Finding the Best Locations for Buying Rental Property That Nets the Highest Returns

Turnkey-Rental-Property

You have heard it before. T, the first three rules of real estate are Location, Location, Location, and this is no different when buying rental property. If you are in the market to purchase rental property real estate, you need to know your market. Below is a series of steps you can take to fundamentally understand your real estate market and determine the best areas in which to purchase your buy and hold properties.

Establish Where the Rental Markets Are

Here is a systematic way to figure out which rental markets in your area will have the highest potential returns.

  1. Have a realtor put together a list of properties that have sold in your area. You are going to want to find sales data on “bread and butter” rental properties – properties with 3 bedrooms, 1 bathroom, 800sq ft – 1200sq ft with a basement and a garage.
  2. Take the list of properties and sort them by sales price.
  3. Once you have the properties sorted by price, break them up into 3 groups – the lower third by price, the middle third by price, and the upper third by price.
  4. Next, take a map and start to plot out the three groups of properties. For each group use a different color marker on the map.

Once you have the map populated with, you should start to see trends on the map. The properties priced in the lower third will likely have the potential to generate the highest return. These are the areas you are going to want to investigate further. If you have lived in the area, you probably have a general idea about these areas, but you need to set that aside for now because to truly know the market you need to complete the next steps.

Drive the Targeted Market

Once you have established a few areas, you are going to want to get in your car and drive through the neighborhoods. When you do this, you need to take note of the things listed below. Please keep in mind that you should be looking for trends in the area. You may see one house that is particularly good or bad, but you are really trying to look at the neighborhood in general, so look for trends.

What is the condition of the homes in the area?

Do you see solid homes, with good roofs and freshly painted trim, or do you see you see old dilapidated homes with broken windows?

Are the properties kept up?

An easy way to tell this is by looking at the condition of the landscaping. Do you see mowed lawns with flowers planted all around, or do you see long grass and overgrown weeds? The condition of the landscaping can provide a great deal of insight about the people living in that neighborhood.

What does the neighborhood look like?

Look at the streets, are they clean, or is there trash strewn around. Look for sidewalks. If you are driving around outside of school hours are kids playing in the streets? Or in contrast does the neighborhood give you the creeps. You are really looking to answer the question “Do my tenants want to live here?”

Talk to People in the Neighborhood

It is really a good idea to speak with people in the neighborhood. If you see someone walking down the street, stop and let them know you are looking to buy real estate in the area and ask them about the neighborhood. Or, you can stop in a local business like a market or a gas station and talk to the guy behind the counter about the area.

Once you have established your target markets, and driven the areas, you should be able to quickly see which markets you want to invest in, and which markets you do not. To document this you can easily take a map and highlight the streets where you will consider investing.

Determine the Returns

The next step is to look at the potential returns you will generate. This is a very simple thing to do, and you can follow these steps.

  1. Speak with a local property management company about the rental rates for a 3 bedroom, 1 bath home with a garage and a basement in the area you have selected. The property management company should be able to give you a very good idea of the rental rates and also give you some more feedback about the area in general. You should also inquire with them about their rates for property management.
  2. Look up the taxes on a few properties to establish what you can expect to pay in taxes for properties in the area you have selected.
  3. Speak to an insurance agent about the cost of insurance for a property in your target market.
  4. Calculate your net income. To do this, simply take your rental income expected for the year and subtract the taxes, insurance, and property management expense.
  5. Calculate your return. To do this simply divide the net income you calculated in step 4 by the price you will be paying for the property.

With this information you should be able to see what kinds of returns you can generate for your targeted area. An interesting exercise to perform is to also calculate your return on areas where homes are selling at a higher price. What you will find is that the neighborhoods may be a bit nicer, but your returns are going to drop quickly.

 


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

How to Analyze a Rental Income Property

How to Analyze a Rental Income Property

It has been said that more millionaires have been created through investing in real-estate than any other type of investment. However, for the unprepared and uninitiated, the potential for catastrophic financial decisions is always present. In this next article in our series, we’ll look at some of the key location factors that influence the value of residential investment property.

The single most important factor influencing the value of your residential investment property is consistent and strong demand from your potential renters and buyers. So it stands to reason that you should be buying rental properties in same places that people want to live. Although this sounds simple, too many new investors fail to consider the long term potential of the area when getting started with real-estate.

