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

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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

Reasons Why You Might Need a Property Management Company

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Having a rental property can be overwhelming for any landlords or owners. And one of the biggest decisions that you can come up with is whether you should hire a property manager to look after your properties. There are many factors that may influence a property owner’s decision it may be his or her accessibility to the property they own, their availability to manage and check their tenants and if they can afford the cost of employing a professional property management firm.

If you live near your property you will be able to keep a close eye on things. Also, you will be able to visit your rental property on regular basis which is required for maintenance, inspections, and collections. On the other hand, if you live further from your rental house or apartment it would cost you so much time and money to visit it regularly. Scheduling a monthly visit to check the condition of your properties and tenants and responding to their calls in the middle of the night can be burdensome for landlords. A property manager can make these things easy for you and ensure you that your property is taken care of even if you are in the comfort of your home.

Not every one of us has the special gift of negotiating with people under pressure. At the end of the day it takes a professional person to handle the ups and downs of your business. Aside from collecting the monthly rent and making a regular inspection and maintenance there are more other problems that may encounter everyday that can push people to their limits.

As the number of rental properties you own increase the more problems you will face as you manage your own properties. Many investors with large portfolios take advantage the service of property managers. It would be more efficient to hire the skilled people to take care of your investments. Moreover, if you do not have the experience in home maintenance and repairs they are the one who can help you get things done. And with the help of a professional property management company you can ensure that the work is done well in timely manner.

Another advantage of hiring a property management firms is they can help you in advertising, fielding calls, help you find a good tenant to decrease your vacancy rate. They can also help you handle the accounting and keeping records for your property.

Customer service is very important in rental property business. We know that each tenant requires attention even to their smallest concerns. The management team you respond to your tenants when an emergency happens in your property. They can quickly fix your property and handle problems immediately. Furthermore, they can help you instantly resolve problems with tenants like late payments. They could also help you ensure that your property is run legitimately to prevent lawsuits.

Finally, your decision whether to hire or not a management firm to handle your business will depend if you are financially capable of employing one to manage your rental property dealings. Assess first the opportunity cost that you will be taking once you finally employ a property manager.

Before you decide if you will hire an expert in managing properties think first if you really need them and if it will be beneficial for you to seek for their help.


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 Profit From Your Rental Properties

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There are lots of people who believe that harvesting huge profits from rental properties is one of the easiest businesses they can do for enjoying a luxurious life. The reason which at first instance, seems to be responsible for this myth be no tension of establishing a personal office or factory, no tension of appointing huge staff for getting different tasks accomplished on time, no concern about the sinking of funds on etc. In simple words it can be said that lots of people think that earning rent from the property given on rent doesn’t require any huge investment.

But, is it really so as it seems to be or earning profits from rental properties is complex and requires the proper involvement of the person investing his funds in the property for giving on rent. This in-fact is the matter of debate which is mainly because of the discussions which they have from their known ones who have given their property on rent. Although, this can be true, but that is possible in the case if you have rented the portion of your house to only one or two tenants. But, in case if you have two to three properties which you want to give on rent then looking after those properties could be quite messy for you, especially at the time when your tenant calls you at some odd timings.

Moreover, if you some properties for rent located in another corner of your city or is some other city then looking after those properties could be quite daunting for you. Because looking after all the properties at the same time won’t be possible for you, anyhow, even if you succeed in managing it, you might have to struggle with your tenants for rent and other issues. Anyhow, even if someone assumes that investing in property is one of the easiest methods of earning, then they do not know that it is like hitting the bullseye. So, how a novice can get rid of various issues arising from Rental Properties Adelaide for earning expected profits from his property.

An answer to this question in simple words can be hiring the services of the rental property management group which is constituted by the group of mavens having vast experience in looking after the various aspects associated with rental properties.

Why you should hire the services of rental property experts:

As referred above that most of the people consider earning money from rental properties as an easy task, agreed that it is. But, do you know how to search for the prospective tenants, how to interview the tenants and get their documents verified, what are the legal documents required to be prepared before giving any property on rent or what to do in case if your tenant refuses to pay rent on time or tries to exhibit his ownership on your property? All these questions are just illustrations of the problems which as a newbie, you might face while investing your funds in property, there might be various other issues about which you might have even not imagined could disturb you once you have given your property on the rent.

Anyhow, if you are aware about all these problems and know how to get through them, then undoubtedly nobody can stop you from becoming rich in a few years. But in case if you do not wish to face all these issues, then it would be better to at-least will think of hiring the services of the property management experts to avoid any type of critical situation in the future.

