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HOW TO SPOT A WIN: WIN RENTAL PROPERTY

If you want to build up your property portfolio on the assumption that any rental property will fit the bill – you could be in for a shock! There are various factors to consider when investing in a specific rental property and you must move forward only after ticking all the boxes. Lucrative as some rental properties may seem at first glance, only after taking ownership will the realities surface. You will spend time dealing with property and tenant issues nonstop. They will present problems throughout the tenure of ownership and impact your bottom line, even as you try to liquidate them eventually. Buying the discount property a few towns over from where you live will no longer be the good idea it seemed at the time.

But the right rental property can completely change all that, generating handsome returns over the long-term. Use our tips to spot a winning proposition.

The difference between Deals and good deals A rental deal may look great when presented to you on paper but the realities could be very different. With rentals, Rentability is the first thing to consider, leading to the type of tenants the property will attract. A rental in a poor market will invariably generate poor tenants. A better property in a better area will get you the desired rental. Know the difference and be prepared to pay a little more if you need to.

 Negotiate the lowest purchase price Every dollar on a rental deal is important. Contrary to what some investors believe, purchase price is just as important on a rental property as on a rehab deal. If you will finance your purchase with a bank loan or mortgage, a higher purchase price will increase your monthly outgoings and lower your cash flow. If on the other hand, you can negotiate the price 5% lower than the market value, you will reduce not just your capital requirement but also your cash flow. Don’t cheap out on a good deal, but at the same time, try to negotiate the lowest purchase price.

Focus on rentals dollars Always shortlist properties with the maximum cash flow potential. With a flip, all you need is one interested buyer to make an offer, based on the property’s evaluation – and it is done. But it is a different ball game when it comes to rentals. A new kitchen or updated flooring may make the property look great but it may not convince prospective tenants to pay more than fair market value.  200 lost rental dollars every month will hit your cash flow by 12,000 dollars in 5 years! That could amount to 15% loss on a 100,000-dollar home.

Saleability Before making a decision, you need to consider where the property will be a few years down the road. Simply basing your decision on current market trends and sales trends is a risky way of going about building your portfolio. Against a backdrop of ever-fluctuating real estate trends, it is hard to predict when the bottom will suddenly drop out. What happens then? Are you going to be in a position to sell for a higher amount? Or atleast break even on your investment? Location, commercial development and overall land values will affect your property’s market value, but without upgrades your property won’t rent or sell for top dollar. Traditional home buyers will consider the same probabilities when evaluating your property, as potential renters. Budget the cost of maintenance and upgrades to your property in the interest of saleability.

Have an exit strategy Most buyers don’t think about the worst-case scenario but truth being told, the best of rental properties eventually run their course. Despite best intentions, you may face a situation where you may have to cash out on your property. Hopefully you will never get to that stage, but if your property is limited in its appeal to find the right buyer, a quick sale is highly unlikely. You will have limited rent flexibility and if you decide to sell, the market won’t allow you to get top dollar. Always have Plan B in place, based on the worst-case scenario.

All rental properties are not created equal, but knowing the difference makes all the difference!

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NOT EVERY GOOD PROPERTY MAKES A GOOD RENTAL PROPERTY!

Real estate offers many investment formats, though the most commonly known are rehabbing and flipping. Building a portfolio by acquiring rental property is also a good investment strategy but remember – Not every good property makes a good rental property! When considering purchasing a rental property, it is important to focus on aspects that can make a rental property stand out.

Location. Location. Location. This is the gospel about any kind of real estate property, be it rental, residential, commercial, retail or investment. If a property does not have a favorable location, you can be sure, demand will invariably be compromised. Put yourself in your customers shoes. Since rental decisions are based on first impressions and perceptions, the smallest negative can set back long-term rental values. Unlike short term flips, with a rental property a five to ten-year horizon is ideal, meaning you need to have a long-term perspective for the area you are buying in. Talk to other owners in the area to see if they have insights on future development plans for the area. A planned new school, or medical center or even a commercial development will certainly bump up holding value over time.