State Level:

State regulation and fiscal policy has a great deal of influence on a residential investment property. State business and personal income tax, as well as goods and services sales tax can have a huge impact on the in-migration of people and business. More regulation and taxes means fewer businesses and jobs. Fewer jobs means fewer people, fewer people means less demand for your property (i.e. lower rents, lower property appreciation and lower return on investment from your rental property). When investing in real-estate, consider States with strong, pro-business policies.

City Level:

As your geographic location begins to narrow, the location factors affecting your residential investment property start to become more specific. Although a city’s policies on attracting and retaining business is still very important to the long term outlook for jobs, immigration and in-migration, more local factors like large regional employers and a diversified industries become increasingly important. When buying rental properties and considering specific cities, look for an unemployment rate that is less than the national and state average. Also look for higher than average household income (national and state). Strong local employment and higher than average incomes means the area is growing and this will ultimately attract more people.

Neighborhood Level:

As you begin to narrow down the neighborhoods within your selected city, there are several factors that will impact your real-estate return-on-investment. Proximity to schools, shopping, business and transportation should all play a role when buying rental properties. Consider the city’s expansion plans for any light rail public transportation. Historically, investing in real-estate near (but not too near) the future site of a transit station has produced properties that have appreciated at a much greater rate than average. From the household shopping to the daily work commute, relative location and access to transportation are some of the most significant factors people consider when choosing where to live and should be a major factor in your decision when buying residential investment property.


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Is It a Good Time to Hold Real Estate or Should I Sell?

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This is something that depends on your own circumstances. Remember that we are not now in the sort of market where you will naturally see a price rise after holding for a while. This is a flat market where the prices generally stay static. They might rise a bit and then fall a bit, but generally they’ll bump along for a few years now until the next boom starts. So whether you sell or hold is your own decision, based on your finances and your investment portfolio.

You might find that you need that extra bit of cash, so you’d be better off selling. Then again, if you bought them at the top of the boom you may have paid too much for them and if you sell now you’ll make a loss. Remember, if you decide to hold, it will be for a few years because the boom won’t come back in six months time, so ask yourself if you can afford to hold for at least five years.

If you can’t afford to hold for that long, it might be best to sell off now before the property starts to cost you even more. Another question to ask yourself is: “Will the property increase in value over the next five years?” If it won’t, there’s no point in keeping it.

When considering this question, look at the surrounding neighborhood. If it has good access roads and infrastructure, good schools and shops, parks and gardens and the people are renovating their own homes, then the likelihood of values increasing there is good.

On the other hand, the place may only be booming because some factory there that is expanding. In five years time if that factory has stopped expanding and is maybe even closing down, then what is going to happen to all those houses? The area will become something like a ghost town, with values at rock bottom. It doesn’t hurt to do a bit of research into the history of the area to see what has caused the place to expand and increase in value.

For the person who has several investment properties, it’s a good idea to sell four out of five and keep the quality one that will be worth heaps more when the prices stat to rise again. You make money both ways in real estate. You buy to flip and you buy to add value and hold a while. Real long-term wealth comes from buying quality property and holding it, but by playing both sides of the game you make extra money.

You can get a greater cash flow and use it to reduce your risk through debt exposure if you sell four out of five properties. Always try and keep a loan to value ratio of about 70% to 80% of the values. So if your house is worth $400,000, then your loan should be in the vicinity of $320,000. That way, if you are forced to sell at say, $340,000 or even $330,000, you have enough to cover your loan with a bit left over.

Just remember that winning in the real estate game is not about buying the most properties in the shortest time, now even about making a killer profit on every deal. It’s about creating a core strategy that will work in today’s market and every market, whether it’s a flat or a boom time. You’ve got to stick to that core strategy through thick and thin and only do those things that will maximize profits and minimize risks. That’s the way to become successful in real estate.

Article Source: http://EzineArticles.com/389440

Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Property Management Services – A Real Estate Investor’s Best Friend

property-mangement

Do you own an investment property that you’re renting out, and you’re currently handling all of the chores of being a landlord yourself?

Are you thinking about investing in rental properties, but you’re not sure if you’re up for the task of being a landlord?

If you answered yes to either of those questions, whether you are holding onto or considering investing in a single-family rental (SFR), duplex, or triplex, you should think about engaging a professional property management firm to take the work off your shoulders.

