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 s an investor you need to find properties that are in a good location, are an appropriate size, and will appeal to your target market so they rent or sell easily. Not only can I help you find these properties, I also understand that you need to be able to look at properties for not what they are, but what they can be. With a design background and through owning investment properties of my own, I am able to work with you to envision these properties' true potentials. You obvious have this ability as an investor and I feel that it is only appropriate that you work with someone who also has this understanding and can introduce you to the properties with the greatest potential that will generate the greatest return on your investment. Also, I can provide you with a list of reliable repair people that provide good work at affordable prices so you can get your property "market-ready" as quickly as possible.
 lease read through the following articles that we have compiled for you that we believe pertain to your interests and objectives. Also, be sure to check out our Buyers Resource area and Finance Information area for additional articles and tools that you may find useful. Once your ready to start investing, send me an email or give me a call and we'll work together to find you that perfect investment property.
 
 
Five Big Mistakes "Newbies" Make
"Real estate investing fever" has hit like a plague. Zillions of "newbie" investors are jumping on the bandwagon trying to make a profit, and many are making big mistakes!
Mistake #1: Stock Market Mentality
You'd think after losing $7 trillion in the stock market, people would have learned! Nope, they are making the same mistake, which is assuming that what happened yesterday will happen tommorrow. Nine of ten new investors say they are interested in real estate because they saw someone else make money from the rapid appreciation of the market over the last few years. But, buying real estate solely for short-term appreciation is often a big gamble! If you buy real estate to hold for fifteen years or more, the chances are that you will come out on top. If you buy a property and flip it in within a year, you'll probably do fine, too. And, despite the risk, many people can intelligently time the "boom" of a local market (or subdivision within a market) and make a profit. But, if you buy a rental property for full-market price with break even or negative cash flow, you'd better have a backup plan if the market doesn't keep going up. Investing is a lot like surfing; if you don't know how to ride the wave, you will drown! So, should you refrain from investing if you think the market has peaked? Absolutely not! You can find bargain-priced properties in every market, even the hottest. You can find low-interest rate financing that will increase your cash flow, so if values drop, you still are covered. You can plan short-term (six to twelve months) because markets rise and fall slowly. And, if you keep a cash reserve for your business, you won't sweat when the market tanks. You know that in the long run, real estate markets virtually always come back.
Mistake #2: Investing Blind
Real estate is one of the few investments in which risk is directly proportional to knowledge. True, it has a higher learning curve than investing in the stock market, but there's no proof that having knowledge of the stock market reduces risk (just ask your mutual fund manager). Money for deals is easy to find if you can find good deals. But, you won't know what a good deal is without having first invested in your education! The more knowledge of investing techniques, financing, acquisition, negotiating and, of course, the local market, the less risky your investments will be. A bargain real estate purchase will generally always be a safe investment; a bargain stock purchase isn't. After all, who says the company you bought into will be in business next year?
Mistake #3: No Cash Reserves
Ask anyone in real estate long term (or any other business, for that matter), and they will tell you the two most important words for survival are: cash flow. Heck, even K-Mart failed to learn that valuable lesson! In order to stay in real estate long term, you need cash reserves. Buying real estate with nothing down is easy; handling negative cash flow, repairs, and other expenses in the meantime is the trick. In fact, if you can handle the bad times, you will always come out on top. Lack of cash reserves puts unnecessary pressure on you to do substandard repairs, accept less than qualified tenants, and give into tenants' demands for fear of vacancy. When you have a sufficient cash reserve, you act rationally.
* You hold out for a higher sales price.
* You hold out for a qualified tenant.
* You leave properties vacant rather than accepting unqualified tenants.
* You call a tenant's bluff when they threaten to leave.
* You take care of necessary repairs and improvements on your properties.
It's a whole different ball game than operating from a lack of cash. You can buy real estate without money, you just can't survive in business without cash reserves. Consider accumulating cash reserves before investing in rental properties.
