buying rental properties 2 - The Educated Landlord

The Basics of Being A Landlord – The Skills You Need

November 5, 2014 By Landlord Education

So You Want To Be a Landlord?

I seem to get a few emails/calls about being a landlord, so here are some quick thoughts from me on the basics of being a landlord.

This will likely be a multi part series, so this post will focus on what skills do you need to be a landlord?

Handyman Skills

Well some landlords I know are incredibly handy people, they are great with renovations, they love working on their properties and they are you typical Mr. Fixit’s.

However, I know many landlords who’s only tool they have ever used on their property is pen and paper. Rather than investing their time in a property, they have simply hired someone to get the job done. So while being handy helps, I guess it’s not a needed skill.

People Skills

How about people skills, a good landlord should have people skills! Again I know many landlords that are great people people and having the ability to relate to the tenants and get along with them has helped them tremendously.

But as I think about it, these same people have some challenges because they tend to get buddy buddy with their tenants, which rarely seems to work out well.

I also know many landlords who I would definitely put people skills at the lower end of their abilities, yet they are also tremendously successful. So maybe people skills aren’t quite as essential as it seems to be a successful landlord.

Fierce Negotiator

This one has to be important because first you need to be able to negotiate the best possible price on the property you’re purchasing as a rental property, then you need to negotiate with contractors to get the best prices, tenants to get the highest rates and everyone in general to get the best deals.

Except this can be a horrible plan for long term success.

The people you buy your property from resent you for being such an aggressive negotiator, the contractors won’t work for you again because they hate getting nickelled and dimed and tenants can’t wait to get out as they never feel comfortable and often feel ripped off.

In my experience it often works out far better when it’s a win/win negotiation. Where both parties get a fair deal whether it is the purchase/sale of the property, the renovation work and even the rental amounts. So maybe you don’t need to be such a fierce negotiator to make your job as a landlord easier.

Now, I’m not saying have some of the above mentioned skills won’t help you, it just appears they may not be as important as people often believe. Many people find success anyways, even if they are lacking in or more of the above areas.

So what skills are valuable to a landlord?

Organization, Patience and Humility

Now these three skills I do believe are important. Again, they may not be essential, but definitely important.

If you’re organized you can find records, receipts, invoices and more that are required for everything from your taxes to warranties to simply getting your books done correctly. Having systems in place to guide you along the way is one of the best methods to help with this.

If you’re patient and understand your Real Estate is a long term investment it makes being a landlord much easier. With the constantly changing market trying to time your purchases of a rental property and your selling of them can be incredibly stressful.

Rather than following the get rich quick path that so many people promote with Real Estate a longer term approach with an extended time frame (and lots of patience) will guide you through the ups and downs of the inevitable transitions through both buyers and sellers markets.

Finally humility. Have you ever run into a pompous landlord who knows everything about Real Estate? I’m willing to bet many of you have and apparently one ex-subscriber felt that way about me.

You need humility so you can go to others when you have questions or are unsure of the answers. It’s why you need a Real Estate agent who understands investment property when you’re buying. It’s why you need an accountant familiar with Real Estate if you are a landlord so you are aware of the correct deductions you can apply for and the correct processes for setting up your accounts.

It’s why you need to call plumbers, drywallers, painters and other contractors when something is beyond your scope or when it makes sense to bring a pro in to get the job right. Doing all of this takes a bit of humility at times as we often believe we can do it all.

And perhaps we can, but if we do, then we lose focus on what the property is. An investment that should be run as a business.

What do you think?

Learning To Landlord By Trial And Error

September 3, 2014 By Landlord Education

Sounds scary doesn’t it? Making a mistake as a landlord can cost thousands of dollars in lost rent, due to damages and in some cases even lead to foreclosure. But I run into landlords every week who got into the business with minimal to zero knowledge of even the basics of being a landlord.

Learning to landlord on the job can turn into a very expensive education and that’s where I come in. Hopefully.

With dozens and dozens of articles and videos on the site providing the basics already, I’m planning on adding even more so I can help others avoid the trial and error path.

Now, if you’ve already registered to receive emails on my site you know one of the first things I ask you is what challenges you face as a landlord. I’ve had some great responses from people and hopefully I’ve provided some answers to help you with those challenges in my replies to you.

