5 Things to Do Before Renting Out Your House

5-Things-to-Do-Before-Renting-Out-Your-House

Renting your property may seem like an easy way to increase your passive income, but upon starting the process, you may find it to be more complicated than expected. Your house may sit on the market for months without a rental applicant because it is priced above the fair market rent. A bad tenant may be late or outright refuse to pay rent; they have the potential do thousands of dollars in property damage and may ignore your attempts to evict them from the property until authorities are involved.

So how can you avoid the headache of these common difficulties associated with renting a property? Here are five things to do before renting out your house to reduce the risk and stress of being a new landlord.

1. Take Photographs of the Property

Photographs of the property are necessary for several reasons. They are an important part of online advertising – otherwise favorable rental listings without pictures of the property are often passed over by potential tenants because they do not want to have to wait for a house tour to find out that the property does not have a layout or design that suits them. These photographs will also be helpful when your future tenants are moving out, as you can use them to measure any property damage that occurred during the rental period.

2. Assess Fair Market Rent

While it may be tempting to charge higher rent to make money back on recent renovations you may have done or moving costs from when you left the property yourself, the best thing to do is conduct market research: check with rental websites, newspapers, local landlords, realtors, and property management companies to determine the amount that properties of similar location, size and condition are renting for.

3. Create a Concise, Effective Rental Application

An effective rental application will not intimidate potential renters with its length, but will be comprehensive enough that it can be used for tenant screening purposes. Any additional information that you need from the tenant should they pass screening can be included in the lease documents. A good application will have spaces for the following items:

  • Name
  • Date of Birth
  • Social Security Number
  • Phone Number
  • Current/Previous Addresses (last 7 years, including landlord name(s) and contact information)
  • Current Employer (name, address, hire date, income, contact information)
  • Authorization to Obtain Consumer Report Statement
  • Tenant Signature

4. Consider Using a Property ManagerProperty managers will typically charge a percentage of the monthly rent for their services, but in exchange, they will take care of things such as finding new tenants, creating/signing the leases, collecting the rent, and issuing legal notices (including evictions). Hiring a property manager cuts down on the profit you will make from your tenants’ rent payments, so you should carefully consider the cost-benefit of these services.

5. Find Good Tenants

Finding a decent tenant is easier said than done – many applicants can be friendly, polite, and will seem to be a good fit, but will create a flood of problems for you. The best way to improve the quality of tenants that you are leasing to is to conduct tenant background checks – that is, choosing tenants based on measurable fiscal and rental responsibility. Most landlords will charge rental applicants an application fee to cover the cost of tenant screening.

 

Article Source: http://EzineArticles.com/expert/Angela_Pennington/2417040

 


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

 

Advertisements

Purchasing Residential Investment Property? Consider These 5 Issues

Purchasing-Residential-Investment-Property

While some individuals, purchase multi – family houses, in order to reduce their personal living expenses, many, do so, as an investment property. This article will review and examine, some of the items, one should seriously consider, and evaluate, prior to making the final decision, regarding purchasing, for investment purposes. When purchasing an investment property, one must look at it, differently, than when considering, s private, personal home purchase! While there are many considerations, this article will attempt to briefly examine, and consider, 5 key issues, which, when done properly, significantly reduce the amount of risk.

1. Return on Investment (R.O.I.): 

When people purchase stocks, etc, they normally attempt to evaluate and consider, the range of yield and/ or return, they anticipate, and use that as a key consideration. With multi – family houses are considered, from an investment perspective, it’s important to do, something, similar. While there are many formulas, for considering, Return on Investment, the ROI should be reviewed, using a conservative approach, evaluation and consideration. At least, 2 measures should be used: one, is based on the purchase price, and the other, on cash flow. The purchase price should be considered, the price one pays, plus alterations, etc, performed immediately. Therefore, if one purchases a property for $475,000, and immediately expends another $25,000 on upgrades, etc, the number used should be $500,000. After expenses, maintenance, etc, one should seek, a return, of at least, a net, of 6%, or, in this example, $30,000 per year. The cash flow calculation should factor in rents received (use 85% of rent – roll, to prepare for possible vacancies, etc), and the amount of the monthly mortgage (principal, interest, and taxes), plus a reasonable consideration for regular maintenance items, should be subtracted from this number. For example, if mortgage payments are $2,000 per month, and maintenance contingencies are another $250 per month, then, one should seek a rent – roll, which is, at least $2,650 per month (Remember, 85% of $2,650= $2252.50). However, while that creates a break – even, the goal, and objective, should be a positive cash flow, and a recommended $2,850 rent – roll ($2850 x 0.85= $2422.50), and this would provide a positive cash flow percentage of about 7.66% (172.50/ 2250)

2. Condition – necessary improvements: 

Consider the condition of a prospective property, with a keen – eye, on what you will need to do, immediately, to bring it to the optimum rental condition! Obviously, the more pristine, a property’s condition, the better, if the amount of improvements, plus the selling price of the property, makes sense, consider proceeding.