Rental property goals. Before jumping in, it is advisable to have a clear fix on the short and long-term goals for the investment, since they will determine the level and kind of work you will put in and future upgrades you make. So, the question to ask is – Am I looking to generate monthly cash flow or long-term capital gains? If you only plan on renting out the property for two or three years, chances are you will keep away from expensive upgrades. On the other hand, if you are planning on renting until the property is free and clear, you may consider upgrades and repairs that will enhance curb-appeal and perceived property value. The right decisions will help maximize returns and most likely impact your future investing decisions. Sometimes a sudden jump in value can tempt you to sell before the anticipated ten-year horizon. Or an unforeseen financial circumstance can force you to liquidate. The best of plans can change along the way, but your goals will help you these changes.

Financial considerations. For a rental property, financial considerations are all important. New investors may not have an idea of all the costs associated but should take into account property management costs like utilities, landscaping, repairs and other items. Even the cost of vacancies, should be factored into the overall cost of ownership, which includes beyond loan financing, mortgage, interest amount, taxation and insurance costs. The more you know about comparable homes in the area, the better equipped you are for determining rental value for own property. Take time to talk to agents to get the lie of the land. And if you are planning on getting a property management company onboard, make sure they understand the scope of work involved in managing your rental. That way, you can come up with the real cost of ownership and yield.

Understand your market. Before finalizing a purchase, spend time to understand what investment into the property will yield the best return? Tenants will invariably seek out the most comfortable option, but not necessarily be ready to shell out the extra dollars! Take time to research what’s on offer in the area. Understand what it will take to keep your rental occupied with minimum vacancy gaps. People like to rent homes they are comfortable in, but not willing to pay the extra price for it. Not always! Renters will often place a premium on a driveway, and a garage. Consider investing in one if it will allow you to charge a higher rental and ensure your property retains demand. An outdoor patio may seem like a good idea, but if the cost of putting one in, does not justify the small rental gains, you’re better off without it.

A good rental property is indeed a good business proposition and can help grow your portfolio. But get to know everything about the property and the market to get the best return on your investment.

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IS THERE A “RIGHT TIME” TO INVEST IN REAL ESTATE?

One can argue, times are tougher today, in the real estate business. At least tougher than what they were a few years ago, in a seller’s market. The real estate market has and continues to present its own unique set of challenges to investors, but let’s face it – there’s still money to be made in this business. If you are one of the fence-sitters in real estate investing, thinking about “the right time,” you need to think again! Because there really is no “Right time”! There are hidden opportunities in every market scenario and with the right approach, you can make a tidy profit from real estate investing.

Opportunities galore. Today, real estate investors can benefit from a greater number of opportunities than at any other time in the past. Why? Because there are a number of factors that has come together in creating these opportunities. Low mortgage rates, and interest rates mean it is still easy to find affordable financing. The inventory of homes is growing in single-family homes, duplex and multiplex homes, apartments, condos and investment properties. The buyer/seller interest remains robust across all these property scenarios. Add to that the home foreclosure rate, and it really is a good time to start investing.

 There’s no perfect time. The savvy investor will tell you, there really is “No perfect time” to get into real estate investing! Real estate investing, just like any other form of investment, comes with its own risks and no guarantees. Trying to time the market can create longer than necessary delays, as you wait for the right cues. And once you do invest against the backdrop of “Perfect” cues, other non-controllable factors can mar your investment plans. Stock markets, interest rates, global property trends and local developments all shape the market. Before taking the plunge, you need to know the market, evaluate the risk/reward scenario, be prepared to take a risk and complete your due diligence – these aspects go a long way in generating positive investment returns.