These experts will work for you and take care of your property as their own property on your behalf and will look after all issues arising from the property, starting from the hunting of the tenants to sorting out different issues which might face because of your tenants. Let us, for instance, say that, you have not allowed your tenants to park their vehicle inside your garage during your absence, but still if they do so and argue with you that as they are paying rent for your house, they are liable to use the garage also. At that time if they did not stop parking their vehicle inside the garage at that time the only option left with you will be getting your house vacated from the tenants quite early before the expiry of their agreement.

Simply, it can said that if you have available properties for rent purpose, it would be better to go for the services offered by property management groups to avoid useless issues that might create a burden on your shoulders.

Article Source: http://EzineArticles.com/9638865

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 This Tax Deductible? Tax Tips for Landlords and Vacation Rental Hosts

Owning a rental property is a fantastic way to boost your income and secure your financial landscape. You’ll also have a golden opportunity for some serious tax breaks.

Rental properties – both full time, part time, and vacation homes – can be a wealth of tax savings.

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Is This Tax Deductible?

The key to saving money on your tax return is to take advantage of the many deductions offered to full-time rental property owners. Your property is considered a full-time rental if you allocate fewer than 15 days for personal use.

Some of the most basic deductions that landlords could easily overlook are costs related to cleaning and maintenance, property taxes, management fees, mortgage interest, advertising, and even property insurance.

Want to save even more money? You can also deduct expenses related to traveling to manage your property, depreciation of your property, HOA fees, insurance claim deductibles, operating expenses, and even your utilities. Basically, any cost you incur to keep your rental property up and running can be filed as a tax deductible expense.

If your rental property expenses exceeded your rental earnings, you can even deduct your losses. If your annual income (adjusted gross income) is below $100,000, you are eligible to deduct up to $25,000 of your rental losses. As your annual income increases, the rental loss deduction is reduced.

One of the best tips any landlord could get is to keep meticulous records. Treat your rental property like a business. The more expenses that you document, the better chance you have to get those tax deductions and keep more of your money.

Personal Use of  Your Rental Property

The deductions available for rental property owners are subject to the amount of time during the given tax year that a rental property is used for personal reasons. In short, if your property is a hybrid combination of personal use and rental, your tax advantages will change.

If you rent your home fewer than 15 days out of the year (like for a special event in your town), you get to keep all of the money you earned – tax free!  You can still also deduct your expenses related to your rental efforts as itemized deductions.

On the flip side, if personal use of your rental property exceeds 14 days, you can deduct your rental expenses based on the percentage of time it was used as a rental.  Your rental expense deduction will also be limited to the amount of rental income you receive.

New to the Rental Game

With the popularity of travel websites such as Airbnb, many people are interested in the opportunity to turn their primary and/or secondary home into a money making property.

If you decide to start an on demand rental business you will receive a Form 1099-Misc or Form 1099-K reporting your rental income, which will be reported as rental property on your taxes.


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

The Secret for Keeping Money-Making Rental Properties?

What-to-Do-When-Faced-With-Negative-Cash-FlowMany real estate investors are only interested in buying investment properties, fixing them up, and selling them for a clean, quick profit. And there are others who get a solid bang for their buck by buying, rehabbing and leasing with an option to buy. But there is a growing number of savvy investors who understand the value of buying, rehabbing, and keeping profitable rental properties.

Cash flow and appreciation

Many of this latter group of buy-to-rent investors are purchasing properties in areas that are showing steady appreciation, so it makes sense to hold on to their rentals for as much as 5 or 10 years, or even longer. And because the areas in which they are buying are appreciating, they don’t like the idea of locking the property into a 1- or 2-year lease option to sell at today’s market value. They’d rather buy a property as a long-term investment, do a first-class rehab, and find stellar long-term tenants to provide them with good cash-flow as they sit back and let the home appreciate.

Here are a couple of guidelines to follow in order to find and keep good tenants:

1. The quality of your property dictates the quality of your tenants.

Buy in up and coming areas – If you pick up a cheap rental property in a rundown neighborhood you scare off good tenants and attract bad ones. A nice house in a nice neighborhood will attract nice tenants. Simple as that.

Do not under-renovate – Investors that under-renovate a distressed home are just asking for a low class of tenant. And low quality tenants bring big problems. Spending a little more in the rehab acts like a magnet and attracts a better tenant. And it allows you to charge more rent.