3. Actual, anticipated, rent – roll: 

Do your calculations, in terms of rent – roll, based on the lower, or lower – middle, end of the market! Then, use the 85% rule!

4. Ease of renting: 

Examine the local real estate market, and examine, how readily, units are rented, when available. In the best – case scenario, use the 85% rule, but, in slower local markets, adjust the figure, and use, perhaps, 60 to 75%.

5. Community: 

What are the pluses, and minuses, of the specific area? How might these impact, the rents collected, and how easily, units might be rented?

The wise investor in mult – family properties, especially those with 2 – 6 units/ apartments, uses the conservative approach, in order to maximize his return, and minimize his risk/ exposure. There is never any guarantee, but historically, smart real estate investors, have done well.

Article Source: http://EzineArticles.com/9863743


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

 

How To Inspect A Property Before Sale

How To Inspect A Property Before Sale

Open inspections are a great opportunity for homebuyers to check the condition of the property they are targeting to buy. Buyers and investors should find time to personally visit the property to be able to make a guided buying decision. In fact, it would be a good idea to take down notes to keep track of the features that impress and don’t impress you.

A personal inspection of the home you are planning to buy can be done not only once. You can make several visits and while there, take the opportunity to snap photos of the different parts of the house. Just make sure to ask permission from the real estate agent before doing so. Further visits should be able to give you a real picture of the property’s condition and know its major and minor problems.

So what you should you look out for? Here are things that you need to be aware of.

Check for any obvious cracks in walls. Cracked walls can signal certain issues such as the house is sinking or needs the replacement of stumps. If large cracks are present, it would be best to get advice from a structural engineer.

Look for signs of leaking in gutters and eaves. Leaking gutters including roof that sag and broken roof tiles need repairs or replacement hence, it would be wise to ask about it from your real estate agent.

Also, look for obvious signs of recent patch ups or fixes that may be masking other issues. For example, peeling paint is a sign of moisture in the area while bubbles on paint can mean the presence of termites.

Find out if the floors are even or under foot. Floors that are sloping or bouncy could indicate the need to replace stumps.

Check if the bathroom or laundry has a smell of mould. Walls that have moulds signal excessive moisture in the area.

You may also ask the real estate agent or the seller for a due diligence checklist. They should be able to provide this checklist to prospective buyers at open for inspections.

Keep in mind that a home inspection is very important as it can tell you the defects of the property that could affect its value and the cost it would entail to repair them. This should not be taken for granted if you are buying a house to avoid a costly mistake.

Article Source: http://EzineArticles.com/9891466


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

 

How to Effectively Market Your Rental Income Properties

How-to-Effectively-Market-Your-Rental-Income-Properties.png

Anyone who has been engaging in real estate investing for any amount of time has surely tried to sell an investment property at one time or another. It’s called marketing.

Most are common sense, but mentioned as a reminder because there are realtors and sellers out there who need to hear it. The remaining tips are more subjective, but included to help you consider what might be a more effective marketing approach than you’re using.

Foremost, never make your marketing packages too vague. When you omit important financial data, it makes it very difficult for a buyer to adequately determine whether or not it presents a good investment opportunity. And this will typically lead to a further exchange of data with a buyer or agent that, at the very least, will be time-consuming, and at the worst, could cause a buyer to lose interest in the deal altogether.

Secondly, resist the temptation to skew the property’s financial data to appear overly optimistic. Perhaps rents can get raised, for instance, and you want to reveal that. But if you over-inflate what you deem could be future rents, you risk losing your credibility with the buyer, or may end up wasting your time in a deal that never has a chance anyway, once it’s subjected to the buyer’s due diligence. Keep your estimated assumptions realistic.

Thirdly, and this is a bit more subjective, don’t present marketing packages that contain everything but the proverbial kitchen sink-at least not in your initial presentation. Distributing more than a three-page property report at your local investment club meeting or in response to a telephone inquiry, is overkill. Remember, you’re just trying to generate a response from credible investors with a valid interest; a more comprehensive set of reports can always get presented during subsequent exchanges.

The Numbers

Aside from sale price (which is a given), you’ll want to provide an itemized break down for the property’s annual cash flow, and computations for at least two rates of return.

