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
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
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
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.
Principle #1: Investors never spend the principal.
Most of the investors understand this fundamental principle. It is the origin of capitalism. It is great divide between the 1%. I would tell you the one phrase that could be a key to wealth preservation.
That is ‘do not ever spend the principal’.
If you obey this principle, you and your children, next and next generation will be financially stable till end of the life. This concept is not easy to understand by new investors. This goes over the head. Let’s jump into the details of do not spend principal.
When you invest a dollar just think it has gone and never come back. You now cannot use it. You are not able to buy anything or you cannot pay any debt from that dollar. This is no more in your life. That dollar has gone in a process that generate returns for you forever.
I am showing you an example through which you can clearly understand the meaning of do not spend principal.
I have a total sum of $200,000. I buy a rental property with the whole amount. The property gives me $2,000 per month. After a year my property value gets appreciated and the worth now is $220,000. I have total of now $244,000. I sell the property and walks to bank. Now I have $244,000 in my account. I earn $24,000 from rent and $20,000 from appreciation value.A total gain is $44,000 or 22% ROI. The $200,000 of that money in the bank is the principal. I used to invest in the first hand.I can spend $44,000 that I have earned without touching the principal amount.
Principle #2: Investors should reinvest most of the return amount.
Investors should also understand this fundamental principle to the core. I can also say this the origin of true wealth. The great division of the 0.01%.
The phrase I will use here is:
Principal and majority of return on investment both should reinvest.
If you obey this principle the same would happen to your generations and generations. The fruit will be sweet and big for the life.
If you want to build up wealth then you cannot spend all of the return you get from your investments. Instead, you need to reinvestsome portion of the return you get.
The example I gave in the first principle think again of it. You have earned total of $44,000 do not spend whole amount. Half of the return should be reinvested. Buy new property of $222,000 and it will give you more return with appreciation value. Do it every year and earn more return on investment. The more you invest the more you gain. Make this habit of investment. That will give you a faster growth in your income.
The core thing for investing is to build your wealth and enhance the life style. So, you can enjoy the luxury life but be careful do not use principal amount in the over joy.
Principle #3: For investment you should have capital.
When you think about investment you must have capital. You have capital in only two situations one you earn it or the second is you inherit it.This is the reason there is such a great divide in wealth in America. Instead of the fact that America has a relatively low cost of living.
If you want to be potentially strong in wealth and want to gain financial freedom then do not spend what you earn. The amount you have earned that would be your investment. Do not go with the other’s money. If you are a real entrepreneur or want to be a successful businessman than do not seek people’s money. You have to do on your own. The capital must be yours. And you have to earn your capital.
Principle #4: Investment returns do not correlate with effortsalways.
A person who invest all his efforts in finding the right opportunity for investing. His is using his potential energy for market study and undervalued stocks. He is using all his right behavior but his all efforts are in vain Unfortunately. He can use his potential simply in investing index fund and can earn better long-term returns. So, the key is think smart and gather your all efforts for acquiring high return on investment.
Too many amateur investors attempt to pick stocks and beat the experts in public markets. It clearly shows that there is no correlation between their efforts and their returns.
Principle #5: Return on Investment are strongly affected by knowledge.
The most interesting thing is the folks usually pick stocks because they are ignorant of the investment.They do not possess the knowledge regarding math and philosophy of investment. Most of the successful investors suggest do not get into picking stock. That is their lack of knowledge that leads to valueless efforts. Knowledge can be powerful and it leads us in long term financial positions and high return on investment. Just the thing is,apply correctly the knowledge to the business over which we have some control.
Let me give you my example. I have knowledge in Denver real estate market and real estate investing fundamentals. Then it is easy for me to gain high return on the investment. So, this knowledge could not help me in getting high return on stocks.
Without knowledge many of you can go wrong for investing and building businesses. And the problem is that it will not only reduce your return but can destroy the principal you have invested.
Principle #6: Investors do not confuse rapid change with risk.
First thing is to understand the definition of risk. The folks who says that investment in stock is risky they are wrong. They do not know the exact definition of risk. So, stocks are a group which are volatile. Bonds as a group are less volatile.This is the important distinction that investors should understand. See stocks are less volatile so they are less risky while bonds are riskier because they are more volatile.
Principle #7: The best investments could be specific to the investor’s personal situation.
Most of the people, fails to understand that great investment does not return from typically investment, stock market, bond market or rental investment. In spite of this, the greatest investment is reducing your cash out flows. In spite of that reducing your personal expenses is the greatest investment. Reduce your cash out flow that will give you increase in wealth and return on investment.
Cut down your personal expenses. Use energy savors instead of LED light. That will cut down your expense on utility bills. Reduce some cost of the fuel and try to get save more. This is the best way for cutting down your expense and making high income. If you did not try this yet. Then go with this option first.
What is most profitable. The question is if you are having 401k you should liquidate it to start investing in real estate or not.