Let’s take a look at what property management is, what a professional management company handles, and how to decide not only if it’s time to hire one but also how to hire the right property management firm.

What is Property Management?

Let’s start off with getting an understanding of what a property management firm does and doesn’t do. There are several critical tasks a property manager can help you with.

Setting the right rental rate: You can always ballpark this by looking through the classifieds, but a good property management company actually conducts thorough market studies to set a rental price for your property. This makes sure you have a great balance between maximizing your monthly income and keeping a low vacancy rate.

Collecting the rent: One of the most difficult aspects of being a landlord is collecting the rent. Property management firms have efficient, tried-and-true systems that will do a great job of collecting the rent and maintaining on-time payments.

Marketing and advertising your rental unit: When vacancies occur, you want the rental unit occupied as quickly as possible. A professional property management firm has experience that helps it market your property in just the rate way to make sure someone moves in quickly.

Finding and managing tenants: The property management firm will take the work out of finding and managing tenants for you. This means screening new tenants for criminal and credit checks, collecting references, and getting the lease signed. Once the home is occupied, handling routine and emergency maintenance and inspections are part of what a professional management company will do for you.

Managing relationships with contractors and other vendors: Do you have deep-seated relationships with all of the maintenance workers, tradesmen, contractors, suppliers, and vendors needed to properly manage your rental? Probably not. But a property management firm does and can get you the best work for the best price, while handling the burden of overseeing necessary maintenance projects for you.

Keeping you in compliance with the laws Housing regulations and property laws are complicated and confusing when you’re renting and maintaining your rental property. These can include local, state, and federal regulations, along with fair housing regulations like the Americans with Disabilities Act. A property manager can keep you out of hot water by keeping your property up-to-date and in compliance with all of these regulations.

Allowing you to invest from afar: If you’ve moved to a place where investing in rental units don’t make sense, you might think that investing in SFRs or other rental properties isn’t possible. With a good property management company by your side, you won’t be so limited in your investment opportunities.

I only have one property; so why do I need a property manager?

If just reading through all of the tasks that a property manager can handle for you isn’t convincing enough, consider this: do you want to be able to go on vacation without interruption? Do you really enjoy phone calls about backed up plumbing at 3:30 in the morning?

Chances are, you want the freedom to leave town for vacation or just have uninterrupted time with family for the holidays. You don’t relish the task of dealing with emergency maintenance chores in the middle of the night, and you probably dread the thought of trying to find a good tenant when your existing ones move out.

Even if you only have a single investment property that you’re renting out, you can benefit strongly from hiring a property management service. They have decades of experience that you’d be hard-pressed to match yourself, and can ensure your property is maintained impeccably while still maximizing your profit.

Okay, I’m convinced, but how do I know who to hire?

The best way to find out about quality management companies is based on the experience of others. If you are local to your rental property, attend your regional real estate investment association meetings to get recommendations from other landlords.

You want to make sure you find out how many units the company is managing, and how many employees they have doing the work. A trained employee with the right tools and proven processes can successfully manage between 30 and 40 units, as long as they’re not also playing accountant.

When you’re interviewing different qualified property management firms, here are the questions you should get answers to:

    • What is the cost? Generally, the monthly fee for property management is between eight and twelve percent, plus expenses. Remember you get what you pay for, so it is important to balance the cost and services.
    • How well do they communicate? You want someone who uses email, but is still responsive to the telephone. If you don’t get a response in a timely fashion, it’s time to walk somewhere else.
    • How easily can I terminate the agreement? If things work out, what will it take to terminate your agreement? Make sure you know this up front, along with any penalties.
  • How experienced are they with Section 8? This can be supremely important, since Section 8 housing and tenants are great income opportunities. Make sure they have adequate experience with such properties.

If you do your research, you can readily find a reputable firm to handle your rental investments for you. This will free you up to enjoy the fruits of your investment without as much of the hassle.


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Should You Contribute to a Roth IRA, Traditional IRA or 401(k)?

should-you-contribute-to-a-roth-ira

Young investors are faced with a number of retirement options and deciding how to allocate that savings can be a little confusing. Those who work for somebody else often have the option to invest in a 401(k) or similar employer-sponsored plan. In addition, you have individual retirement accounts such as the Traditional and Roth IRA. The problem is there’s no single plan that’s best for everyone. You’ll often hear financial pundits tout the Roth IRA as the best thing ever, but is it really best for you?