The question I have for you in this article though is what was your most expensive mistake?

My Expensive Landlord Mistake

Personally, my biggest mistake when I started was not following my screening process and skipping steps along the way. During this learning curve I let in some of the wrong people because I went with my gut, rather than following my process.

This brilliant decision making cost me most of my Christmas vacation as I had to spend it fixing walls, repainting a property I had just painted less than six months earlier, cleaning and doing general fixes so I could have it ready to go for January 1st and not lose anymore incoming rent money due to vacancies or deadbeats.

It’s part of the reason why one of the first courses I put together on the site was my tenant screening course, which I give away for free because it’s so important to a landlord’s success! Since I started following the procedures I laid out I’ve only had to evict one tenant out of my regular fixed term rental properties in the last seven years.

Of course, if I had followed my rules that one eviction would have never come to an eviction which was another lesson. That particular situation involved a young couple who split up and rather than allowing/forcing them to break the lease and both move on, I allowed the boyfriend to stay and to have his brother move in to help cover the rent. Ooops.

So maybe that didn’t fit specifically into the screening category, but it did fit into my screening system which I strayed from as I didn’t due my proper due diligence with brother number two.

Your Turn

My list of other expensive lessons could go on. From not doing enough due diligence one early properties we bought to initially trying to do all the work ourselves rather than farming work out to contractors. But what about YOU?

What have some of your expensive lessons been? If you can take a few moments to leave a comment to help other landlords that would be great. By sharing some of our experiences we can make it easier for others to learn from our lessons and to help avoid some expensive pain.

Plus it may point me in the direction of my next course which hopefully helps everyone.

So leave me a comment below and let’s see who we can help with it!

How A Car In The Garage Won Us A Rental Property In A Bidding War

April 11, 2014 By Landlord Education

Negotiating A Rental Purchase

We’ve bought a lot of rental properties over the years and while we ended up with many that we wanted (some perhaps we shouldn’t have wanted so bad), we’ve also missed out on many along the way.

Sometimes at a rental property we saw things that would affect the value or would require too much time and energy to repair and we avoided purchasing them and sometimes we saw certain features that made the property attain “must have” status in our minds. Of course the important part is the property had to work.

And by work, I mean it had to fit the particular mold for what we were purchasing the rental property for. During our heyday, we bought properties we renovated and flipped, we bought properties we turned into regular rental properties and we had properties we turned into high cash flow rooming houses.

Depending on the features, the area and of course the price, we knew we could usually fit a property into one of these systems.

If it was outdated and in need of renovations, we knew it might make a great flip property, if it was in the right neighborhood and had the right floor plan, perhaps it could be our next rooming house or if it was already suited, maybe this was our next rental property!

To help streamline this process, having a good Realtor can be a huge help. On the other hand, having a Realtor who doesn’t understand you can also be a huge pain in the a$$. In this tale of how a car helped us win a bidding war, the Realtor was a pain and it wasn’t long after this we parted ways.

It Pays To Pay Attention

At the time we were looking for a new rental property to add to our portfolio. We’d recently flipped a property and we wanted to move those profits into a property that would generate a nice return, so our Realtor at the time found us a nice property in a great rental neighborhood that had just come on the market.

It had just come on the market so we knew we needed to see it ASAP, as we felt it wouldn’t last long, so we had the Realtor setup an appointment right away and went to view it that evening.

It needed some work, but it was perfect for our needs. Three bedrooms up, partially finished basement with the laundry near the bottom of the stairs and a detached garage. We knew we could quickly suite the basement area and turn it into a nice little one bedroom unit, the garage had a furnace in it, so it could be rented as a heated garage and the upstairs was dated, but had great bones.

But perhaps the most important part was, the owner stayed at the property while we toured it and helped us out by telling us all the important details about the property. This is a rare occurrence as typically the Realtor who lists the house advises the owner to make themselves scarce during the showings.

You simply never know what might sneak out of the owner’s mouth that may hinder a sale or perhaps give potential buyer’s an advantage when it comes to negotiating. It’s access to unfiltered information about the house!