Mistake #4: Being Greedy
Many investors get started flipping properties to other investors, which is a good idea to generate cash reserves. However, you must be realistic about how much profit is in a deal. If there is a potential for a $20,000 profit in a rehab project, you can't expect to make $10,000 flipping that property to a rehabber. A rehabber has a huge risk embarking in such a project and wants a large enough profit to justify the risk. For example, if a house needs $10,000 in repairs, and the rehabber investor wants to make at least a $20,000 profit. If you find a deal with $20,000 in profit potential, how could you expect to get $10,000 for flipping the property if the rehab investor is only going to make $10,000? You should be happy making $2,500 and moving on to the next deal. If you want to make more than $2,500 on such a deal, then you must find and negotiate a better bargain that has more profit potential.
Mistake #5: Treating Real Estate as Anything Other Than a Business
People are lured to real estate because of the quick buck it promises. Don't hold your breath - you won't get rich quick. An "overnight sensation" usually takes about five years. More than 90% of the people who take a real estate seminar quit after three months. Why the high fallout rate? Lack of action and unrealistic expectations. Investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat real estate like any other business. Give yourself at least six months to see if real estate works for you. It may even take a year before you buy your first property. Maybe in the second year you will buy three or four properties. If you work hard at it and keep your eyes and ears open, you may even find your first deal in 30 days. You will not make money by talking or thinking about it; you must go out and take action.
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Are You Clear on What is a Good Deal?
So often beginning investors focus on real estate investing techniques that they lose sight of the important issue - is this a good deal? Learning to recognize a good deal takes research, education and, above all, experience. Here's a good formula to determine whether a potential real estate purchase is a good deal. It's a simple acronym called "C.L.E.A.R."
Cash Flow
Ask yourself, will this property produce cash flow? Well, that depends on a lot of factors, such as the strength of the local rental market, the interest rate on the financing and how much of a down payment you make. Also, it depends on whether it is a single family or multi-family dwelling. All of these factors considered, ask yourself, "will this provide income for me"? Also, ask the question, "how will this property cash flow compared to other potential properties"? For example, a $150,000 house that rents for $1,000/month has a better income potential than a $300,000 house that rents for $1,600/month. A four-unit building that costs $400,000 may bring in $3,000/month in the same neighborhood. Now, of course, whether the property will provide income to you begs the question of whether income is important to you. Is it? Do you earn other income? Do you need more income now, or is future equity growth more important? There's no right answer to these questions, but are all factors to consider when looking at a potential purchase.
Leverage
Leverage is important in investing because the less cash you put down on each property, the more properties you can buy. If the properties go up in value, your rate of return goes up exponentially. However, if the properties go down in value and you have a lot of debt on the property, this can result in negative cash flow (see above). Since real estate is generally cyclical, negative cash flow is only a short term problem and can be handled if you have other income or a cash reserve to handle the negative. "Nothing down" investing is very attractive for the high-leverage investor, but should be approached with caution. If you are a long-term player, leverage will generally work in your favor if the markets in which you invest appreciate in the long run and your income from the properties can pay for most of the monthly debt service.
Equity
Does the property you are purchasing have equity? Equity can take a number of forms, such as:
* A discounted price
* A potential fixer upper
* A rezoning opportunity
* A poorly managed property
* A foreclosure
There are many ways to create equity, but buying into equity is your best bet. Find a motivated seller that wants out of his property and is willing to give up his or equity for less than full value. Or, buy a property that needs work that can be done for 50 cents on the dollar or less. In other words, if the property needs $10,000 in work, make sure you get a $20,000 discount on the price or better.
Appreciation
Buying in the right neighborhoods and in the right stage of a real estate cycle will result in appreciation and profit. However, timing a real estate cycle is difficult and can be very speculative. If you buy properties without equity or cash flow solely for short-term appreciation, you are engaging in a very risky investment. Buying for moderate long-term (10 to 20 years) appreciation is safer and easier. Look at long-term neighborhood and city-wide trends to pick areas that will hold their values and grow at an average 5 to 7% pace. Combine this tactic with reasonable cash flow and buying into equity and you will be a smart investor.