First, we have to understand the fundamental differences between these accounts. First, the Traditional IRA, Roth IRA, and 401(k) plans fall into two broad categories: pre-tax and after-tax. The Roth is the only one of the three that operate on an after-tax basis. What this means is that contributions to a Roth IRA are made with after-tax dollars, thus there’s no tax deduction on these contributions. Because of that, the Roth allows you to make tax-free withdrawals in retirement. Both the Traditional IRA and 401(k) type plans are pre-tax, meaning your contributions are made before taxes are calculated. These contributions therefore reduce your taxable income in the year they are made which means a lower tax bill. Unlike the Roth IRA, distributions in retirement are then taxed as ordinary income.

While taxes are the big difference here, there are a few other things to consider. IRAs have annual contribution limits of just $5,000 while the 401(k) allows up to $16,500 each year. There are also differences with each plan in terms of investment options, withdrawal rules, and so on. But for this exercise we’re going to focus mainly on the taxes.

To Roth or Not to Roth

Most experts agree that younger adults are the best candidates for the Roth IRA. This is because younger workers tend to make less than they will in the future, therefore they are in a lower tax bracket now than they might be a few decades from now. If you’re a single filer earning $50,000 a year, that puts you at the 25% tax rate. The argument here is then assuming that because tax rates are at a historical low point, you’ll probably be paying taxes at a higher rate in thirty years once you do retire. So, you’re basically giving up a 25% tax break today in order to see a greater tax break in the future.

If your tax rate does indeed increase in retirement, then the Roth is going to allow you to see the biggest net gain in terms of income tax paid. But what happens if you find yourself in a lower tax bracket when you retire? We have no idea what will happen to taxes over a long period of time or even know what our income will be, so it’s a real possibility. Then, the benefit of a Roth IRA isn’t as significant. You could be giving up a 25% tax break today only to see a 15% tax break in retirement.

Of course, there are some additional benefits to a Roth IRA such as the elimination of the Required Minimum Distribution (RMD) and no age limit on contributions, but looking at the tax situation alone leaves a lot of unanswered questions and anything can happen over the course of a few decades.

Since changes took place in 2010 that also allow people who didn’t qualify for a Roth IRA in the past because of income to now convert their Traditional IRA into a Roth IRA, it’s worth mentioning that this conversion isn’t right for everyone. A lot of experts are urging people to make the conversion, but what a lot of people ignore are the taxes due on the conversion. In fact, paying tax on the Roth IRA conversion with account assets can actually be worse than not doing the conversion at all, so keep that in mind if you are thinking of doing a conversion.

Beyond Taxes

While calculating your tax burden is the primary factor in deciding what retirement account to use, there many other things you need to consider. First and foremost are contribution limits. Whether you choose a Roth IRA, Traditional IRA, or both, your limited to just $5,000 per year total. While that’s a great start, you’re likely going to want to save even more as your budget and time allows. So, the most likely scenario is utilizing a few accounts. For example, you may want to contribute $10,000, so you may contribute $5,000 to your employer’s 401(k) and $5,000 to your Roth IRA each year. This accomplishes two very important things.

First, it allows you to save more money for retirement. Second, you’re diversifying your tax burden. Just like you diversify your investments, you also want to diversify your taxes. By having your nest egg divided up into both a taxable and tax-free account you’ll hedge your bet somewhat regardless of how tax rates turn out in the future, plus you will have the flexibility to plan your withdrawals from each account so that you can maximize your income and minimize taxes in retirement. Finally, it’s also giving you a bit of a tax break today while you’re still putting funds aside that will give you a tax break in the future.

As you can see, there’s no silver bullet account. While the Roth IRA will generally provide the most benefit to a younger employee making less now than they expect to in the future, we’re also grappling with a lot of unknowns that can transpire over the next thirty years. So, just like you wouldn’t put all of your eggs into one investment basket, it’s also a good idea not to put your whole nest egg into one type of retirement account.


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

Buying a Property With Tenants

buying-a-property-with-tenants

So, as a buy-and-hold landlord, you’ve found a property to purchase that already has a tenant in place. Is this a good thing? It can be.

