I have a tried and true method that I have been using since I was 19, and has not ever let me down. These tips will help you in finding and maintaining a good Real Estate investment, and ensuring that you turn a profit. Below is advice for choosing such an investment, as well as advice and tips that anyone can use at any age or skill level.
When talking about real estate investment, what most people are looking for is a residential property they can fix up and sell or rent out, for a decent profit. This can be a rewarding and even fun experience or a total nightmare, it depends on how you go about the situation.
First, you must look at this enterprise, just as you would any other small business you are starting, and treat it as such, at all times. Start out with a business plan that incorporates your strengths and weaknesses. How much time and money you have to invest in the business and a set definition of your goal, be it to become self sustaining and quit your current job, or to use the income stream to help pad your retirement years.
This will require you to find prospective investments, of which can be found in any local newspaper, with the help of real estate agents, or via the internet. The old adage is true location matters. Consider if schools or other amenities are nearby that would increase the value of the residents, and spend some time checking out the neighborhood, and see if it in a desirable part of town, or if in a somewhat lower class area, use all of these as determinations as to whether it is priced reasonably, and as leverage for negotiation. Always, ask yourself, would you want to live here?
Be sure to check everything over in and out of the home, check for black mold using a test kit from online, or any home improvement store, they cost about $9.99, and will give pretty reliable results. Black mold can cause sever allergies or even death, and can cost thousands to clean up. Also either learn to spot trouble area’s such as soft rot ,water damage and termite problems, or hire a contractor to go with you, for the inspection, the money spent for an hour or two of expert advise will be well worth it, until you are able to spot trouble area’s yourself. Don’t just go on the word of the owner or Realtor on anything, unless it is on paper, and notarized. Ask questions on everything and either make notes, tape record or if possible video record the inspection, these are invaluable to the decision process and can be accessed at anytime for reference.
After going over your notes, consider how much money it would take to make the residents into a viable rental or for selling at a decent price. This will take some work as you go over every detail of the home, and update your business plan accordingly. Include the tax assessment on the property as well as it’s current insurance cost per year. Also take note on the age of the home and how well it is ventilated, if possible look over any old bills for electricity and heating to get an idea of it’s monthly cost of operation. Consider if the carpeting is new or if there will need to be some work done on the walls etc. Just as in any investment you want to know everything you can about this place, and how much it will cost to make a profit.
Upon buying a place, first take the contract to an attorney before signing and make sure you will not be stuck in any legal technicality, or be hosed on any back taxes. If there is any hidden cost such as these then be sure that the price is negotiated lower to make up for them. Again the cost of expert opinion is well worth it.
After all the paperwork is taken care of, and the home is yours, the real work is just beginning
Maybe you have some home improvement skills and the tools to do a lot of home repair projects yourself, or are willing to learn some simple techniques and skills from some of the many books that are available at any home improvement store, there are many great books out there, and even doing a few small jobs, will cut down on the cost of big jobs. You may have a friend or relative that’s great at electrical work or plumbing, if they are not licensed or bonded, do not even consider it, the liability and cost associated with something going wrong is too great as compared with any savings you may receive in the short term.
On any work you contract out, find a contractor that you can work with on doing all that you can yourself, and leaving the main job up to him/her. This will cut down on the cost of the job, and keep more money in your pocket. This can be anything from digging the ditches for outside wiring, or getting all of the major building supplies yourself. If a Contractor is unwilling to let you do any of those things, find out why. Providing that you are not in their way, and are not doing anything that would take away from their liability insurance they should have no problem with you doing so.
Become proficient at spotting good deals on home improvement supplies, A great deal of items can be had brand new at any home improvement store, but also look at flea markets and auctions, where at times you can get high quality products for next to nothing. Anything from cabinets, sinks to countertops can be found.
Look for ways to make your investment stand out, a nice lawn and hospitable backyard goes a long way, because outside appearances matter, just as much as inside. The idea is to make people driving by, want to go inside and check the place out. Think of it as another part to advertising the property.
If renting the residents out, have an Attorney make the contract to help hedge losses, and ensure that you will have proper recourse, if/when someone stops paying rent. Become proficient with the laws of your city and state on dealing with tenants, and study the tenant and landlord rights .
Know exactly who you are renting to, make sure that your application for rental has at least two non relation references, and the reference of whom they last rented from. As well as all relevant employee information. The idea is to get to know any potential tenant as well as you can. Be sure to be welcoming and professional at all times, and encourage them to bring everyone who will be staying at the property with them at least once, set out refreshments and be sure to put them at ease. People that are comfortable and at ease are more likely to answer your questions honestly, once they feel you are a reasonable person, and will help you better weed out the otherwise shady tenants. Listen to what they say of their previous Landlord, and listen to what their previous Landlord say’s about them and make sure it corresponds.
If there is any discrepancy or have any misgivings regarding the person/persons put their application on the back burner and wait it out, for other possible tenants that have a better feel to them. Gut instinct is always a good thing to help you make a decision, but is worthless all on it’s own.
Finally, be sure that you allow no-one access to the property until all proper paperwork is signed, and there check is cleared. This usually takes 2-3 business days and is not a s big an issue as when it once took weeks to a month before you found out from the bank that the check bounced. The rule of thumb is to ask for the first and last months rent, a security deposit, and Utility deposit consisting of 10% above the average utility bills for the property. That’s to ensure that if they abscond you will not be stuck paying up their utility bills that they did not pay , it is a common tactic of renters that some of the shady ones stop paying their utilities the last month before they leave or are evicted, and you need not fall prey to that tactic if it can be helped.