Risk
Risk is a consideration that too few investors consider. Ask yourself, "what if my assumptions are wrong"? In other words, do you have a "plan B"? If you bought for appreciation and the property did not appreciate in value, can you rent for positive cash flow? If you buy with an adjustable rate loan and the rates go up, will this put you out of business? If you have a few vacancies, can you handle the negative cash flow, or will it break the bank for you? Expect the best, but prepare for the worst.
Remember, whenever you look at a property to purchase, think "CLEAR".
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10 Inexpensive Ways to Spruce Up Your Rental or Rehab Property
You need to keep your properties in good shape to attract tenants or buyers. There are the basic improvements, such as carpet and paint, but these can costs thousands of dollars. The following are some inexpensive ways to improve your properties with very little cash.
#1) New Electrical Switch Plates - This is such a minor, yet overlooked improvement. Most rental owners and rehabbers paint a unit and leave the old, ugly switch plates. Even worse, some even paint over them. New switch plates cost about 50 cents each. You can replace the entire house with new switch plates for about $20.
#2) New or Improved Doors - Another overlooked, yet cheap replacement item is doors. If you have ugly brown doors, replace them with nice white doors (you can paint them, but unless you have a spray gun it will take you three coats by hand). The basic hollow-core door is about $20. It comes pre-primed and pre-hung. For about $10 more, you can buy stylish six-panel doors. If you are doing a rehab, the extra $10 per door is well worth-it. For rentals, consider at least changing the downstairs doors.
#3) New Door Handles - In addition to changing doors, consider changing the handles. An old door handle (especially with crusted paint on it) looks drab. For about $10, you can replace them with new brass finished handles. Replace the guest bathroom and bedroom door handles with the fancy "S" handles (about $20 each).
#4) Paint/Replace Trim - If the entire interior of the house does not need a paint job, consider painting the trim. New, modern custom homes typically come with beige or off-white walls and bright-white trim. Use a semi-gloss bright white on all the trim in your houses. If the floor trim is worn, cracked or just plain ugly, replace it! Home Depot and Lowes carry a foam trim that is pre-painted in several finishes and costs less than 50 cents per linear foot. Create a great first impression by adding crown molding in the entry way and living room.
#5) New Front Door - You only get one chance to make a first impression. A cheap front door makes a house look cheap. An old front door makes a house look old. If you have nice heavy door, paint it a bold color using a high-gloss paint. If your front door is old, consider replacing it with a new, stylish door. For about $125, you can buy a very nice door.
#6) Tile Foyer Entry - After the front door, your next first impression is the foyer area. Most rental property foyers are graced with linoleum floors. Consider a nice 12" Mexican tile. An 8' x 8' area should cost about $100 in materials.
#7) New Shower Curtains - It's amazing that many landlords and sellers show properties with either no shower curtain or an ugly old shower curtain in the bathroom. Don't be cheap - drop $40 and buy a nice new rod and fancy curtain.
#8) Paint Kitchen Cabinets - Replacing kitchen cabinets is expensive, but painting them is cheap. If you have old 1970's style wooden cabinets in a lovely dark brown shade, paint them. Use a semi-gloss white and finish them with nice hardware. No need to paint the inside of them (unless you own a spray gun), since you are only trying to make an impression. Americans spend 99% of their time in the kitchen (when they are not watching TV). A fancy modern faucet also looks great in the kitchen. They can run as much as $150, but not to worry - most retailers (Home Depot, Lowes, etc.) often run clearance sales on overstocked and discontinued models. You can find a nice faucet on sale for around $60.
#9) Add Window Shutters - If you have ugly aluminum framed windows, consider adding wooden shutters outside. They come pre-primed at most hardware retailers and are easy to install. Paint them an offset color from the outside of the house - (e.g., if the house is dark, paint the shutters white. If the house is light, paint them green, blue, etc.).
#10) Add a Nice Mailbox - Everyone on the block has the same black mailbox. Stand out. Be bold. For about $35 you can buy a nice colorful mailbox. For about $60 more, you can buy a nice wooden post for it. People notice these things....and they like them!