True to form, this homeowner followed us through on the tour and gave us plenty of extra tidbits, mostly about how much he was going to miss the home as he was moving to be closer to family, but also a couple little tidbits that were going to be beneficial to both parties. And this is why it pays to pay attention.

Ramblin’ On

It was when we looked at the detached garage we hit the jackpot.

Although it was full of tools, treasure and junk, there was also something buried under a tarp in one of the parking spaces. Since it never hurts to ask, we asked what it was.

Buried underneath it was a 1963 Rambler that the owner had one day hoped to restore. During the next 20 minutes he told us all the details about how he loved the car, had hoped to fix it up and then one day give it to his daughter, but instead it had just ended up sitting there being neglected.

You could hear his disappointment as he told us how he was now going to likely have to just give it away to some parts place or to try and sell it somewhere and would never realize his dream. As we finished the tour, we knew it was a property that worked for us and my wife already had a strategy in her mind to help ensure we got it as we knew there was at least one other interested party who was potentially putting in an offer that night already.

Unfortunately in this world, there are many folks who would use the extra information we had to take advantage of someone and outright deceive them. Deceiving people has never been our goal, we always wanted to make deals that worked for both sides, deals that were win win and where everyone was a winner and comes out happy.

So my wife came up with the perfect offer to achieve that.

We put in a full price offer, but it had one big condition in it.

The sale had to include the car. This condition just about put our Realtor over the roof, he thought we were nuts (and this was another reasons we were soon done with him).

We knew the car was a big concern for this fellow and we felt that just knowing that someone was interested in taking the car would help put his mind at ease.

Again, this wasn’t some slimy negotiating tactic, we saw how much he loved that car and wanted to get it back on the road, so that became part of our goal for it as well. We weren’t just going to acquire the home and the car and then scrap the car, we wanted to make sure it got taken care of too.

As it turns out, there was another offer that went in that night too. An offer that was actually higher than ours. But it didn’t include the car or any mention of it.

And The Winner Is?

Now I can’t remember whether it was later that night or first thing the next morning when we got the news, but even though the other bid was higher than ours, the homeowner went with ours. So who was the real winner?

Both parties! The homeowner got the price he was asking and someone to take his car. Was the car the only reason he went with us?

Part of it may be that he spent time with us on the tour and liked us, part of it might be that we explained what we would do with the property and how we would take care of it, but mostly we do believe it was about the car. He knew someone was going to take care of it and help take one more problem off his hands.

And The Lesson Is?

None of this would be really helpful to you if there isn’t a lesson to learn from it as you go along and hopefully you already see it. It’s two parts actually.

First, it’s basically that paying attention to some of the details (and getting lucky by having the homeowner hang around) can help you with your negotiating.

Second, armed with extra information you can turn your negotiation into a win win scenario where everyone gets what they want.

As for the car?

Unfortunately, we had to sell it. My wife had visions of us restoring it and possibly giving it to one of our oldest daughter at some point (really I think she just wanted to cruise around in a cool looking car). We didn’t just sell it to a scrap yard though, we found someone else who intended to restore it.

So how it ended up, we’re not quite sure as we never followed up with the fellow we sold the vehicle too, but we can only hope it was returned to it’s former glory.

Now, since this isn’t one of my typical landlord tips or advice articles, my question for you, would you like more posts along this vein? Posts or articles that talk about deals or strategies we used to buy properties? Let me know and tell me your thoughts on this story, I love to hear your thoughts!

Why Discounting Your Rents Is For Amateurs

February 11, 2014 By Landlord Education

And Why Professional Landlords Get Premiums!

First month free. Free TV with purchase. Don’t Pay until…..

You see these types of discounts in ads everywhere these days. You also see these types of businesses that promote like this come and go and there’s a reason. They trade in commodities.

Commodities are items that have little value and are typically traded or bought for the lowest cost. Trading in commodities is not good business for the simple reason that you are tied into the lowest price. The lowest price doesn’t give you margin for error or more importantly for profits.

As a landlord, if you start offering discounts on rents to attract tenants, you’re turning your property into a commodity rather than a valuable asset. Yes, you have to be competitive, you can’t price yourself out of the market, but as a long term strategy, you want to be a leader rather than following the pack off the cliff.

