Are You a Landlord or a Real Estate Investor?

Are You a Landlord or a Real Estate Investor?

As the owner of rental property, your motivation for purchasing may have been to earn some extra income, increase your net worth, obtain tax benefits – or possibly all of the above.
The truth is that there are numerous advantages to buying income producing real estate. But there can also be several potential drawbacks, starting with just how much time you spend working either on or in your business.

Taking a Closer Look at Managing Your Properties
Property management can come in a couple of different forms. On one hand, you can opt to keep close ties with the property, as well as the tenants who reside there. On the other, you may instead decide to hand off the work to someone else and pay them for their services.
With that in mind, there are different ways of going about the ownership – and the long-term prospects – of your rental properties. And, while both can have nice advantages, there can also be some potential items that you should consider.
For example, landlords will usually have one or just a few properties. These are generally located close to home (or at least within a reasonable driving distance). A landlord may also be quite knowledgeable when it comes to repairing and maintaining property. That way, they can either fix a problem right away, or contact someone else who can.
As a landlord, you will be wearing many different hats, and you will typically be required to manage everything yourself, including:
• Advertising the property for rent
• Showing the property
• Screening potential tenants
• Negotiating the lease
• Collecting monthly rent (and contacting tenants if the rent payment is late)
• Evicting tenants
• Repairing and maintaining the property
• Responding to emergencies
• Bookkeeping

Each of these duties individually can be fairly time consuming. For example, the process of screening a potential tenant can require several steps such as reviewing an individual’s credit report, verifying employment and income, and contacting the landlord or property manager at their previous residence.

Source: ezlandlordforms.com

Depending on the amount of time you have available, performing all of these tasks yourself could allow you to net more of your real estate profit, as versus having to pay someone else to take care of it. But at some point – especially if you intend to purchase and rent out multiple properties – you could run out of hours in the day keeping up with all of these tasks.
A real estate investor will oftentimes approach the property management tasks somewhat differently. For instance, an investor will manage his or her properties, but will not actually perform the physical work such as fixing leaky toilets, or even collecting rent directly from the tenants.
Because many of the day-to-day operations – including dealing with tenants – will be delegated to the property manager, the tasks of a real estate investor will typically be just a small percentage of those that a landlord will have to perform. These will usually entail the following:
• Bookkeeping
• Approving expenses
• Communicating with the property manager (or property management company)

While there will certainly be a monetary cost that comes along with hiring a property manager, in many cases, this can be well worth it – especially if you had already factored in this amount to your initial cash flow projections.

Source: Vertex42.com

Having your time freed up from the day-to-day duties can allow you to focus more on other things, which can include the purchase of additional properties for your real estate portfolio. It may even provide you with the ability to expand your property investments much more quickly. That being said, the property manager that you choose to work with can play a key role in your overall success.

Choosing the Right Property Management Company
In choosing a property manager, there are some important things to keep in mind. For example, you will want to ensure that the manager or management company has an ample amount of experience in working with the type of property (or properties) you own. You will also want to make sure that they will provide your properties and your tenants with good, quality service.
In making your decision, then, there are several questions that you should ask prior to moving forward, such as:
• What type of property do you have the most experience with managing? (single family, multi-family, apartments, etc.)
• How long have you been in the business of property management?
• How many units to you currently manage?
• Do you personally own any rental real estate?

The Bottom Line
While being a landlord can be a great exercise in learning to manage and maintain property, it can also be a time consuming endeavor. With that in mind, prior to moving forward with the purchase of any property, be sure that you factor in both the time commitment that will be required as a hands-on landlord, as well as the cost in your cash flow projections of hiring a property manager. That way, you will be better able to determine what will be required either way, as well as your estimated cash flow going forward.

Are You Speculating or Investing?

Prior to the recession of 2008, you may have seen late-night infomercials stating how massive profits could be made by purchasing real estate, often with no money down and very little work. In order to do so, you first had to purchase their course, which would provide you with all of the insider secrets you needed to know. Unfortunately, the only people who were actually making any money were these “gurus” that were touting their materials.

The truth is that there can be money made in real estate, but in order to do so, it takes discipline and systems to ensure that the properties you purchase realize their potential for profit.

How to Ensure a More Successful Real Estate Investing Career
If you are just getting started in the real estate investing or if you want to ensure that you are making well-thought-out property purchases going forward, then there are some guidelines that you should stick to.

Don’t Just Assume that Real Estate Will Always Increase in Value

Even though real estate has been a good investment for many wealthy individuals over time, just simply assuming that any piece of property will increase in value can be a dangerous way to go.
Moving forward with the purchase of a rental property without first doing your homework, and then hoping that the value will go up, is considered speculating, not investing. Purchasing a property that will deliver positive cash flow avoids many of the pitfalls of speculation. Even if the property does not appreciate as planned, you can still be in the black in terms of income.

