Many investors that have multiple properti3es that understand that real estate is hard actually may not know the one secret rule that will close any real estate deal. you’ve probably seen investors who have needed help with closing, or maybe you’re the one struggling. But there is one rule you need to realize: you have to have a title company!
Why is that? Well, enlisting in a title company allows you to have an account representative that will look after your best interests since they’re interested, but they act as the mediator, who do the searches for liens and taxes, and the ones who will prorate the rent and deposits if the property doesn’t have tenants. They also will help you with the whole process, making it so much easier for you, and they’ll show you transactions by each item, and if you have questions, simply call and they’ll help you.
Title companies help you avoid giving money directly to the seller, which is something you shouldn’t be doing. You should make sure that you work with this so that you actually do get the property. There are times where the title company may not have seen some things when looking for liens, and the liens might be existing. You know who has to pay for that if you aren’t protected? You do! The title insurance does protect, but that’s extra money. But you can prevent mistakes from happening by working with a reputable title company or go talk to another investor or company in town that’s investor-friendly and ask.
It might seem weird if you’re new to this game. I get that, but this is actually a big thing that many tend to screw up on if they’re not careful.
A title company might seem like extra money. After all, you might wonder why you should pay for the people to search for information on the property. But that’s the thing, title companies do a lot of the dirty work for you. Their job is to pore over the contents of this, and in turn, they’ll tell you whether there are extant deeds, liens, and the like that are on this. If you’re someone who wants to have the extra success of a property sale, and in turn, you want to create a better, more rewarding experience, you’ll be able to do so with the help of a title company.
A title company can make or break a sale, and you’ll be able to take full care and responsibility of this if you do the right thing and look into getting a title company to work with you. you’ll be able to, with this, create a better and safer sale, so that you know exactly what you’re getting into when you use this properly, and you should do this before you begin with any sale, or even before the process o the sale as well, which will protect you too.
Screening vendors for property management take a bit of time but finding the right one will save you a ton of money and avoid a lot of dangers. Property managers along with landlords will use a vendor at some point for services, whether it be repairs due to maintenance, or even turnovers and inspections. Every vendor should be vetted before service, but maintenance vendors are especially important since the interactions could be a liability for your business. Every vendor is a representative of your business, so you should make sure that you select those that will work with you. You should look to see what you need as well and choose vendors in that way so that once you do have it all established, you can research, and you’ll be able to find the ones that you want to contract out.
The first thing to do is look at the approachability of the vendor closest to rental properties, including how easy they are to contact and if they return correspondence in a timely manner, or if they have 24/7 emergency services.
You should look at the people that you employ on your property, no matter who they are since they can become irresponsible or dangerous to the property, tenant, or themselves.
Also, look at the experience that the vendor has, or how long they’ve been in the business,s and what types of projects they’ve got under their belt, along with testimonials and references they can use.
Look at the insurance overage that they have as well, including any damages, injuries, or liability claims as needed.
Finally, make sure that they have a business license and a professional license that’s valid and up to date. Any vendors that aren’t licensed should be avoided like the plague. If you can’t find this information readily, always ask.
it’s important that, when you are screening vendors, if they’re willing to give you this information, that’s a good sign, and if they are hesitant, or refuse, it’s a huge red flag. If you’re finding it difficult to research on this, you should use vendor screening services so that you can look into the criminal and financial backgrounds of each vendor, and the business that they have.
If needed, you should consider taking it a step further by creating a list of rules and policies that your company takes when it comes to vendors. Demonstrating that you’ve done your part when it comes to diligence is important if thee are issues. This is a formal compliance policy that you can put together that allows you to tell the timeline to look at issues, contact information, documentation, and consequences of not following this, and any anti-discrimination policies.
Finding the right vendor can save you a boatload of time, money, and stress when choosing someone to help you with your rentals. Choose people that best fit your company, and in turn, create a better, more rewarding situation for yourself as a landlord.
Sometimes when you purchase a rental, there are tenants there, and they inevitably become the your tenants, which are essentially inherited tenants. These can be good, because you don’t need to waste time trying to fill a vacant unit, and you’ll get immediate income, but it can also be a risky operation, since you don’t know what type of tenant they are, and they might be poorly trained by the last landlord. You really won’t know until you work with them, but you need to understand that legally, the leases do go with the property, so the lease stays the same when you take over.