Discounts are the easy way out and once you start offering them, they become expected. If you’re a retail store, maybe that’s to be expected, but to really succeed you don’t want to be the next Walmart or Target, set your sights higher and become a premium brand.

If you’re following some of my systems and tips, you know it’s important to be a professional and to treat your landlording like a business. If you become an educated landlord, one of the areas you need to look at is the condition of your properties and how they appear to prospective tenants.

We learned a long long time ago that if you spend a little extra initially to get the property better than your competitors it pays you back in increased rent, longer staying tenants and tenants that take better care of your properties. And here’s why..

The Argument For Increased Rent

If you do any tours of competing properties, even if this just involves reviewing other ads and photos of properties in your area, they all tend to be the same. Picture of the kitchen, picture of a bedroom, picture of a living room and some bad writing offering a price and maybe a few details.

Occasionally though, a few stand out. Usually they’re priced higher, the pictures look more professional, and the advertising copy looks polished. You want to be the landlord who is renting out that property for several reasons.

By looking more professional and by charging higher rent, you’re automatically going to push many of the less desirable tenants away. If they have a poor track record of paying rent, they understand a professional landlord will be screening them more thoroughly and they won’t even qualify. If the rent is higher, they understand they won’t be able to afford it and they will be cash strapped. And if the advertising copy comes off as professional it will also help to discourage them from even inquiring.

You move from quantity to quality and what you are looking for is quality tenants.

If you ever rented (I rented for years until my wife and I could afford our first house), you probably looked at a lot of properties before you found the right one. We personally couldn’t believe the condition of some of the properties that landlords thought were rentable. I still hear this from tenants when I question them how their search for a rental is going.

Once you did find the right one though, you had to have it. And it didn’t matter if it was an extra $100 a month, it stood out in your mind over the previous properties and it became even more valuable in your view point. This is the type of property you want and the mindset you want to instill in tenants that view your property.

Now, to get to this level, you may have to spend a few extra thousand dollars initially for extra renovations or updates, but this not only helps increase the overall value of your property, but that extra $75 per month, or perhaps $200 per month of extra income in a great property, sure helps increase your cash flow.

The Bonus’s of Better Properties

The extra cash flow isn’t the only bonus. If you have a better property, tenants tend to stay longer because it is such a great place to live. They actually become much more hesitant to leave as they don’t want to give up a great property.

This translates into less tenant turnover and longer periods between vacancies. Which simply means more money going into your bank account for longer periods of time and that helps ensure you continue to be a successful landlord.

These tenants that are also willing to pay extra to live in this great property, also tend to take better care of it. If they truly take pride in where they live, they want to make sure it looks great and they keep it that way. You’ll end up with fewer repairs after tenants vacate, less work for when the turnover eventually takes place and if there are any issues with the property like leaky taps, these types of tenants will let you know immediately, rather than finding out after repairs become more expensive.

Unfortunately I can’t guarantee every tenant will be a success using this strategy, but in combination with other strategies, it sets you up for success.

How To Avoid Discounting Your Rents

So let’s recap some of the strategies that can help make this work for you.

Buy rental properties in rental heavy neighborhoods. This gives you a much larger tenant base to choose from. You start with quantity and narrow it down to quality.

Renovate your properties to help them stand out from competitors. This makes your properties memorable and helps you receive premium rents.

Write better ads with better pictures. Stand out from the crowd and get people appreciating your property and it’s value rather than looking for a commodity.

Don’t discount your rents to attract tenants. Tenants that are attracted to discounted rental units will also leave quickly if they can get a better deal. Don’t be a commodity, create an environment where tenants want to come home to.

So, did you find this helpful? If you did, could you do me a favor and share this with at least two other landlords you know? The more landlords we have out there that are better educated and running true landlord businesses the better the environment for tenants, which makes a landlords job easier. It turns into a win win situation, so spread the word!

Analyzing Rental Properties – Neighborhoods

January 9, 2014 By Landlord Education

Location, Location, Location

Continuing on with my series on analyzing rental properties I started by talking about doing some homework before you jump in.