Start Small
If you are just getting started with investing in real estate, it is oftentimes best to start small and then work your way up to larger properties. Many successful real estate investors began with the purchase of a single residential property because this type of investment is typically easier to obtain and manage compared to larger residential or commercial options.

Know Where to Purchase
Anyone who has ever bought property – whether it was to live in, or as an investment – knows that the first rule of real estate is location, location, location. Although it may make sense to buy in attractive areas, the reality is that you can still make a profit in a less desirable location, provided that the numbers make sense.
For example, let’s say that the going rental rate in a highly desirable location is $1,300 per month, while you can bring in $1,000 in an area that isn’t as nice. If the purchase price of the property in the nicer area is $200,000, then your cap rate will be 6.5%. ($1,300 / $200,000 = 6.5%). If you can purchase a home to rent out in the less desirable location for $100,000, then the cap rate would be 10%. ($1,000 / $100,000 = 10%).
The key here is to make sure that you are determining your net amount of return after expenses. If the $100,000 house is in need of numerous costly repairs, then the $200,000 property could end up netting you more.

Review the Actual Numbers
Be aware that the seller of a rental property is incentivized to sell at the highest possible point the market will bear. With this in mind, you will usually hear from them the best case scenario regarding potential cash flow and profit.
But before signing on the dotted line, be sure that you ask the seller for their Schedule E tax form for the most recent year(s). This will provide you with actual numbers, both income and expenses, that the seller reported to Uncle Sam. While you still won’t be assured of making the same amount, by viewing this information you will at least get a better idea of what can be expected.

The Bottom Line
Any time you are in a buying situation, it is absolutely essential to go into it armed with as much information as possible. Simply purchasing a piece of property and hoping that it goes up in value is considered speculating. But, going into the purchase of a property already knowing what to expect in terms of income, expense, and return is investing – and this is a much smarter, and safer, way to go.

Three Ways to Maximize your Income

While the housing market has steadily climbed out from its 2009 recession lows, the rents received for single family homes over the past 18 months or so have begun to flatten out somewhat – especially from their late 2014 peak.

But as a single family property owner, there can still be ways of maximizing incoming cash flow from your investments in a slowing marketplace. How much you can add to the bottom line will depend on which strategy or strategies you pursue.

Why Single Family Rents May Be Flattening

Over the past several years, the tremendous amount of home foreclosures has spiked demand for rental property – and in many cases, those properties that have been in demand are single family homes. As the number of foreclosures stabilizes, one of the effects is a slowing in the overall growth of single family rents.

Graph–Single Family Rental Index, Percent Change

Picture1

According to the data firm RealtyTrac, only 4.3% of single family houses owned by investors were vacant during the first quarter of this year. Even if your particular city has a higher vacancy rate, finding tenants shouldn’t be difficult, and maximizing the income that is received from these tenants could be just a matter of making a few adjustments.

3 Ways to Help Maximize Income from Single Family Properties

In light of the slowing increases in market rent, single family homes can still provide an increase in overall income, provided that you seek out ways to maximize cash flow in relation to the property. Some of the best ways of doing so can include the following:

Minimizing Tenant Turnover

Having an empty property for even just a short period of time can make a significant difference in the amount of incoming cash flow. In some cases, a one- or two-month vacancy may even result in negative income for the entire year; minimizing tenant turnover and keeping your property (or properties) fully rented can make a big difference on your profit and loss statement.
Some ways to keep tenants happy and attached to your home sweet home include:
• Responding quickly to property maintenance issues, and especially to emergencies
• Offer to update light fixtures or ceiling fans
• Providing small “extras” such as birthday and/or holiday cards

Lowering Maintenance Costs and Other Ancillary Expenses

Although it isn’t a direct increase in incoming cash flow, lowering the cost of maintenance on your properties can result in higher overall net profit on your investments.
There are a number of ways to save on maintenance costs, including putting repair jobs out for bid (instead of automatically using the same plumbing, electrical, or other vendor each time you need a particular project done).
In order to see a bottom line increase, you may also be able to lower expenses in other ways. For example, if you as a landlord are currently covering the cost of amenities like cable TV, you could turn this cost over to the tenants. In this case, provided that the average cost of cable runs between $50 and $60 per month, this could end up as an additional $600 to $720 per property, per year, on your bottom line.

Taking Advantage of All Tax Breaks

As a landlord, you are also a business owner, and because of that, you can take advantage of various tax breaks. You should be claiming all of the repair and maintenance expenses on your property. If you still have a mortgage on the property, you can also deduct the interest you pay on your mortgage every year.