You heard from the older folks and some financial advisor to invest it. It would be the best decision according to them. On the other hand, the younger folks want to pursue early financial freedom and dubious of this advice. They may be right so.
The young folks think that they are in their 20s now and they pursue their financial freedom, there is more likely a chance that they will be financially strong at the age of 60. However, the amount you are having 401k doesn’t matter. As a young man I agree with the young folks but at the same time I totally want to take advice of the elders on.To figure out solution,I did an analysis which will give you a sense and you able to explore other options as well.
The first part of the article will give you the analysis: if you invest 401k at the age of 25 what would be your return. You will come across some better option to liquidate the 401k. So, do not take decision at first glance. To explore some other options stick to this article till end. I did this analysis just because I want self financially independent.
Age:25 years old
401k Balance at Year 0:$15,000
401k Return:7% assumes 401k is held in stocks, bonds, mutual funds, etc.
Income Tax Rate:30%
Capital Gains Tax Rate:15%
Annual Contribution to 401k:$3,000 pre-tax
Annual Contribution to Other Liquidated 401k Investments:$2,100 because you save 30% less after the assumed 30% tax
Tax Savings from Reducing Income by Contributing to 401k:invested and earning 7.0% annual
Final analysis. At the age of 25, you are probably taking your first steps in your journey towards financial independence. Age 60 is likely to be very far away, so you are likely tempted to take that out now and use it to accelerate your journey towards financial independence.
If you invest 401k at the age of 25, you will receive at the age of 60 an amount of $489,545.35.
You can do your own calculations with the formula:
With this formula annual return would be 8.50000% at the investment of 401k.
Calculations would be (investment balance- annual contribution) * capital gains tax. For the rate of return 8.50000%
You have to keep in mind the assumptions I have mentioned above, at the age of 25 you invest 401k the annual return would be 8.50%.
Now it is time for 2nd opinion. Some other things to ponder including your reserves, as well as some other creative ways to enjoy high rate of return.
Best of both options.
In the above analysis, I assume that the amount of 401k is handled by a financial advisor. it is diversified amongst an excessive amount of mutual funds, index funds, bonds, stocks, etc. that will give a return of 7%. The analysis clearly suggests that despite of the tax-deferred earnings, there is a high chance that you can avail a better annual return on liquidation of 401k (8.50%+) by investing it on your own.
The other options for you would be to liquidate your 401k to a self-directed inter revenue agencies or a solo investment to take financial freedom. On these accounts you can almost invest in anything.Also, you can go with the real estate business. The best way to use your 401k is to go self-directed or take a loan against the funds and invest in real estate. This all depends upon your personal goals.
Property managers play a key role in the successful running of a real estate business. Real estate investors try to find efficient property managers for them to handle the property and its matters. The beginners who have a few properties tend to manage them by themselves but with the increasing number of properties, it is difficult to manage them by a single person. There is an option of hiring a management company but there are many options then how we find a good one. It is recommended for beginners to manage by themselves in the beginning so that they the know the potential issues that may arise in handling a real estate business. Let’s take a look what we should ask the property management companies when thinking of hiring one.
Charges of the company The first thing to inquire about is the charges of the company. It is common to charge seven to twelve percent of the property, but one can negotiate to a lower percentage according to the situation.
Numbers of properties the company is managing It is also important to ask them about the number of properties they are managing at a time. Out of all the properties, how many of them are long term and short term. Both are different business types and the focus should be on the long-term rentals.
Work experience and staff responsibilities One should also ask them about their work experience and for how long have they been in the industry. This will give an idea if they will stay in business for some time or not. It is also imperative to ask about the staff, the number of people that work for the company. The jobs of the staff should also be inquired.
Property checking schedule The investors should also ask about the schedule of the property manager to visit the property. Does the property manager visit the rental property regularly or only on the tenant’s call?In the later case, some tenants may not notify the needs and just leave. That’s bad!
Damage deposits It is recommended that the investor should get the management company to work with the bank account at the investor’s financial institution instead of using their account.
Tenant selection The management company should tell their criteria of selecting the tenant. They should specify their methodology of running a background check on the tenants. The management should also specify the type of tenants they would prefer to select.
Handling tenants call The management company should also be asked about their first-hand response towards the tenants calls for repair. The company should also be asked about the amount that they will specify for repair and why.
Philosophy on repair and replacement The investor should also inspect about the company’s philosophy on repair and replacement. It should be known if the company prefers a long-lasting solution or the least expensive one. The investor needs to find a company that has the similar philosophy as the investor has.
Conclusion While searching for a property management the investor should consider all possible situations that might occur when the company is handling the rental property. The investor should inspect about how the company charges for evictions. We all hope that such a situation never occurs, but one should be ready for all types of circumstances. The company should also make it clear if they will prefer to advertise the property while it is occupied, or they would want to wait for the property to be vacant to do so. All of this will help in finding the fittest management company.