First thing to do, is you’ll want to review the leases, and make sure to verify the income and the expenses are the responsibility of the tenant, and the financials that are necessary are provided. You you want to compare these leases to the financials, since they can be altered and forged, and the leases can be changed by shady landlords. It does happen, so you should verify all of these. You can use an Estoppel agreement, which is a simple form that tells you that the tenant knows the terms of the lease to the best of their knowledge.
You should make sure that you have this agreement, and you discuss as needs what is what, and you had them paying, and who owns anything, and any conditions. You should make sure to keep this on file as well so that if there are any issues, you can bring this up.
When it comes to owning a new property, usually the tenants don’t know you, and it’s important that you introduce yourself accordingly, and tell them that you’re the new owners and are responsible for handling any issues as needed, questions related to the release, maintenance requests, and the like. This will reassure tenants that the property is still coming along, and it reassures the tenant that you’re not a slumlord, but instead someone who is happy to be the new owner.
Finally, let’s talk raising the rent. Sometimes, the rents are too low, and some landlords are hesitant to raise the rents. However, you should be careful about handling this. There really isn’t some sort of clear-cut answer on this, and if you don’t have the captia to handle this, sometimes keeping it the same for the first year as you fix up the units and get new ones in is a good idea. If you have more capita, you can sometimes get away with this, and you’ll have to realize that you’re going to need to accept the immediate loss in some cases and find new tenants since sometimes they’ll leave if you do this quickly. But remember you need to give a thirty day’s notice on this.
For many people, figuring out just what you need to do with new tenants is important, since ultimately, it does play a part in your overall tenant happier too.
when it comes to financial and legal sides of investments, you can’t let yourself get exposed to liability and taxation. You can make sure that you prevent this by protecting not just your business, but your assets as well. Failure to do this can put you at risk and you’ll be sued or fall behind. Legal structure is a simple document that protects your business. You should be able to with this, run your business as you feel is fit.
One way to do so is an LLC, or Limited Liability company, and it’s perfect for investors that buy and hold when you have steady income and long-term capital appreciation to accrue. they’re simple and cheap, don’t have a ton of paperwork, and you don’t have to limit the liability of the person behind that. It also allows for a pass-through entry, which means that earnings and losses are passed to the income tax return. However, you need to be very careful not to mix these, because if you mix the personal and business expenses, it can make you liable.
Then there is the S corp, similar to an LLC, but it will flow to the income tax of the share holders, and the S corp itself doesn’t owe any tax liability, and by structuring with this, you can get the flexility to manage this, and it is transferable.
C corps are a little bit different. They operate as total corporation and they do have to pay their own separate taxes, but the biggest benefit is that there isn’t a cap on the number of owners, which makes it ideal if you’re pooling the investors together for larger real estate investments, and because the earnings don’t flow into the personal tax return, you don’t have to worry about liability, but it does men double taxation if you pull cash out.
Finally, you have a REIT, and while it isn’t totally common, it’s possible to create a non-publicly traded real estate investment trust, allowing for an efficient and secure means. It does have a trick though, for in order to qualify, the entity must distribute about 90% of the annual income to the shareholders, so it’s hard to fully grow.
When you’re choosing one of these, think in the long term. You should always do so, and think about that when you set up a legal structure for the business. it’s easier to set up the structure and grow than it is to reach a point later on where you need to reincorporate. The latter of this can take a long time, get expensive, and is inevitably hard on the business. So, make sure that before you begin your real estate investment business, you know exactly what it is that you need to do in order to be sane and careful, and from there, you can choose for yourself what the fate of your business is, and where it is going as well.
Good and reliable tenants are blessing to every landlord. Every landlord always wants his tenant to be very decent and trustworthy. But in real estate business, it is not essential to always find a good tenant. You may come across many tenants who become your headache. Many tenants are lethal to you and your property. No landlord wants to indulge in a horrendous situation. I know for every landlord his property is his lifeline and he does not want his property to be damaged.As a landlord, I usually got into the situation where my tenant only brought pain and headache to me.
In that manner,the landlord wants to get aware of that type of tenants. Over the year of experience, I have seen some general factors in every tenant from which should beware of. Tenants, who bring potential problems to you possess these signs. You should take a deeper look before making a deal.
Types of tenants
- The story maker
The tenant who comes always with a lot of explanation may cause a headache to you. When you ask him a question, he would probably tell you a long story even the answer would require only yes or no. he spins you around his story. Beware from a storyteller. You should listen to the story (if you want) but never fall for it.