1. Cash Flow

Cash flow is crucial because it’s essentially what the real estate investor is purchasing in the rental property. So compute it for at least the first year of ownership by focusing on the following three financial elements:

  • Gross Rental Income
  • Operating Expenses
  • Debt Service

2. Rates of Return

The rates of return (at least the two listed below) are important for the investor to determine whether or not his or her yields get met as well as providing a good way to compare the property’s financial performance and value to other similar-type rental properties in the market area.

  • Cap Rate
  • Cash-on-Cash

The Reports

Here are two reports commonly used for initial inquiries. Both clearly show the rental property’s cash flow, and each include the cap rate and cash-on-cash rates of return. So they are informative, easy to read and understand, and straight to the point. Consider them as examples.

1. Marketing flyer

This announces the listing to the community-at-large (i.e., investment meetings, call-ins, and inquiries from colleagues).

2. APOD

This enables you to show your own investor-customers a likely scenario during the first year of ownership.

In a Nutshell

An effective way to market rental income property is to consider the process in two stages: the initial presentation, and the subsequent follow-up. Keep the initial presentation concise; even one report with enough data to reveal the property’s description, estimated cash flow, and investor’s rate of return should be adequate to garner interest from credible buyers when they exist. And reserve all the other reports (e.g., acquisition funds, proforma income statement, rent roll) to the subsequent follow-up exchanges.

Article Source: http://EzineArticles.com/9927448


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

 

Common Mistakes When Making Offers to Buy Real Estate

Common-Mistakes-When-Making-Offers-to-Buy-Real-Estate

Probably one of the toughest parts of real estate investing is deciding what to offer for the property.

Offer too little, and you lose the deal. Offer too much and there is no profit.

Whether buying to renovate the house and resell; to keep it as a rental; or to sell it wholesale to another investor, these mistakes are often made by both novice and even more seasoned investors.

If I’m completely honest with you – I catch myself still starting to make some of these crucial errors. Make sure you are informed and armed against these deal killing mistakes.

Top Mistakes

  • Not dealing with a motivated seller – If the seller is not motivated – even desperate to sell – then you will never be able to negotiate a price that works and you are just wasting time and frustrating yourself for no reason.
  • Too much emphasis on seller’s desired price – Investors often start with the Seller’s desired price as a benchmark and attempt to work the seller down from there. What the Seller wants for the property is irrelevant to what can be paid. Use a formula you trust and determine your price first. Begin your negotiations with a number below your top price and negotiate up from there. If the seller is not remotely interested, then they are not motivated.
  • Using comps that aren’t really comps – Although appraisers can use houses that are as much as a mile away and sales that up to a year old, it is better to use comps that are less than six months old and less than a quarter mile away (even up to ½ mile). Make sure the comps truly are similar houses, in similar areas. Lately, many wholesalers are using comps from neighboring areas that are within the desired distance, but completely different type areas. The house and the neighborhood must be similar to be an accurate comp.
  • Not determining your highest price before starting negotiations – Before you even start to negotiate with the seller you need to determine your maximum profitable offer (MPO). This is your drop dead point – the deal breaker price over which you will not pay. You must know what that number is.
  • Changing your highest price offer after negotiations start – It is not uncommon for an investor to become so excited by the negotiation that they start to adjust the MPO figure they calculated prior to negotiations. They justify why the figures can be adjusted. Don’t do that. You were sane when you calculated the MPO, and the thrill of the negotiation makes you insane. Don’t listen to your insane mind!
  • Not including margins for your (or your investor buyer’s) buying/selling/holding costs – These costs are often forgotten yet represent anywhere from 12% to 20% of the final value of the property. This one figure can be the difference between profit and loss on a deal.
  • Forgetting to add profit for both you and your investor buyer – Seems crazy, but YES! this is a common mistake – especially among rookie wholesalers who either forge to include a margin for their Assignment Fee or forget to leave a profit for the investor buyer. That’s why it is so important to follow a formula.
  • Not stepping back to look at the house/street/neighborhood through your buyers’ eyes – There’s more to a good deal than just the numbers. Literally stand back and look at the property from your end buyer’s (whether owner/occupant or investor buyer) and see what they’ll see. Is the house on a busy street? Is there a cemetery next door? Does the back yard have a steep cliff that presents a danger to children? Is there a highway behind the house? Do trains pass right by the house? All of these are real examples I have faced. They don’t necessarily kill the deal, but they do require the numbers to be vastly adjusted.

Making profitable offers that are accepted by prospective sellers is an art more than a science. There is much to consider – and if you were to make one of these common mistakes, you could be creating an unprofitable deal.

Now that you are aware, this should never happen to you!

Article Source: http://EzineArticles.com/9926248


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

 

How to Acquire Rentals

how to acquire rentals

A lot of investors ask me how best to acquire rental properties. Typically, finding investment properties isn’t the issue, it’s financing the properties that is.