Ideally, the value of buying a property with a tenant in place is that the property is already cash flowing and you have income from the day you close on the property. However, you don’t want to take that for granted. So how do you know for sure?

Ask the seller for all rental contracts.

In this type of purchase, the tenants and contracts pass to any new buyer and the new buyer must abide by the terms of the contracts already in place. Often, seller rental contracts are very bad or even non-existent. You want to know the details and you want to see them before closing on the purchase. The seller should be giving you tenant information, but be sure to see what they have agreed to in writing – what they have signed, if anything – because you are legally bound by their existing contracts.

Ask for documentation of tenant payment history.

Do they pay on time? Do they pay at all? Part of the value of purchasing a property with tenants is income stream. Does it actually exist? Taking on existing tenants can be a real benefit, but it can also be an eviction nightmare. Does the seller have any kind of documentation to prove what the tenant performance has been?

Be sure the tenant’s security deposit transfers to you at the time of closing.

The tenant’s security deposit belongs to the tenant, not to the landlord. That’s why any time a property is sold with the tenant living in it, all contracts the tenant signed are still enforceable and any monies they put down to live in the property must transfer to stay with the tenant. Money to cover certain property damages can be withheld from the security deposit when the tenant moves out, but any security deposit money taken before that time or used for other purposes by the landlord is stealing. Be sure the deposit transfers at closing so you have money to cover tenant damages and/or to return to them when they move out. You, as the landlord are legally bound by the terms of the rental contract they signed, by the way, so you will be responsible to refund their security deposit and/or pay damages when they move whether or not you received it from the seller at purchase.

Be sure the tenant is informed of the sale and where they should begin sending their payments after you’ve closed.

Too many times the tenant continues to pay the old landlord (because they aren’t informed they have a new landlord) and you can be left with no payment and/or trying to get what’s rightfully yours back from the seller. Not a great start with your new tenant.

Don’t be disappointed if negotiations take extra time on a purchase with a tenant because of the need to provide these additional documents. The most important thing is to be thorough. If there are holes in the deal, you want to close them before the purchase, not be taken down by them afterwards.


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com

International Property Investment in Memphis

memphis

While international investor are likely familiar with America’s coastal cities, the mid-west remains a bit of a mystery. International investors as a whole seem to be less willing to enter these markets, not due to some weakness in the fundamentals of these economies, but because investors are unwilling to leave their comfort zones. Images of Californian beaches or the lights of Las Vegas bias investors towards risky and highly competitive markets. For investors willing to go the extra mile and research cities a little further inland, there represents an opportunity for massive returns at very little risk.

With a population of over 1.3 million inhabitants, Memphis is the second largest metropolitan area in Tennessee. Unlike many of the markets in which US Invest operates, Memphis’ affordable housing prices are not directly connected with the speculative craze which rocked the US property market. Memphis was affected mainly by the slowdown in the macro business environment that resulted from the financial crisis. This is because Memphis is an economy which is concentrated in sectors which are procyclical in nature.

Memphis’ economy is concentrated in two main sectors: the Trade, Transport & Utilities sector and the Business and Professional services sector. Both of these sectors move very closely with the health of the macro economy. As an international investor, this proves to be a rare and valuable attribute. Since Memphis’ economic health will mirror that of the US economy as a whole, it will be very easy to monitor your investment. This will prove invaluable when deciding to exit the market. Instead of having to dig up information specific to Memphis, you need only to track articles which cover the health of the US economy as a whole to predict how your investment will perform.

Memphis is one of the nation’s largest distribution hubs, since it lies within 500 miles of nearly 1/4 of the urban working population of the United States. This has prompted many Fortune 500 companies to open assembly plants in Memphis and it is the reason FedEx has chosen Memphis as its global headquarters. A thriving business services sectors has sprouted up to service the needs of the local operations of these major companies.

At the end of the day, Memphis’ strength lies with the reliability of the economy which stems from solid investment in its infrastructure and its strategic geographic location. As long as international commerce necessitates the transportation of goods and materials, the Memphis economy will remain strong and flourish.


Memphis Buy And Hold is specializing in locating, purchasing, renovating and managing single-family and multi-unit properties and possesses over 8 years of experience in real estate investing and property management in the Memphis and Nashville markets… Learn More…… www.memphisbuyandhold.com