You may also have other deductible expenses including the cost of insurance, a home office (if you have one) to operate your business, and even the cost of business-related travel. Write down your potential allowable expenses, and at tax time you could be well rewarded.

What to Expect Going Forward

Even though the demand for single family home rentals may have abated somewhat, the good news for real estate investors who own these types of properties is that overall demand still remains high and demand for rental housing as a whole is anticipated to increase.
One reason for this is the continued tightening of credit, which is keeping many potential home purchasers in the rental pool. The continued increase in the average price of single family homes for sale has also allowed landlords to keep properties rented, and in some cases, for longer periods of time.
This high demand for rental housing is helping single family property owners to both find and keep tenants. So going forward, single family home investors can likely expect rent growth to remain solid, particularly in the case of lower and middle rent tenants.

Sources

1. National Real Estate Investor
2. PR Newswire. “Rents to Flatten in 2016”

Rental Applications. Now on RenterKit!

We’re excited to announce that Renters can now apply directly to a property listing online!

Rental Applications are one of our most requested features so we’ve been working hard to build that in to our site. Online Rental Applications are available for landlords and property manager that list directly on RenterKit. To create a property listing on RenterKit, sign up here.

How do Rental Applications work?

A renter creates an application by clicking apply on a featured listing. They fill out the application and then submit it.
Apply to apartments using our new rental application.

The listing landlord will receive a notification email to alerts you that your property has received an application to review. You can review the application under My Listings in your RenterKit Landlord account.

Online rental application view for landlords and property managers

Questions about Rental Applications or want to see something added? Let us know in the comments below.

Decorating on a Budget with Craigslist Finds

Modern house, living-room with the modern furniture

You can find all of this on Craigslist!

Moving in to a new apartment can be expensive! Once you finally find your new apartment, there’s the daunting task of decorating and making it feel like home. Our team at RenterKit wanted to share the best tips and tricks we have for decorating on a budget. Starting with Craigslist. One of our team members shares her experience:

So I honestly just thought of Craigslist as a place to find an apartment/job/slightly creepy research testing opportunity but as I started to look for inspiration for decorating my new apartment, the same thing kept popping up on my favorite blogs: “We decorated our amazing home in a mix of thrifted, DIY, and Craigslist finds!” Now I’ve been thrifting forever and am no stranger to decorating on a tiny budget but I was a little nervous about going down the Craigslist rabbit hole for a few reasons: Would they have anything good? Would the stuff pictured be different than what I picked up? And would it be safe going to some stranger’s house with cash in my hand? Well, yes, yes, and yes but overall its been a positive experience and I think I’ve scored some really good stuff plus its like thrifting from the comfort of your couch/the subway/basically anywhere.

But I have learned some valuable things though in my short time in Craigslist land so I thought I’d share them with you:

Short List

I originally needed a chest of drawers and rugs so this was my main focus. It can be overwhelming if you don’t narrow your search a bit but try to keep your search a little broad since gems might be hidden under some weird descriptions. You can also search for brand names “Ikea” “Crate and Barrel” if you’re looking for something from a reputable, i.e. not vintage source.

Favorites

I love to save things to my favorites as I see them and then watch them. If they’re still up after a few days, chances are they’re still available and the owner might be willing to make a deal.

Location/Delivery

Unless you enjoy spending your free time driving all over the tri state area, try limiting your search to a 20-mile radius. Or else make a day trip out of it. And delivery offers seem to be popping up more and more so ask if that’s an option.

Communication

I try to be super honest, friendly and direct in my emails with sellers. I state that their “awesome, amazing” item caught my eye, etc., I’d like to offer X amount and what day/time I could pick it up. I’ve probably had 95% of the people I reached out to respond. And try to stick to the day and time you agreed on and communicate if you’re running late, need to cancel, etc. They’re sitting around waiting for you so be respectful of their time.

Negotiating

So here’s where I’m a little old school but you need to use your judgment. I quote a price and we agree to it beforehand and that’s it. I bring cash with a little bit of wiggle room in case the item is in worse/different condition that the pictures. For example, if we say $40 bucks I bring a twenty, a ten and 2 5s so that I can offer $30/whatever if the piece needs work, repair, etc. Don’t lowball someone then expect them to make change for you. And remember you can always walk away.

Cash

As I mentioned above, cash always and always small bills especially if you plan to make an offer once you’re there.

Transport

Have a plan in place of how you’re getting the thing out of their home/office/hi rise building. Chances are they aren’t interested in helping you carry their (now your) crap to your car so bring help.

All in all, I’ve been able to decorate my place on a budget, met some interesting people and am officially hooked on CL decorating!

Do you have any tips on decorating on a budget? Share them below in the comments!