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Position Yourself For Success

How To Begin Investing In Rental Properties ~ Buy and Hold

In my judgment, investing in real estate to hold is the best method yet discovered for a person of modest means to become wealthy. Unfortunately, that doesn’t make it easy. Buying and holding real estate successfully requires accomplishing a lot of very different tasks simultaneously or it won’t work. To boil it down, there are five major components:

1 – Acquisition

2- Financing

3- Rehab

4 – Management

5 – Maintenance

In my experience, these five components of buy and hold real estate investing are the basis for building wealth in real estate investing. I will explain each in detail below.

Acquisition

You make your money when you buy. And that is just as true for buy and hold as it is for flipping. Some buy and hold investors can get a little lazy. Whereas flipping creates discipline by quickly showing whether the deal was a good one or not given how much money was made or lost on the sale, buy and hold has no sale. So it’s easier to justify (consciously or subconsciously) lower quality deals. Don’t make this mistake!

Poor deals on the acquisition side will hurt buy and hold investors in the long run just like flippers. More money will be thrown away, cash flow will be lower and refinances won’t pull money out or will force investors to keep high interest private loans. Buy and hold investors should use the same aggressive marketing and negotiating tactics as flippers and not settle for anything less.

Financing

Financing is generally the hardest part for buy and hold investing. Fortunately, there is an assortment of ways to finance properties to hold, but all of them require thriftiness. The first is to save money from a job and use that money to buy investment properties. For this model, FHA loans can be great here because you can buy any property up to a fourplex, live in one side and rent out the rest.

In addition, flipping and holding are by no means mutually exclusive. Why not hold every third or fourth property while flipping the rest? Or better yet, use creative financing (like subject to’s or seller financing) to buy a property for no money down. Or get a ma’ or pa’ private lender to lend you the full down payment. Or partner with someone who has money. Then they can bring the money and you can do the work. It’s not easy, but there are plenty of financing solutions available.

Rehab

The Sydney Opera House was budgeted to cost $7 million and take six years to complete. It ended up costing $102 million and taking 16 years! In other words, it always costs more and takes longer than you think. Contractors and employees are notorious for overcharging, procrastinating or providing poor quality work. So be careful when hiring and be quick to fire if needed.

The best contractors and employees generally come from referrals. Ask for them from people you trust whenever you can. Often local REIA groups will have a list of referred vendors and contractors. And when you are vetting such vendors, ask for references and check them thoroughly. And do not pay them up front!

It’s also important to work hard at accurate budgeting. Make sure to add in a contingency of 15-20% for the things that will inevitably pop up. And always double check your budget against your results. This is important to make sure 1) your buying criteria is right and 2) that you are not under-financing these properties.

Management

The big question is whether to hire a management company or do it yourself. The advantage to hiring a management company is that it frees up more time to look for properties. The disadvantage is that they cost money and that some are incompetent or even criminal. If you do hire a management company, just as with contractors, vet them thoroughly. You should ask for referrals from people you trust and then from the management companies’ themselves. And do not be afraid to fire them. A management company can make or break you and the bad ones will break you quicker than you think.

If you decide to do it yourself, it has to be a primary focus. Property management is the nuts and bolts of real estate, and without it, everything falls apart. Learn the law and consult with an attorney to make sure you are in compliance. In addition, you must have a thick skin and be able to tell a tenant “no” or some of them will walk all over you. Furthermore, know that you will eventually need to hire someone for leasing, maintenance and/or bookkeeping. In the meantime, you will need to be able to do basic bookkeeping yourself in order to properly do your taxes, assess your situation and obtain bank financing.

Maintenance

If you decide to manage yourself you should at least find a roving handyman you can call for maintenance issues (unless, that is, you are very handy). When you have enough units, you can hire someone full time. You will also need to have plumbers, electricians, HVAC technicians and the like on call for such issues.

If you use a property management company, the maintenance and turnover is the most important thing to watch as overcharges will usually go there. If maintenance expenses are out of hand, demand an explanation. If the explanation is unacceptable or the situation doesn’t change, switch companies. The same goes for prolonged vacancies.

These are, of course, just the broad strokes. For more information, read ,The Millionaire Real Estate Investor by Gary Keller and How I Turned $1000 into a Five Million in My Spare Time, by William Nickerson or view the many articles and books on this site.

Position Realty
Office: 480-213-5251

Landlord Tips On How To Raise Rents

Being a landlord and Property Management are just like any business. Real estate costs rise over time, from property tax bills, to insurance premiums, to mortgage rate increases – so landlords sometimes need to raise tenants’ rental payments or leasing fees to maintain profitability. Raising a tenants’ rent can prove a challenging situation for many landlords, so here are a few suggestions to help make this navigate this necessary task successfully.

5 Landlord Tips For How To Raise Rents

Tip 1: Research Market Rents
It’s far easier to raise the rent if you’re raising it to a reasonable level and comparable to other local rents. Find out what other local landlords are charging for similar properties, and if your tenant balks at your raise in rent, show them the data on what they can expect to pay for similar rental properties.

Tip 2: Planning Ahead
Many states require advance notice of at least 30-90 days when raising rents or changing lease terms. This is something you will need to research for your state. Having the conversation sooner rather than later gives you an opportunity to find a new tenant, creating a smooth transition if the rental increase is not accepted.

Tip 3: Face to Face Notification
While it may seem easier to have this conversation by phone or by mail, the fact is human beings are less likely to say “no” in person, making a face-to-face conversation a more effective approach.

Tip 4: Consider The Best Time To Raise Rents
Spring into the Summer season, is the best time to raise rents. Statistically, many more Americans move during the spring and summer months, which makes it far easier to fill vacant rental units during these warmer months.

By raising the rent as the warmer months approach, you can ensure an easier time leasing the property if your current tenant decides to move out instead of paying the higher rent or lease term.

Tip 5: Optional Longer Rental Agreement
Doesn’t this sound ideal… higher rental income and an extended term, securing a rented property for the next two years? 100% Possible!

When a tenant expresses their unhappiness regarding a rental increase – tell them you understand that they have their own bills and their own concerns, and that you’re willing to extend their rental agreement from 12 months to 18 or 24 months.

This will offer written assurance that you will not raise their rent again for a year and a half or two.

Maintaining Positive Monthly Cash Flow

Implementing rental increases may not be an easy task, but it’s often necessary if you intend on actually earning a positive cash flow on your investments. Always remember to be fair and honest. Remember that rent cannot be raised in the middle of the lease term, and remember that sometimes securing a longer-term tenant may be more valuable than an extra $25 a month.

Position Realty
Office: 480-213-5251

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