- The mama’s boy
The tenants, who are not decision maker could be lethal to you.There are many types of persons who are at the age of 30 plus but tie to their mom’s scarf. They always need their mom and dad for every decision. It clearly shows these types of people do not know how to live alone and how to take care of things. They always need their parents while lease signing and other fulfilling the other formalities.This is actually not a bad thing that his parents are always with him but this may cause some serious problems. He will not able to talk with you independently if there would be a problem in the future. He could not negotiate even without the permission. The pampered people are confused usually and they cannot make a good decision without support.
- The lazy layabout
This is another type of mama’s boy but unfortunately not the loving one. The parents will tell you how wonderful their kid is. Even they will be ready to pay you deposit, co-sign the lease document. They will be eager to get you to rent their kid. Actually, they are not sweet they are trying to dump you. Maybe they want their kid to be out of their home. So, they want to send him to another home. But why, you have to ask several questions to yourself. Maybe the kid is a lazy layabout but maybe there would be nothing wrong with the kid. The parents only want to kick him out, if this is the case then go for the deal but if the kid is a lazy layabout then beware.
- The perfect candidate
Nothing is perfect in life. But there are people who seem to be perfect. They could cause some potential problems like they will call you again and again for each and every problem in the house. They want everything to be perfect.They may bother you a lot. So, beware of the perfect candidates.
- The complainers
You may meet some tenants who would be the complainers. They may cause headache to you in the future. When you meet these types of people they will tell you about their previous landlord. He never fixed any problem, the rooms were small there etc. etc.It clearly shows that his going to complaint you a lot in future for the minor things even.
- The cash dealers
There are some tenants who will offer you all the cash deals done by today. They will offer you to pay all the deposit and last month’s rent. Even they could say I will pay the whole year rent. It sounds great but the question is why he is doing so. Maybe a legitimate reason so beware of it.
- The space cadet
You may come across some tenants who are space cadets only. They never tell you the right address. They might lose several times. Beware, of such kind of tenants. These types of tenants forget to pay rent on time usually.
If you want to know deeply about the real estate investment, the only good lesson would be buying investment property. Of course, when you start taking the first step, you see some difficulties in making a purchase deal. Definitely, you do not know all the steps of the deal. In this article, I will give an example on real-life step by step process.
I have been an investor since 2002. I have flipped properties, rented them out, and financed them. I have used all these tools and fond them all very helpful. My personal favorite is small and simple residential properties. Because I can manage time for writing articles for you by doing this.
I am here give an example of Mr. Aaron. He is in his 40s and now he wants to be Part-time buy and hold landlord. He lives in small-sized town and he also plans to invest there.
By going through this article, you will be able to know the complete investment saga. From the preparation to the marketing strategies, and to the closing deals of the purchase.
Preparation and The Planning Phase
Planning is the key to achieve your goal. Without planning it is like beating around the bushes. Mr. Aaron always believes in this key. He is doing a day job for a commercial construction company as a supervisor. His duty is to plan each construction project from start to end.
The first part of the plan was how to build wealth for the real estate investing business. He wants his financial independence. He works more and more in every free time, he gets. This made him financially strong. The steps he crossed to get to the financial peak are:
After passing all these stages he saved 50% of his annual income. Now, he has $60,000 cash ready to invest.
The Marketing Strategy Phase
Now Mr. Aaron has a good amount to invest. So, the next phase is, what would be the marketing strategies in the real estate investing business. Fix and flip properties, wholesale it, invest in notes, buy rental properties, or something beyond this.
After research, Mr. Aaron decided buying an investment property would be his strategy. He wanted the best use of his $60,000 and wanted an exponential growth in his income by using this amount. He started his deal by doing numeral BRRR strategy deals. After some purchases, he uses a debt rapid increase, to own some properties free within next the 12 years. Now, he is ready with a bid life-changing decision as he owns now a sufficient cash flow. He never gave up his job, so that he can save more from the job too.
Mr. Aaron is always determined and focused on his plans. He was busy with the family and job but always devoted to his real estate investing efforts. In order to earn the profit, he always sticks to the study and preparation for these next steps.
- Always study and research the essentials of the market.
- Clearly knows the property criteria.
- To get preapproved for the financing in the real estate market.
- How to prepare cash funds.
- How to create financial goals for cash funding.