The main difference between buying “hold” properties (rentals) and buying investment properties to rehab and resell is the financing. For flip properties, you only need to borrow for 6 to 9 months typically. For rentals, your financing will be the traditional 30 years.

When we started investing in 2005, banks would make up to 8 mortgage loans per qualified borrower. So, I got 8 mortgage loans in my name, then Jim got 8 in his.

Today, large financial institutions still offer the cheapest long-term funding available so I recommend you start there. Check with national lenders, local banks, and don’t forget credit unions. See what financing they offer, how many rental loans they will do, and how you qualify.

If your goal is to own a lot of rentals, don’t pay cash for the properties – it’s best to have a mortgage. There is 10, 15, and 20 year funding available, but go for 30 year mortgages. Keep your monthly payment as low as possible in order to get all the cash flow you can at the beginning of your ownership. Once you have a large enough portfolio and enough funds coming into your business, you can always pay the loan off early but you can never ask for a reduction in the amount of your mortgage payment.

Another advantage to the mortgage balance is that you can claim the interest deduction on your taxes. Rentals offer so many tax write-offs which you especially need if you’re doing flips and wholesale deals.

You need available cash to qualify for additional mortgage funding, so don’t sink more than necessary into any property you plan to hold. For years we flipped every property that we put much money into, anything that needed rehab, and kept only the properties that had very little of our own money tied up in them.

Eventually, you’ll use leverage to build your portfolio, borrowing against the equity you build up in your rentals over time. We’ve borrowed against our properties more than once to get the funding we needed to acquire more.

How do you find the funds to acquire rental properties? Do you plan to pay them off early, or wait and let your tenants pay the full mortgage over time?

Article Source: http://EzineArticles.com/9920969


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

 

8 Factors To Consider When Buying Multi-Family Income Property

Multi-Family.png

Most people would benefit greatly, from including investing in real estate, as a component of their overall investment strategy. As a Real Estate Licensed Salesperson, for over a decade, I have identified several opportunities, for both, my clients, as well as my own, personal investment portfolio, and believe, when this is done wisely, and in a well – informed manner, is extremely beneficial. With that in mind, this article will attempt to briefly examine, discuss, and review, 8 meaningful, relevant factors, to consider, and pay attention to, in determining, which possibilities, make the most sense, from an investment perspective.

1. Purchase price: Know your budget, and personal limitations. Remember, financing for non – owner – occupied properties, is generally more difficult, and slightly more expensive. Most lending institutions examine the rent – rolls, to see, if the investment makes sense. Be careful to purchase, what you feel comfortable, with!

2. Real estate taxes: When calculating the Return on Investment, or ROI, don’t forget to consider the costs of real estate taxes (and recognize, these generally increase, every year).

3. Monthly carrying charges: Factor in, all the ingredients, related to your total, monthly carrying charges! This includes: mortgage – related costs (interest, principal, escrow), taxes, utilities, reserves for maintenance and repairs, etc.

4. Condition/ up – keep: Examine the overall condition of the prospective property. What might require immediate attention, and what might that cost? What do you anticipate annual maintenance, and ip – keep, to be? Remember, if there is nothing needed, you will probably pay more, to purchase it, so factor in your total costs!

5. Necessary repairs: What might be immediately needed, to fix, and/ or repair, in order to avoid major problems/ challenges, in the future? Distinguish between necessary and optional repairs, and create a realistic schedule and time – line, with the costs determined!

6. Needed renovations: When you look at investment property, use a different mind – set, than when you look at your personal residence. Always factor in the advantages, necessities, and costs of renovations, and consider multiple options, including advantages and disadvantages!

7. Potential Rent – Roll; Return on Investment (ROI): Examine the current rent – roll, as well as the potential one, if you make certain renovations, etc. This Return on Investment, or, R.O.I., is essential for making wise decisions, with this type of real estate. However, avoid over – estimating your revenues, and estimate, conservatively! Shoot for a 6% return, which means, getting at least, a 6% Annual Return, on your investment, which includes, your original cost to purchase, and any renovations and repairs, anticipated, in the first two to three years. In addition, seek a Cash Flow – positive, scenario, where rents received, exceed monthly expenditures. Also, base revenues on only 10 months income, while counting all expenses, in order to be positioned, in case of vacancies, and/ or turn – overs!

8. How easy to rent: Consider the local area, and determine, whether it should be rather easy, to rent units, because of demand, desirability, etc!

Investment properties often make great investments, but, only, when done, wisely, carefully, and in a prepared manner. Follow these 8 steps, to be better prepared!

Article Source: http://EzineArticles.com/9917039


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 12 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com