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Investor's Survival Guide
There’s no question that owning residential investment property is rife with daily challenges - from things as mundane as clogged plumbing to having criminals as tenants. But savvy real estate professionals who are long-time investors know that the occasional challenges of being a landlord is well worth the trade-off of having a stable investment. Many say they have learned to manage the most frequent problems, such as anxiety, vacancies, bad tenants, and emergencies. They offer their hard-earned knowledge on how to avoid the most common pitfalls of being a landlord.
Psychological Anguish
Although gnawing questions - Will tenants pay their rent this month? How long will the vacancy last? Are tenants’ jobs secure? - plague all investors, eventually the psychological anxiety diminishes and investors learn to roll with it. "You never get over it because it's part of being a landlord," says Danial Griggs, who has been investing for the past five years and owns five rental properties. "But over the years, there's a toughening of the skin." Jeff Rosenblatt, who owns single-family rentals in Tampa, Fla., adds, "When everything is rented, it's a great business, but it is a business and you're going to have good and bad years."
Empty Rentals
Every landlord also frets about market slumps and vacancies. "There are times when you'll face economic setbacks," says Doug Richards, who teaches seminars on real estate investing. He suggests asking, "What's the worst-case scenario? Can you hang on to your property at a reduced rent?" Ideally, you should have emergency funds to cover each property's monthly expenses. How much you put aside depends on your financial situation, risk tolerance, and market conditions. Most say they're comfortable having three to six months' expenses on hand. Although landlords have offered free parking, electronic gadgets, and health club memberships to woo tenants, rent concessions speak the loudest. When one of Rosenblatt's properties recently sat empty, he negotiated a $100 monthly rent reduction if the tenant would commit to a two-year lease. Rosenblatt considered it a good deal: He eliminated the financial drain of losing additional rent and extracted a longer-term commitment, which eliminated re-renting costs for two years.
Diversified Portfolio
Owning multiple properties also minimizes financial woes when there are vacancies. Some units rent at a profit, some break even, and others rent below monthly costs. Those turning profits tend to offset those that drag down the portfolio. Because he has multiple homes renting profitably, Sinu Pohar, in Irving, Texas, says, “Even if I have two vacancies, I won’t be stuck in a cash-flow crunch. I just may not make as much money in a given year.”
Bad Tenants
Tenants who were chronic whiners, party animals, or drug dealers all have been part of investors' experiences. Most say they've developed a sixth sense and listen to their gut when screening tenants. For instance, you may want to be wary of prospects who start complaining - "Can you fix this? Paint that? Change this?" - even before signing a lease. Possible responses to irksome requests include, "The apartment is being rented as is" or "Those changes can be made for an extra $500 per month." You may want to create a set of qualifying guidelines - minimum income, minimum years of employment, and so forth - to weed out dicey prospects. But be sure you apply the same qualifying criteria and offer the same concessions to every prospective tenant so you don't violate fair housing laws. Although a credit check is a valuable screening tool, a poor credit history isn't always an indicator of a poor tenant, nor is pristine credit a guarantee of a good one. Griggs will overlook bankruptcies and foreclosures if a tenant has a history of paying rent on time. Fred Schneider agrees. "Some of my tenants went through bankruptcy, disclosed it up front, and provided a letter of explanation. They turned out to be my best tenants, and I eventually sold them houses." But emphasize that rent is expected on time and outline a penalty schedule in the lease for late payments. If prospects unnerve you, delve deeply into their history. Perform thorough screenings of credit history, call previous landlords, verify employment and income, and even run criminal background checks.
System Breakdowns
Plumbing disasters are one of the most frequent emergencies landlords face. Water heaters and furnaces are close seconds, according to long-term investors. One morning last winter, Merilynn Foss, cleared her schedule to traipse out to a rental property on a sub-zero day to get a frozen pipe fixed. "Such problems just go with the territory of owning rental property," says Foss. It's important not to be stingy with inspections and repairs because they can often avert emergencies. Griggs calls it pre-emptive maintenance and routinely checks toilets, sinks, and other systems and replaces items before they wear out or break. For some, doing inspections monthly or every 60 days isn't excessive.