It is not uncommon to add anywhere from $25 to $100 dollars per pet, per month if they choose to have pets. Do not accept that it is an outside dog, and if they state they have no pets, make it terms for eviction if you find later that they do. Animals can due a lot of damage by carpet stains and odor, as well as chewing doors and other such property damage. Many people choose not to rent to people with pets altogether due to such problems.
Also be there for your tenant to fix any agreed upon problems per the contract stipulation in a timely manner , this ensures that your investment is taken care of, and also ensures that you can check to see if they are taking care of the property as well as they should.
This may seem as though you are being the typical hard nosed Landlord, but consider that, you have worked hard and invested your money into the business, and deserve fair treatment as well. The sad fact is that Landlords that seem too nice and too understanding are taken advantage of quite easily, as some people will take as much as they can from you if they get the impression that you are too soft. The key is to be professional at all times, every bit as much as you are at your job, and never result to petty threats or other unbecoming acts, if it is time to cut off the tenant/landlord relationship. At all times follow the rule of law and of morality in all your dealings.
Tips for Success
1. If allowed by law record all phone calls from the tenant, and be sure to make it clear you are doing so at the beginning of each conversation. Or at least keep a tenant journal and make notations of the conversation
2. Keep all receipts, and bills on everything for the dwelling, some items can be written off on your taxes.
3. Consider charging a $25 dollar late fee for all days the rent is past due..
4. Video tape the property the day before anyone moves in, and the very hour after they move out.
5. Install Energy efficient appliances and plumbing fixtures, the cost are not much more then regular and they pay for themselves quite quickly. The tenant will appreciate this as well.
6.Do not make any agreements to make installation payments on back rent unless it is added as an amendment to the contract and is witnessed by a Notary Public. With the tenant paying the cost of the Notary. Most Banks have a Notary, with them charging between 10-20 dollars.
7. Follow the rule of law at all times, and go through proper procedure of Eviction for your state.
8. Be courteous and respectful at all times, and take care of your responsibility as a landlord, you will be rewarded with people paying on time and staying for years to come.
9. If after two years , the renter has shown to be reliable and trustworthy, maybe consider asking if they would like to buy the property. If they have been extremely trustworthy, you may even wish to finance it yourself as a land contract agreement.
10. Check you house insurance over carefully, some will not pay anything if the renter does not have renter insurance.
11. Make it a part of the contract that you will be allowed access to the site with a 24 hour notice from time to time to ensure that nothing needs taken care of.
12. Do not rent to friends or family under any circumstances.
13. Keep at least six months of rent back from each dwelling to see you through vacancies and any potential problems.
14. Give back the security deposit, and only deduct what it cost for you to fix any problems, plus paying yourself $25.00 an hour for any repairs that needed done, excluding normal wear and tare.
15. If there has been gross neglect, make sure it is video taped, and at times it is considered criminal misconduct if it can be shown it was done maliciously.
16. The safest bets for prospective renters are.
A. Retired couple with guaranteed income from Social Security and retirement.
B. College Grads with a job that they have had for at least the past two years.
C. Couples both working.
D. Single people that with 2-5 years at the same job, over the age of 25.
With that in mind, it is always good to consider anyone else that passed the application, and has an established work history, that can pay the prerequisite amount due before moving in. A single 20 year old man could be a dependable trustworthy tenant, while the retired couple could be professional scammers that have played the tenant game so long that they know more about tenant law then many lawyers. Just as in any investment there are no guarantees, but educating yourself will help your success in this venture.
For Selling a home.
For selling a home all of the same rules apply as above., but consider some cheap and easy idea’s that will make the home stand out, such as ;
1. Decorative trim around the walls.
2. Nice fixtures such as decorative faucets, ceiling fans and lights.
3. An outside Fountain and or goldfish pond are actually quite cheap and easy to install yourself.
4. A New Deck outback is always welcome, and can be built yourself quickly and easily.
5. Invest in a few decorative tree’s and flowers with good mulch around the house.
6. Advertise in local newspapers, fliers and have an open house from time to time.
When deciding on setting the price, consider how much you invested into the dwelling, and have an appraiser come in to give you the house value. Include also a payment to yourself for any work you have done. For example; If you had spent 53 hours on fixing up the residence add that in by multiplying $25 dollars an hour (at minimum.) by 53. Also the cost for insurance and any taxes for one year should be put in the asking price. Even include the cost of any professional help, be it Contractor, Attorney and even the Appraiser. I always add in the aforementioned cost plus 25 % to come up with my asking price, then go down no more then 10%.
If after 2-6 months there are no prospective buyers, reconsider what you are asking and rethink the asking price. If after a while still no buyer, consider using a Realtor to sell the home. If all else fails you can always offer Land Contract, Lease to Own, or even rent the dwelling out.
There is always money to be made in Real Estate, and with a little patience and work you will be rewarded quite well for it. My family had a large Construction and Real Estate holding company for many years, and I have used the same methods as mentioned here to achieve my goals. Always remember to follow your business plan at all times, and keep records on everything,.
Good luck on all your endeavors, and follow that Great American Dream