- Creating a best-fit marketing plan to finalize the deal.
- Making offers.
- A thorough study on contracts and legalities.
The Closing Phase
When he knew all the above strategies after a lot of study and research. He now put the sale and purchase property under the contract. He never names his property under LLC while buying, he always buys under his own name. he was in contact with a private lender. He was also helping Aaronin making sound deals. And checking him throughout. When the offer gets accepted, he prepares the funds for closing the deal. Aaron self-directly pay IRA $50,000 loan and balance is the purchase price which is $10,000. He also paid for the repairs and closing cost. The total estimated cost would be $45,000. Full cash investment. After the closing, he is all set to make money.
For an exponential growth in the wealth, every investor wants to jump from single-family flips to multifamily. And trust me that is the great decision. This jump might be integral for many investors.If I talk about myself I always prefer multifamily deals as an investor.Many investors are afraid to get into this multifamily investment business or they might have some barriers.
- You do not have personal million dollars property and funds.
- To acquire the equity funding, you do not have access to potential investors.
- You do not have trustworthy commercial brokers or multifamily dealers.
- You do not have the millions to qualify the commercial multifamily loan.
- You do not have enough time to pursue your multifamily investments career.
The huge amount of U.S. and international capital running into the asset class of the recorded occupancy, rent increases, and profitability.Coupled with the record asset sale prices made this time hard for the well-experienced investors to seek a great deal.The limelight is the good multifamily deals with price tags. It would definitely allow for good cash flow, appreciation, and safe loans in the downturn time period.In multifamily business, the real challenge is access to capital. But the things are no same now. This point is now history.
The point is!
Grab Your Seat at the Real Estate Investment Table
You may pass years of frustration by doing partnerships with some experienced multifamily investors. I am not going to expound this detail. But I will give you a real-life tale to be successful in multifamily real estate business.
This is the story of Dr. Peter.
Dr. Peter who is a physician by profession in Las Vegas. Over the years he found that he was happy with the medicines and the treatments. This only gives him the long working hours, the stress, and the sleepless nights only.He started to research the real estate investment business.
Dr. Peter found the commercial multifamily investments the more profitable way to earn exponential wealth and to grow. But Peter also realized there are some barriers to jump into the business while being a full-time working man.
With the research, he came to know that he would need a good mentor. He found a good one. He started to build good relations with some brokers and online resources. It requires a lot of hard work, determination, passions and time. He finally sourced and referred a good investment deal. Ready to fly.
From Cell Towers to Apartments
Mr. John who was doing cell tower land for some nation’s firm. He realized after that he is making other people rich. He is not doing well for his own life. After some time, he realized multifamily business is the way to become richer and to grow faster. He jumped from cell tower to apartments. He used his contacts. After some research, he locates owners of the multifamily assets and tapped a commercial broker. The was lucky because he knew some people well before. He had contacts already. You can also make some important contacts after doing research. He first referred a 125-unit apartment and the syndicator gave him a piece of ownership in the apartment deal. Now, he was able to co-sponsor all the deals. He gained reliability of brokers, lenders, sellers, and investors. After that, he launched out his own one.
Six Tips for Pursuing this Investment
- Do not trust the syndicators blindly and throw deal referrals.
- You must analyze the deal properly.
- Prior to the embarking of the deal, you must negotiate an ownership share.
- Do not go with the commission.
- Take it as a learning opportunity.
- You must get it on your resume.
You will have to come up with many thoughts when you start considering to acquire a multifamily property. The first, and likely the most important question which comes across in your mind is, what will the rent be?
This conversation can take a long time to cover all aspects, but I tried here in this article to cover more and more. The conversation about rent can give you a headache. But if you read this article you will get to know all the answers and can get rid of this headache. I try to shed light on all the question, you will have in your mind. Here are absolute rules for setting appropriate rent prices.
- Rent should cover all your expenses
Every landlord thinks rent should be high enough to cover all his expenses. Rent is the fixed income you will earn every month. So, it should be enough to afford all your expenses and something should be left over as cash flow.
