Some Handy Rental Real Estate Tips

  • Be very wary of the so-called real estate gurus who promise you'll make tens of thousands of dollars annually from the moment that you begin investing with their course. If it were that easy, they'd likely be doing it themselves instead of selling get-rich-quick seminars on the subject, and everyone else would be doing it as well. Building substantial wealth in real estate is virtually always accomplished over time.
  • The tax records for all real estate are in the public domain. Therefore, if you're willing to spend the time and effort, there's no reason that you won't be able to find the name and address of the owners of virtually any property.
  • Some of the best real estate investment properties are located in blue-collar areas. Many of these workers, who often have steady well-paying jobs, opt to rent rather than buy. Conversely, some investors do very well in specialty markets such as high-end properties ($750,000 or more). But in this market the investor must be able to afford to buy such properties in the first place. Thus, unless already fairly well-to-do, new investors might have a difficult time breaking into the market on that end.
  • One of the keys to making money with rental property is to avoid changing tenants often. And one of the best ways to keep tenants in place is to charge rents that are slightly less than market rates.
  • It's not necessary to buy a property at a low price to make a profit if you're willing and able to wait it out for a while. In most areas, supply-and-demand and inflation will eventually work in your favor to raise the property's value and generate a profit for you - if you hang onto it long enough.
  • Real estate agents often "farm" areas for listings. In other words, they'll cover a neighborhood or group of neighborhoods, knocking on doors and talking to residents, hoping to find someone who might want to sell. By staying with one area and repeating their efforts, they become known and frequently get new listings. As an investor, you can use the same method to find good investment property.
  • Many states have laws that regulate the purchase of a home that's in foreclosure. Some may provide the seller with an opportunity to redeem the property at a later date, even after you've invested good money in refurbishing it. Others may mandate that you must give the seller a five-day window in which to back out of a deal that you've constructed with them. A local real estate agent or attorney can apprise you of potential foreclosure-purchase pitfalls such as these and others.
  • Closing costs can be paid in three different ways: the borrower can pay the costs in cash up front, the lender can build the costs into the mortgage by raising the loan amount, or the lender can build the costs into the loan by charging a higher rate of interest.
  • Experienced real estate investors will often maintain a reserve fund for cleanup, rent loss, and rent-up. Most landlords assume that their properties will, on average, be vacant for two- to four weeks a year as tenants come and go. Each time a tenant moves out, a clean-up expense is incurred. And until a new tenant moves in, rent is lost. Furthermore, rent-up expenses (such as advertising, credit reports and other charges) to find the new tenant must also be paid.
  • When financing investment property, it's nearly always better to opt for the longest-term mortgage that you can get your hands on - typically thirty years. This is because one of your main goals in investment real estate is to reduce your overall monthly expenses. Shorter-term loans may have a slightly lower interest rate, but the payments will always be higher. To maximize your cash-flow situation, therefore, it's usually best to take the long-term mortgage.
  • Take care if a buyer's agent asks you to sign an agency agreement. Make sure that it doesn't lock you into paying a commission if the agent can receive it from the seller's side of the transaction. You don't want to be a party to the agent collecting twice, once from the seller and again from you. Further, you don't want to make it too easy for the agent to get the commission from you at all - easier than negotiating with the seller's agent for it. Also, be sure that the agreement has a definite termination date and that you won't be liable for a commission or fee if you don't buy anything. Finally, know whether the agreement allows you to work with other agents or exclusively with just one.
  • Many investors toy with the notion of getting a real estate license. This is probably not a good idea unless you actually want to become an agent. While there's nothing wrong with enrolling in a course that will teach you about real estate, the license itself can be a disadvantage. This is because lenders typically won't make their best loans to real estate agents. They either know or suspect that agents often make creative deals, so they tend to be concerned that what's stated on the purchase agreement (which is the only document that they have to go by) may not reflect the true deal. This is particularly the case when a commission is going to one of the parties of the transaction who also happens to be an agent.
  • Cleaning-security deposits can be a big factor in the purchase of apartment buildings. At times the deposits may actually be larger than the down payment. It's important, therefore, to know exactly how much is involved, who has it, and who owes it before making the purchase.
  • It's important to remember that, when calculating profit or loss, rental expenses must first be offset by rental income. You can't simply take your total rental property expenses as a deduction against your total taxable income from all sources. For investment property, you must first subtract your property expenses from your property income, and if that amounts to a loss, the loss may then be deductible from your total taxable income.
  • Real estate taxation can be so complex and involved that it could often qualify as a subject unto itself. Before making any moves that would affect your tax situation, be sure to get advice from an accountant or attorney with experience in this area.

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