2. Thorough applicant screening insures good tenants.

Look at everything – This means you perform due diligence and call all references, especially past landlord references. Also look at their credit history and perform a criminal check. Studying the results of your due diligence will insure a good tenant.

Be forgiving of old mistakes – If an applicant has a low credit score because of an illness several years ago, or a bankruptcy in their past, try to look beyond that at their payment history over the last 2 or 3 years. If they have a solid record of responsibly paying their bills on time, you should consider renting to them.

Never rent to anyone who has been evicted – This is just asking for trouble. If someone has been evicted it’s because they left their former landlord with no other option. You don’t want to be their next victim; there are too many good tenants out there without this lousy track record.

By applying a bit of common sense, owning nice properties and performing your due diligence, you are much more likely to attract solid tenants. And strong, long term tenants insure good cash flow while your investment property appreciates. It’s a no-brainer.

aboutdcDerrick is a Memphis native 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

What to Do When Faced With Negative Cash Flow?

Negative-Cash-FlowEvery real estate investor who is looking to own rental real estate has dreams to amass a portfolio of consistently appreciating properties that spit out cash on a monthly basis from dedicated, happy tenants who pay their rent on time and never leave. Although this does exist, for many this is a real estate fantasy land. The reality is, property does not always appreciate, repairs and ongoing regular maintenance is necessary and tenantsdo move out which create vacancies, sometimes leading to negative cash flow.

Negative cash flow results when the expenses on a property exceed the amount of revenue the property is generating. This sounds obvious but when initially calculating the numbers for an income property purchase, some new investors miss the primary expense which is not documented in MLS listings or other reports; the debt service… the mortgage payment.

Some investors seem less concerned with negative cash flow, being satisfied that covering a monthly shortfall of a few hundred dollars will ultimately pay off in future appreciation. This has certainly worked well for some people; however this is a risky game to play. If property values do not go up in accordance with expectations and the only gain is a small equity pay down, it may take much longer than expected for an ultimate pay off. This kind of speculation makes me nervous which is why I personally recommend when purchasing property for the purpose of a long term hold, make sure it is cash flow positive from the get go.

Realistically speaking, landlords who have one or more single family homes or even duplexes, triplexes or four-plexes fight with negative cash flow problems at one time or another.

Below are a few potential solutions to remedy negative cash flow to varying degrees. Depending on your property or situation, some may work while others may not be possible due to the building structure, building size, lot size, location, zoning, equity amount etc. Please do proper diligence and check with your lawyer before embarking on a new strategy.

Creating a short term rent to own

A short term rent to own could be a solution for both the owner and the tenants. A rent to own strategy is designed for buyers who don’t have the capability to qualify for a mortgage. Typically they don’t have good credit, confirmable income or the downpayment required for conventional mortgage qualification. In a standard rent to own, the tenant ultimately purchases the property from the owner.

Briefly explained, the tenant is required to pay a small downpayment upfront which is credited back the tenant at the time of purchase, usually from 1 up to 5 years down the road. Throughout the term, the tenant pays the owner market value rent as well as an agreed upon amount above the rent. This amount above the rent is also credited back to the tenant at the time of purchase.

This strategy is beneficial for both parties. The tenant is given the right to purchase the house in the future at an agreed upon fixed price or an appraised price minus the amount of accumulated credits from the initial downpayment and amount above the monthly payments.

The benefit to the owner is three fold. They receive an initial cash injection from the downpayment; enjoy uninterrupted rent plus an amount above the rent and have significantly decreased management and maintenance obligations as the tenant is treating the house as their future home. The result is higher cash flow and virtually no maintenance costs which should remedy the negative cash flow problem.

Short term rental

Short term rental is a niche opportunity very few landlords pursue although the return can be extremely lucrative. If your property resides near a business area, a hospital or health care facility, a university or college, an airport, a resort area or in one of the many areas of Canada dedicated to the production of oil or natural gas, there may be an opportunity to get higher than market value rents on a regular short term basis.

Many companies hire consultants on a short term basis or transfer their employees from different areas of the country. People often prefer staying in a “homey” environment rather than a hotel. You can charge a higher rental amount for these furnished units which will still be less expensive to the company than putting their employee in a hotel. If you choose this strategy, try to secure a long term contract with the company.

Another opportunity can be found with families that are new to your area. Recently transferred people looking to purchase a home in a new city or town may prefer a short term rental in a home rather than a hotel as they get acquainted with their new surroundings prior to committing to a house purchase. These can be short term to mid-term rentals often commanding up to three times market rent.