How to Avoid Common Investment Pitfalls
You can make property investing less stressful and less draining, both emotionally and financially, by keeping properties well-maintained, carefully selecting tenants, and being a skillful marketer. Here are some other survival tips offered by veteran real estate investors to have your investments pay off with a minimum of pitfalls.
Physical Condition:
• Keep properties in top shape. As Goddard points out, a clean property that is well painted and smells fresh will rent more quickly and at a higher rate than its competitors. It also sends a message to tenants that you're concerned about the property, and they'll be more likely to take good care of it.
• Establish an inspection schedule. It's a way to ensure tenants are caring for a unit and using it as agreed upon in the lease. It's also a chance to make certain smoke detectors and other systems are working. Tenants also tend to keep things in good shape when they know the landlord will be appearing regularly. Although some landlords like to visit their tenants on monthly or bimonthly basis, many believe that quarterly or semiannual visits are a reasonable frequency.
• Install high-quality, durable building materials. This will extend the life of properties and reduce maintenance.
• Use the same paint color in all rentals. It makes touch-ups easy, paint can be bought in bulk at a discount, and you don’t have to track what color is in what unit. Be leary of going with cheap paint, it does not hold up well, and instead of having to do a few touch-ups you'll end up having to re-paint the whole place.
• Build relationships with repair people and service providers. When you have an established relationship with these valuable people, they'll make you a priority in an emergency. "I have a list of preferred vendors," says Richards. "They jump when I need repairs because I pay them quickly and give them a significant amount of business."
• Consider hiring a free-lance maintenance person or a property management firm to manage, lease, and maintain rentals. Interview several managers and check their experience and references. Present some hypothetical situations and ask how they'd manage problems particular to your properties. Also ask for three addresses they manage; drive by to see how they're maintained.
Tenant Selection, Retention, and Relations:
• Look for forthright, considerate people. According to Schneider, parents who discipline their kids in a loving way, rather than yelling at them; those who remove their shoes at the door; and those who offer many references and invite you to their present rental are all subtle signs that they’re decent prospects.
• Build good tenant relations. Turner delivers holiday fruit baskets, offers tenants referral fees ($50-$100) when they bring new tenants and mails tip sheets on how to reduce air conditioning bills in the summer. He also conducts annual surveys to measure how he's doing as a landlord and what needs improvement. Goddard calls tenants every 90 days. "I want them to feel warm toward me and know I'm available," he says. Many of his tenants have turned into buyers.
• Be flexible when tenants face personal problems and have challenges paying the rent. Consider accepting half the rent on the first of the month and the other half on the 15th for a tenant dealing with a temporary financial crisis. According to Griggs, making compromises is better than absorbing the pain associated with costly and time-consuming evictions and property re-leasing.
Promote Vacancies:
• Tell everyone you know about your vacancies. One Chicago landlord casually mentioned her empty apartment to elderly neighbors who spent hours sitting on their front porch and talking with passersby. They put her in touch with two tenants who were looking for an apartment.
• Advertise at nontraditional places, such as the local humane society if you accept pets. Target newcomers through foreign consulates, university housing offices, and hospitals. To ensure that you don't violate fair housing rules, you shouldn't target advertising to populations on the basis of race, color, religion, national origin, gender, familial status, and disability. The language in your ads shouldn't express a preference for or against any protected class. Describe the property, not prospective tenants.
• Advertise online. Sites like the craigslist.com and apartments.com offer free or low cost advertising that is targeted to your specific market.
• Promote rent-to-own deals, if you're willing to sell a unit. Such promos generate more calls and showings.
Despite the challenges associated with property ownership, most investors say it's one of the best long-term investment vehicles. And although not all investors agree, many have found that once you amass several years of experience in buying and managing income property, much of the angst associated with investing diminishes.
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