rental property?
A simplistic answer to this question when investing in rental property would be, one that makes money. A better answer would be, a good rental property investment is one that makes money easily. And an even better answer to the question, is rental property a good investment, would be, yes, if it’s one that makes a better return on your investment than any other investment you have – and does so easily. So, let’s explore the real meaning behind each answer.
Are rental properties a good investment?
Unless you’re specifically looking for any rental property to throw off losses to offset gains from other income streams – be they earned income or dividends – most property investors will look to find rental properties that produce positive cash flows. In a basic cash flow analysis, you’ll want to add up your gross rent income the property throws off, then deduct all your expenses for the building. These include carrying costs (eg., your mortgage, taxes and insurance), as well as maintenance costs (heating, electricity, repairs and property maintenance). Don’t forget to include an amount for vacancy and emergency repairs.
If you are going to manage the property yourself, you won’t have to pay a property management company for their services (usually 10-15% of your rent roll). However, make sure you’ve done a careful analysis of your own temperament and aptitude with this position. It certainly is not for everyone… How good will you be with finding excellent tenants? And collecting monthly rents? How about handling repair calls, especially emergency calls at late hours? You’ll also need to make regular inspections of your building to ensure proper maintenance is being done properly. (Is your lawn care guy mowing the lawn regularly? Does your snow plow guy show up on time and do a good job of snow clearing? You get the idea…) If you find that your potential rental acquisition will produce, at least on paper, a positive cash flow – then it may be for you – at the right price of course.
Return on investment
The next question, will your property throw off a better return on investment (ROI) than any other investment you own, is based on your understanding of what target ROI you will require to make the purchase of any rental property worthwhile. Is a 5% ROI going to be enough for you? Some property investors will say yes, other’s no. Only you can decide….And it’s a decision to be made for every potential rental property acquisition. As you purchase a property, and accumulate a history with it, you’ll be able to determine if the property is underperforming or doing well. You should make periodic adjustments to reflect this. Sell off underperformers when they are not doing well for an extended period of time.
Finding a good location
Finally, the last question to be answered, can you maintain your rental property easily, will probably be based a great deal on location. An investment property in a high crime area will require a lot more work, due to the type of tenant you’ll be able to attract. The poorer the tenant stock, the more work you’re going to have. Bad tenants don’t pay on time…some, not at all. Endless chasing them for rent, or worse, trying to evict them – is time consuming and costly. In addition bad tenants tend to not take care of your unit. This means more repair costs over time. So maintenance and emergency calls will increase. So if you can purchase rental properties in better areas, they may cost more, but you should be able to charge more in rent, and you will obtain better tenants. And better tenants will make your life much easier for you in the long haul.
photos courtesy of anchorloans.com, houstonmortgagetexas.com, ortak.com, stiles-law.com, lawofficewalterjennings.com