We started it by looking at the local economics of where you’re potentially looking to purchase an investment property. Economic factors can help ensure the chances of your rental property being a success are multiplied, so if you’re just starting with this post, you may want to go back to part 1 Analyzing Rental Properties – The Economics

In this post I’m going to talk about neighborhoods which help ensure a steady stream of tenants and even better odds of hitting a home run with your investment rental property.

As the old adage in Real Estate goes, the three most important parts of buying Real Estate are location, location and location, although when buying rental property, it’s not the same location as buying your personal residence.

So many would be landlords see a house down the street from where they live come up for sale and they get the idea that it would be ideal as a rental property for them. Nine times out of ten, it’s not. In fact it could be the worst decision you make as a landlord and has the ability to permanently scar you.

The Pain

I’ve been there. I purchased the house beside mine years ago to help out the little old lady who wanted to move away. We tried to help her sell the property, but the market was very flat at the time and she was on a deadline, so we did what we felt was right and bought it os she could move on.

We were already experienced landlords with a couple years under our belt, so we knew it would work. Except with a high mortgage and low rents we new we would have some cash flow challenges, but if we could make it last a year, then we could sell it, yeah that’s it!

So we went ahead with it. We repainted, we fixed up some minor issues and we had a great property, just no one to rent it. Now since fortune favors the brave (or the uneducated initially), we managed to find some people who drastically needed to sell their home due to foreclosure issues and needed help getting back on their feet.

We were able to set up a win win solution where we took over their current home’s equity and renovated it, put it on the market as it was in a much higher demand area and sell it quite quickly. At the same time we moved them into the property beside us, used a portion of the equity as a down payment for a rent to own scenario for them and it all looked great.

They were actually paying less per month, we were making a few dollars as rent to own properties have higher rents and we had a bundle of cash from the flip of the other property. Everyone was winning.

They seemed like nice people, we got along quite well and several times they even joined us out back on our deck for a beer or glass of wine during the summer. Then the wheels fell of.

One of the burdens they had to deal with in their lives was a severely mentally handicapped daughter . She was fifteen years old, but mentally only reached the capacity of a two year old. Needless to say, but helping her and managing her was a full time job for the mom. Plus they had another son, so their days were full.

It started when they asked if they could get a dog. Pets are great therapy for children and apparently even more so for people with disabilities, so how could we say no? So away they went and picked up a mid sized dog, for a very tiny back yard…

A little more background, our former neighbour kept an impeccable yard. The rumours in the neighborhood was that she snuck out late at night to pull dandelions as we never saw any in her yard and the back yard was beautiful with banks of flowers across the back and a lovely covered seating area to relax in.

Well, in no time it was a complete mess. The lawn was dead and torn up, they never cleaned up the dog crap and it went from bad to worse.

Very unfortunately the daughter’s health deteriorated even more and she passed away. We felt awful. They had done so much to make things work for their child, they had given up so many things to make a good life for her and she was taken away by failing health.

The positive we saw on this was with the extra financial burden gone, they would be able to turn their life around and while this left a huge hole in their lives, it would ultimately allow them to move forward. We were wrong.

People Just Think Differently

We were actively growing our Real Estate portfolio plus I was working a demanding full time job at the time, but we wanted to succeed so we made adjustments to our lives. We only had one well used vehicle to save money, we rarely ate out and we scrimped and saved. We thought that was how everyone should think when they are trying to live up to their ambitions and dreams.

You simply adapt to make things work and start to think differently.

Not the renters next door though, although they did think differently than us. What little money they had left they sunk into their daughter’s funeral, which is understandable, but it left them with nothing and when their daughter first became sick (this last bought was over a few months), we did what we thought was the right thing and didn’t pressure them for rent.

We knew they were incurring significant extra costs during that time, the husband wasn’t able to work as much as he was needed at home and we could cover it. So by the time they had the funeral they already owed us almost $6,000. I know rookie mistake, but a compassionate mistake, after all they were not just my tenants… but they were my neighbors too.

Then the husband’s vehicle broke down, so they leased a new expensive vehicle, still not sure where that money came from if they couldn’t pay me. Next we noticed the wife had new shiny manicured nails, a brand new cell phone and they even asked if they could get a second dog!! All expenses we refused to splurge on for ourselves as we were very money conscious. We said no obviously and suddenly we became the bad people for refusing them.

