To Buy or Not To Buy

Written by on June 15, 2011 in Landlord Tips, Management - No Comments
two-doors

So you’ve decided to become a landlord. Well, the first thing you will need is a rental unit. If you are not renting out a property you already own, then you need to start shopping for the perfect place. Of course, there never will be the “perfect” place so here are some things to consider when purchasing rental property.

First things first

Decide who you want your ideal renter to be. This single decision will determine what rental property to purchase. Are you located in a college town where the rental market is dominated by students or are you located near a large corporate headquarters overflowing with professionals? Do you plan to purchase a property in a downtown setting, a sprawling metroplex or a small town?

Each of these situations will have distinctly different renter pools and you should optimize your rental property for your specific market.

Location, location, location

This tried and true advice works for rental property too. Think about your market. Again, is there is something dominating your location, like a college or corporate headquarters? If so, you’ll want your rental property to be conveniently located near there. Renters want to be close to their daily activities. This is often why they choose to rent versus purchase a more affordable property father away.

Remember, the characteristics of the property can change, but the location cannot. Take your time when purchasing a property and make sure to choose the best location you can afford.

Evaluate the property’s condition

You will be hard-pressed to find a perfect investment property within your perfect location and price point that does not need some repairs. The question you need to ask yourself is if the problems are cosmetic or structural. Generally cosmetic problems are okay and can even be seen as a good thing, while structural problems are definitely a bad thing. Cosmetic problems will cause a property’s value to be lower allowing you to build some sweat equity while getting it in market condition. The better shape your property is in, the faster it will rent!

Cosmetic problems are usually quick-fix or updating issues. These may include:

  • Outdated decor, old paint, old carpet and old appliances
  • Slight damage like broken light fixtures, torn vinyl flooring, broken windows or damaged mini-blinds
  • Bad curb appeal due to accumulated junk or clutter, an unkempt lawn or overgrown shrubbery
  • Dirty floors, cabinets, walls or siding
  • Run down bathroom fixtures & towel racks

Structural issues, on the other hand, are usually expensive and require extensive repairs. Think of the movie Money Pit. You should be very careful if purchasing a property with the following:

  • Structural damage including severely cracked foundation or walls, leaning chimneys, and sloping, cracked or warped floors
  • Old plumbing or electrical
  • Health hazards like asbestos, mold or lead paint
  • Rotting wood in the frame
  • Roof or HVAC problems

Upgrade to suit your market

One of the best ways to keep your rental filled with good tenants is to stay on top of the trends in your market. Renters these days prefer washers and dryers in the unit as well as dishwashers. If you can afford to put in these extras, you should. Your rentals will experience less vacancies and you will be able to charge a higher monthly rent.

You should also consider conditions specific to your area. If you are renting in a downtown location where parking is a premium, renters will be looking for parking spaces included in the rent. If you are in a more upscale market, or you want to target upscale renters, you will want to have nice kitchen and bath fixtures in order to attract this type of tenant.

Where to draw the line

When it really comes down to it there are some properties you should probably avoid. The following things will seriously hurt your property value and your ability to attract renters.

  • Serious structural damage or poor construction
  • Economic obsolescence, such as properties with very short ceilings, or many bedrooms but only 1 bathroom
  • Properties with wells and septic systems. These systems could create a lot of problems and added expense down the road.

Use these tips when purchasing your investment property and you should be on the road to landlord success. Do you have any other tried and true advice to pass on to other landlords just starting out?

Photo by: Great Beyond

Is Rental Property a Good Investment?

Written by on May 3, 2011 in Market Outlook - No Comments
increase-housing-price

The recent ups and downs in the economy, stock market, and housing industry have people wondering where they should invest their money. The good news is there are plenty of options when it comes to investing your money so it can be hard to know where to start. By weighing your options and choosing several different types of investments, diversification can keep your portfolio from becoming a roller coaster.

The experts agree that real estate is still a good investment. If you prefer to invest in the entire real estate market, you should look at REITs or Real Estate Investment Trusts. This type of investment allows you to purchase shares of a company that owns different types of real estate. It is very similar to mutual funds and does not require hands-on management. On the other hand, if you prefer to invest in a physical asset, you could consider becoming a landlord with investment property. It requires more day-to-day work, but as a landlord, you retain control over your investment properties.

Here are more reasons why real estate makes sense for retirement investments.

Long Term Strategy
Investing for retirement focuses on long-term positions and so does real estate. Except for the recent housing market burst, house prices across the nation have appreciated in value since the 1960′s. The data shows that the longer you hold on to the asset, the higher it’s value.

Leverage
Real Estate investing also affords the ability to own a substantial asset without having to put up all the cash in the beginning. A mortgage allows you to purchase property on credit with a relatively small down payment. This power of leverage lets you control 100% of an asset that appreciates over time with a very small amount of money spent upfront. Stocks only let you buy what you can pay for.

Equity
When your rental property is filled with tenants that pay the rent every month, it’s like having an investment account that someone else pays into for your benefit. And to top it off, your tenants are only paying for the use of your property. They will not ask for this money back or for a share of the profits when you sell the property down the road.

Sellable Goods
Based on what we have seen in the past, your investment property will appreciate over the years. Then when you are ready to retire, you can sell your rental properties and live off of the profits. Or, once the mortgage is paid off and you fully own the properties, you can hold on to them and live off of the monthly rental income you receive.

The degree to which you decide to invest in real estate for retirement depends on your personal situation and how much time and effort you want to dedicate to these investments. If you decide real estate is for you, sitting out and choosing a REIT may be the best choice if you wish to be more hands-off. However, if you are more comfortable getting involved and want to sink your teeth into the real estate field, you should seriously consider becoming a landlord.

Photo by: Andrew Michaels