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