The best part? We had front row seats as it all took place next door.

Finally, we find out from them that the government funds they were receiving to help with their daughter’s disabilities were “suddenly” cut off now that she had passed. Their free supply of money that was obviously just being spent on them now suddenly dried up. Were they thinking it just ran on forever?

This just made the likelihood of us ever getting the outstanding rent back extremely unlikely, so we were ready to pull the plug and evict them. Before that hppened, they came to us and told us there was no way they could afford to stay in the property and had located a basement suite to move into, but couldn’t get in for six more weeks.

They were going from a 1,600 square foot single family home in a nice neighborhood, complete with a two car garage and a basement, to something under 1,000 square feet. Talk about a change of lifestyle.

I can’t even remember if they were able to get us any additional money during that remaining time they were there, but I know I spent every day hating the idea that money that should have been coming to me, instead was going to the shiny new vehicle in the driveway beside my older vehicle. It was a very painful daily reminder of how I was being taken advantage of.

When they finally did leave, the property itself wasn’t too beat up, but the back yard was a disaster and we had to completely repaint and re-floor the property. We knew there was no way we could rent to someone next door again and that we needed to sell, so a significant renovation was in order.

In the end, the tenant walked away owing us over $10,000, plus we dropped another $20,000 in fixes and upgrades to sell it. The positive part of this was during the time the tenants were in there, the market had taken a huge upswing and even after all the losses and extra expenses we still managed to make a healthy profit, but we were just lucky.

The TakeAways

The painful and expensive lesson we learned is that having your tenants next door or even near to you, opens up the door for more problems. Your relationship could evolve from just landlord tenant to a more complicated Landlord/neighbor scenario.

Part two of this is when things do go wrong , and there is no guarantee they will go wrong, it’s much more painful when it’s next door for you to see or you pass by it on your way home from work every day. Yes you get to keep a closer eye on things, but that too has it’s good and bad.

Part three, if things do go bad and it gets to the point where your relationship sours, do you really want your tenants knowing where you live, or having to see them almost every day? Especially if they are spending your money on themselves rather than paying the rent they owe?

Why take a chance?

In all likelihood the neighborhood you are living in isn’t the best location for a rental property anyway. Although the quality of tenants overall may be better in nicer neighborhoods, the quantity is way down.

This can lead to longer times filling vacancies while you are making payments each month on more expensive properties.

When buying in areas more prone to rental properties you have a much bigger pool of tenants to choose from and while you may have to put more work into screening, during tougher economic times you want a bigger base of potential tenants to choose from as vacant months add up quickly.

Also, buying rental properties in rental areas is usually much cheaper than purchasing in prime homeowner areas which can save you money to start with. Buying a property for less money and still being able to get the same amount of income is simply being smart.

Buying an expensive property in an expensive area and hoping to make money may work, but it’s much harder and has more drawbacks.

Most of these neighborhoods frown on renters. It’s the NIMBY mentality or Not In My Back Yard attitude. They complain about illegal suites (which they have a right too), they complain about too many vehicles, they complain about snow not being shovelled in a timely fashion or grass not being cut to acceptable lengths etc. And while these people exist in all neighborhoods, they are much more prevalent in owner occupied areas.

Even if you do everything right, if your neighbors find out your property in the nice neighborhood is a rental, it gets a bit of a social stigma. Yet if you buy in a rental area where you have a huge pool of tenants, it’s just another property in the neighborhood.

Yes you may have a longer drive to randomly check up on your property, but the other benefits outweigh this by so much!

The BottomLine

You have to do what works for you. I’ve given you my example of what can go wrong and I’ve explained why not renting next to you works better. If you’re already living in a rental neighborhood, you may not have an option, or if you’re in a small town it’s hard not be be near your rental, but if you have a choice, don’t make it too close!

The benefits of purchasing a rental property in a rental neighborhood are they are typically a bit cheaper, they typically generate better overall cash flow, renovations cost less, you have more tenants to chose from and they can often be suited providing you with multiple streams of income from one property.

The benefits of buying in your possibly upscale neighborhood is that it’s close, you can keep an eye on your tenants, the initial price is higher so % increases in value reward you more and the class of tenant is typically better.