Investment income. Unlike fixed income, passive income takes time to accumulate, and the sooner one starts investing in real estate, the closer one gets to building up passive income through asset appreciation and related capital gains. The good thing is that you don’t even need to put more capital into a property that you have bought, other periodic funding for property management requirements. And the rental income it generates for you over time, contributes towards your passive income. Over time, this income can cover the initial outlay for a second property, helping to move closer to your goal of building up a sustainable and profitable property portfolio.

Depending on the nature of your real estate investment, you can generate a strong return on investment over time. Having said that, there are many a case, where a rushed decision brought about by lack of due diligence, legal issues, insufficient market research or poor investment advice has led to huge losses and erosion of capital. So, if have made the decision to enter this investment asset class, don’t wait for the magical “right time” to start. Do your research, take the services of experienced and qualified real estate agents, realtors, property managers, investment houses and housing professionals in seeking out the right opportunity for you.

Most importantly – get started today!

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FORECLOSURE PROPERTY AND THE NEED FOR DUE DILIGENCE. 

"GO THE EXTRA MILE!"

When considering a prospective foreclosure property purchase, the importance of going beyond the façade cannot be understated. Why? Because, the ramifications of a foreclosure purchase gone wrong, can have serious consequences not just for the individual, but also future owners and tenants.

Market potential is the single greatest motivator for investing in foreclosure property. If you were to buy it and flip it, just how much money would you stand to make? Given the sale considerations, perhaps you could land a deal 20 or 30% below the market rate, allowing you to flip the property and make a tidy percentage. But the importance of conducting detailed due diligence is very important.

Conducting due diligence on a foreclosure property is of paramount importance.  Make sure to clear any liens before you buy a foreclosure property, and be fully aware of any outstanding payments to contractors or financiers. Even if all seems okay at first sight, you may face hidden maintenance bills and renovation costs based on project work carried out, prior to your purchase!

It pays to conduct detailed property inspections on a home that’s been vacant for some time, which is often the case with foreclosure homes. Plumbing problems, water leaks, mold, and other obvious problems may be easier to spot, but unseen problems can lurk in structural and foundation concerns, which only an expert can tell. If you have limited real estate experience, it pays get an experienced property manager to do this. This can save you a ton of cash in un-wanted repairs, in the future. Property management companies have years of experience and skills to pick up on details you may skip, as you move quickly to secure the deal.

With a new foreclosure property, maintenance costs can recur continuously for a long time to get it to acceptable standards. You may also need to make more substantial, one-time investments. It is not uncommon to allocate up to 10 percent of the purchase price to repairs – and these are upfront costs, which you will have to pick up yourself.

Quite often banks and finance institutions may choose to forego full disclosure of a property’s foreclosure details. Meaning you will know less about its history of past improvements, structural concerns, and chronic maintenance problems. These will surface over time, and depending on their severity, play a damaging role your property’s ownership and resale value.

So, by all means, go ahead with that foreclosure investment. But only after you are sure that all the little details have been looked-into first!

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Home sales, buying and selling homes, investments, real estate

DO YOU REALLY NEED A REAL ESTATE AGENT TO SELL YOUR HOME?

Home sales, buying and selling homes, investments, real estate
Real estate agent
"REALLY NEED THAT REAL ESTATE AGENT?"

Property owners, or investors, face this decision every day.

Going solo certainly has it advantages, but often trying to save money ends up costing a lot more.  A strong real estate background goes a long way in making the right start, but even so, it may not save money at the end of the day. The DIY approach can result in costly mistakes, and the high price of experimentation can be dis-proportionate to returns.

If it is your own property, you might want to consider selling to a reputable real estate investment firm. Especially if you do not have prior market experience or knowledge and have little time to waste before your home goes into foreclosure, or other financial obligations kick-in. And being a one-off event, it may be the more cost-effective option.

On the other hand, if buying and selling houses is your main business, or you are an investor, enlisting the services of a real estate agent, is highly recommended. Investors know the value of time, and delays in closing are detrimental to profit margins. Time gained from hiring an experienced and professional real estate agent allows investors to pursue more investment opportunities.

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