Well, I do not like any hard and fast rule, but the purpose of this conversation is, what should be a minimum rent requirement. For instance, a 50% expense ratio, which covers both the economic losses and the operating expense. So, in the case of a $600 rental, a 50% expense ratio would leave us with $300 to cover 3 very important characteristics which are:
- Debt service
- Capital reserve
- Cash flow
If you think practically, the $300 is simply not enough to cover all three above things. And since debt service is a prime factor, the choice we face is between our profit and Capital reserve. What we usually see is in the landlord’s pocket, the money left over after debt service, and then go to do some other work for some cash flow. This goes for years and years, and then their house gets destroyed.They find themselves needing to repair and renovate their houses like to replace the flooring, new painting, the water heater, and a stove. This is a sad experience for them because they have to do all these repairs from their cash flow. So, the situation can get worse for them. So, in order to get rid of this situation, always try to fix the rent that will cover your 80% expense. It is good if you can cover your 100% expense from the rent, but the minimum requirement should be 80%.
- Protect and grow your investment
Every landlord has two main objectives. To protect his investment, and to grow his investment. Protecting your investment is a function of operating at a price point which is attractive to an economically stable tenant base.But,it should not get so high that it limits our audience. In other words, until and unless you are in a very selective boutique market or asset class, you should not want your rent to be in the 90 percentiles. Many people cannot afford that rate.
- Market range
This conversation is specific about the market. I am talking about owning rentals that are within the 55th to 70th percentiles, within the range of, availability in the market place. So, if in your market rents range from $500 to $1,200 for class A, you probably want to be in the $725 to $1050 range. This will be attractive to tenants who are stable enough to protect your investment.Remember, it would not be so high that only high class of the marketplace can take on. Always set both minimum and maximum rent requirements for your tenants.
- Rent of the property should be per square foot
You have to price your apartments on a per-square-foot basis. Do some research online and then make rents for your property as per square foot not as per rooms.
I usually think what I would do differently, after 30 years of real estate investing. It is a good question to ask yourself. And the answer to this question is here in this article.
There are pretty ample things that I would have done differently. Here is the list.
I would have started my real estate business earlier
When I started this job, I thought I needed to work some other jobs and in order to save my own money to do my real estate deals. At that time,I was only focusing on buying and holding properties.
I regret that I would have started it earlier. The important thing I did not realize earlier was that this was a get-rich-slow strategy. I was fully devoted in making other people rich. I was dealingeveryone from builders and developers to apartment owners and real estate brokers. At that time, I was a painting contractor and a real estate agent.
One of my biggest regrets is that I waited so long to say goodbye my painting contractor job. Then, I apply for my real estate license and go into real estate investing business full-time. But I think I would have started my real estate business much earlier. I would have done it more wholesaling and flips. I would have usedhard money for my deals prior on in my investing career.
I regret not assigning tasks to manager
I was doing everything finding the deal, fixing the property, book keeping, being a real estate agent and being a property manager doing all real estate assignments on my own. I was not picking out time for myself,I was just saving money for myself and earning more and more. I used to manage everything like my savings and expenses and I never paid attention on the core assignment that they should be assigned to a manager. I thought I was great in everything so why I should assign tasks to someone else. I realized the real estate business is my passion. I could make more money by investing in real estate. I could do it myself.I was doing all the tasks like cleaning houses, painting and many more stuffs. Even I was having a good savings at the time. I was earning good.
For me it was a very hard thing to assign my tasks to someone else. I thought I am perfect in everything and no one can do and handle things like me. But I was wrong. These were just stupid thoughts.And it took me a while to realize. I realized you do not have to do each and everything by your own. It is totally ok if you can delegate your tasks to someone else. This is also for your benefit. I wish I did not make this mistake in the past and at an early stage. I must have hired any real estate manager sooner.
After this thought I hired a real estate manager and that was my best decision as an investor in real estate. It is very easy now to share your burden of work. I do not have to do all the repairs and maintenance things by my own self. I wished I had done it sooner.
I regret not using money and IRA Accounts in a bigger way
The other regret I have is not using money properly. I could use other people’s money and self-directed IRA accounts in a bigger way for my own real estate investment. Maybe I was afraid of taking risks at that time. But I should have done this sooner. I should have taken loans. I could do more investment in that way. But I did not do, and that is mu biggest regret.Maybe, Ithought, if I was not able to keep it going, what would happen then. These what and if stopped me. That was my case and a big regret too.I absolutely could have used more money, whether that was my private money or borrowed money. If I took this decision sooner, I could do real estate investment in a better way.
Now I am doing well inmybusiness, but if I could understand these regrets sooner, I could have done better business and deals. I hope by reading this article, you will not repeat the same mistakes which I have done in my career.