The negatives of buying in a rental area is you have to do more thorough screening as it’s quantity versus quality, the initial price point is lower so if values increase x% it would be smaller than if on a more expensive house and it may not be near by where you live.

The negatives of buying in your neighborhood that is not a rental area are far fewer tenants to choose from, so longer periods of vacancy, lower amounts of cashflow, renovations are typically more expensive, if the relationship sours, you have to deal with it often on a daily basis and your property can suffer local stigma for being a rental.

There are people who buy near them and run their property successfully, with only one property this may work perfectly for you. However, all the investors I know who buy multiple properties tend to buy them further afield and usually in specific areas designed to generate the best chance of success and the most cash flow and I can’t recall any of them buying the rental next door or down the street from themselves.

And if they don’t do it, why would you?

So, this has been one of my longest articles ever, so I hope you got some value from it, I’d love to hear your comments and stories about your rental properties. Are they in your neighborhood? In rental areas, or next door?

The next article will be the third in this series and will talk about local rental markets, I hope to have it ready for you soon!

FYI, this is how it looked when we were done,

Analyzing Rental Properties – Economics

January 6, 2014 By Landlord Education

Is It a Good Or Bad Rental Investment?

When you’re purchasing a rental property as an investment, you’re really looking for a good long term investment. The problem is, how can you be sure it works, and how can you tell a good rental property from a bad rental property?

Fortunately, there are a few things you can look at to help put the odds of finding a good rental property in your favor. This article will address a few of them.

Before anyone purchases a rental property, they should really do some homework regarding the local economy, the neighborhood they are considering purchasing in and the local rental markets. So yes, there is homework involved.

Economic Factors

I’m starting with economic factors as I feel they are one of the best indicators of long term success for a Real Estate investor or beginning landlord. You really want to choose an area that gives you an advantage.

While it’s true there is rental property in just about every city, county and jurisdiction, these areas are not all created equal and understanding the local economics can give you an unfair advantage over those that don’t. This advantage doesn’t necessarily translate directly to success, but it does make it easier.

Some of the factors I refer to as economic are items like unemployment rates, new businesses coming to the area and even the general age of the local population.

If you look at historical unemployment rates for the area you are considering you’ll find a mountain of potential information. Ideally, you’ll be looking at an area where people are moving to for work and unemployment has been quite stable (low and stable) or has been exhibiting a trend of dropping over the years.

Right off the bat, this makes Detroit a bad choice. Sure you can get into rental properties very cheap, but with extremely high unemployment and not to bright of a future it doesn’t bode well for getting paid rent on time and potential increase in values in the near future.

If you know of new businesses coming into an area, this too can be a benefit. The biggest example currently of this is throughout the Dakotas where the oil and gas industry are working like crazy. While many of the workers will end up being transient and not necessarily sticking around the area, the huge growth in these industries also trickles down to new restaurants, stores and businesses that serve these workers. These businesses have employees who will stick around and will be getting paid.

Another area to look at is the general age of the population. If you have a relatively older population in the area, does that mean a sell off is in the near future as they retire? Will this form a glut of properties on the market affecting rents and values?

On the other hand if the population is relatively young, will they be transitioning to purchasing in five years from renting? Will this put extra pressure on home values going up and lending itself to more growth in the home building industry?

These are the types of questions serious investors look at when purchasing in areas and if you’re serious about being successful, they should be part of your process as well.

I know dozens of investors, very successful investors, who don’t even buy in the same region they live in. they have hand picked cities and towns hundreds and thousands of miles from where they live. it might be daunting, but it also reduces much of the risk.

You Need Your OWN Real Estate Plan

November 4, 2013 By Landlord Education

Your Real Estate Plan Has To Work For You

I received some great feedback on the recent video about having a plan, (if you didn’t watch it, you may want to jump over here first, You Need A Plan). But there’s more to it.

It seems in the last week, people have just been appearing out of no where asking me questions about getting into Real Estate investing. And they’re not just asking me, they are asking other people they know as well. Which is great, but they are getting different answers everywhere they go, which is a problem.