Find a Joint Venture Partner

There are many professionals who make excellent incomes and are “married” to their careers. Many are interested in real estate as an investment vehicle but don’t have the time or knowledge to participate in the day to day business. This person would become a joint venture partner and used for a capital injection to eliminate the negative cash flow in exchange for a percentage of capital gain from appreciation.

If the reason for the negative cash flow is a difficulty in keeping tenants as a result of lack of maintenance (the number one reason for tenants moving), this capital can be used to make necessary improvements or adjustments in creating a more desirable property, thus attracting better tenants. Rents can be adjusted upwardly.

Another reason for negative cash flow can be based on local economics or timing of the real estate cycle. Vacancy rates can become high in an area for many reasons. Consequently, tenants enjoy many more inexpensive choices, often coupled with landlord incentives. The joint venture partner’s capital can be used to keep the property expenses at “break even” until the real estate cycle moves to its next phase where appreciation and rental increases begin again.

Rent more space

Depending on where the property is located, it may be possible to rent out rooms as opposed to apartments. If the property is near a university, college or health facility, you may be able to convert the rooms into somewhat more “self – contained” units. To accomplish this you will need to furnish each unit with a bed, dresser, desk and perhaps a mini fridge. The tenants would share the common living area, kitchen, bathroom and parking.

In the case of student housing, have the parents sign the leases as well as the student. This keeps the parents equally liable for any damages etc.

This arrangement can work for more than just students. It can be ideal for graduate students, airline stewards, nurses, teachers, employees on temporary placement, volunteers on assignment, people on missions, or any other scenario where people need housing for a number of months at a time. You can obviously receive a higher aggregate rental amount, which can solve the negative cash flow issue.

In any of the above cases it is recommended to include a set of “house rules” which each tenant must agree to and sign. This can address such things as parking, storage, kitchen duties, clothes washing, common area cleaning duties, yard work, noise levels etc.

Renting separate amenities

A property may have a number of amenities included in the rent which may be charged to the tenant or people off the premises. To increase revenue from the existing tenant(s) you could install coin operated washer/dryer, charge for the use of the garage or basement /attic storage.

It is possible to rent space in the garage or driveway to non-tenants to store RVs, boats, jet skis, trucks or cars. The garage could be rented to a person who does car repairs or as a storage unit for any number of items. If the property is located in a downtown area, you can potentially rent the driveway for daily or weekly parking to corporate employees. Depending on the size of the yard or acreage you could even rent out an area for gardening.

Suite conversion

You may have a large house with the potential of conversion to a 2 or 3 unit building. This obviously requires a cash injection but can pay off handsomely in the long run. It is best to begin any conversion utilizing un- used or under used space such as a basement, attic, an out building, a room over a garage or even the garage itself.

Adding a small kitchen, bathroom and perhaps bedroom to any of the above scenarios can see to significantly increase revenue.

Any conversion requires checking with the city bylaws. Whether your suite is considered un-authorized or authorized, the suite must adhere to fire regulations. Please check with your local fire department for a copy of the fire code regulations in your municipality.

Vacation rental or B & B

If your property is located in a nice area and is conducive in its physical layout, you could convert it to a bed & breakfast. Of course you must have the inclination for such a business and a proper license to carry on such a business, but this can result in an excellent cash flow.

Adding an addition or another house

You may be able to add square footage to the existing building in order to create an additional suite. This strategy must be approved by the municipality. It is possible to subdivide your lot and build another house, duplex or even triplex.

This is clearly a long term strategy which will require assistance from a joint venture partner or financing sources, but can potentially more than double your current revenue or give you a significant capital gain if you sell the newly constructed property.

Changing the financing

Any landlord usually has a list of expenses with the debt service or mortgage payment usually being the largest. A refinance could reduce the mortgage payment by perhaps lengthening the amortization or decreasing the interest rate. A reduced loan payment will increase the cash flow.

Government programs

There are a number of government programs which can supply a grant or forgivable loan to convert your house in becoming conducive for disabled tenants or affordable housing for people on government subsidies and other government programs.

The above ideas are to enable a landlord to hold on to their property and ultimately be rescued from the perils of negative cash flow. In some cases however, it may be best to sell the property, cut the losses, stop the bleeding and take your lumps. Solving situations such as negative cash flow is part of any investor’s growth and success.

aboutdcDerrick is a Memphis native 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