As an example, a friend I just talked to the other day talked to another landlord friend who has about eight properties, so this other landlord is obviously is pretty serious about it. He’s sold all of his up down suites in high demand rental areas and bought single family properties in better neighborhoods.

He had quite a few of them previously and due to headaches of having extra tenants and managing properties further a field, he’s changed what he’s doing. He has a new plan. And that’s great, but it’s his plan!

This other landlord owns another business which has employees and his time is occupied with his main money earner, his company. I can see why he would want less tenants and to move things closer and simpler.

Now I don’t actually know him, but I would suggest his goal is to create a nice side retirement nest egg for himself with the rental properties and they also make a safe simple investment. The bulk of his time has to be devoted to his thriving business which is the real money earner and the real retirement vehicle.

This is significantly different than someone who may be considering turning Real Estate investing into their career.

Again I Say, You Need Your Own Plan

If your intent is to buy a property or two as an investment, keep it fairly hands off and simple and your goal is to simply pay the mortgage down over time and have a retirement nest egg in 25 or 30 years, maybe a single family property closer to you is the way to go.

When you’re buying an investment property, you just have to understand the trade offs and what suits you.

With a single family home for example, you lose in the following areas.

Overall Cash Flow is Lower
Smaller Base Of Renters For This Type of Property
Longer Periods of Vacancy

Cashflow is usually just a few hundred dollars more than expenses on single family homes (unless you’ve owned it for many many years). The types of tenants that can afford to rent a whole house, also typically have enough income to purchase, so this subset of renters make up a smaller percent of the total base of renters actively looking for places to live. And you end up with longer periods of vacancy due to having a smaller base of renters.

The positive trade off is often they are better tenants and this equates to less headaches and/or time. If that’s what your goal is then this may fit your plan.

For someone with high income, and little time who is looking at this as a long term investment (15 years plus), this may be an ideal plan for investing in Real Estate.

But what if your goal is to get out of the job you have and not have to worry about income from your job? What if, like me, you intended to make Real Estate investing your full time career? Or at least a huge portion of your retirement nest egg? Then you need a different plan.

Then you need to focus on cashflow, because cash flow is what makes the rental market flourish for a landlord. When you have an up down suite or a side by side duplex with two incomes and you’re generating $500 per month of cashflow, or $800 or even $1,000 on one single property it takes a considerable amount of pressure off the amount of income you earn independent of your Real Estate..

It also gives you space to manoeuvre if the rental market slows down. And it will slow down. It might not be this year, or the next year, but in most areas the Real Estate market is cyclical. That single family home you were making a couple hundred dollars off of works fantastic when vacancy rates are 2 or 3%, but when they push up to 6 or 7%, rents start slipping down due to competition. If you’re in Detroit, well all bets are off.

Preparing For Downturns

With a $1,000 monthly cashflow dropping rents on two units by $200 each makes you more competitive and still gives you some nice cashflow. Even on $500 cash flow, losing $400 will be painful, but you’re still positive and if you lose one person, you’re not having to cover the full payment yourself.

With a solid plan, you have a plan B, a contingency to deal with these scenarios. Raising and lowering rents and still surviving is an option.

With a single family home the amount you can cut is much lower and with higher vacancies due to a smaller rental pool having your property vacant for two, three or even four months can be a killer. When you only have $100 or maybe $300 cash flow in good times, you better have lots of extra income to support it, but maybe that’s part of your plan?

So obviously I’m biased, but I’ve seen what works. I’ve been through sub 1% vacancy rates and vacancy rates around 8%. I’ve had tenants offering to take places unseen during low vacancy periods and I’ve had properties languish for months vacant during the last downturn. Through it all I’ve recognized that cash flow is indeed king and it’s a recurring theme I push on this site to new landlords.

Ultimately though, it comes down to your plan. Some of it’s your comfort levels. Some is your available time and where you eventually want to be with it. If you don’t have the time to manage extra rental units, maybe you need to be prepared to hire property managers. If you’re investment window is 30 years, it’s about the end result not what’s happening right now, so you have to plan accordingly.

The important part being the planning. In some upcoming articles I’ll talk about renting out condos and other types of rental properties. If you have some thoughts on this though, I’d love to hear them!

So You Want To Be a Landlord?

Handyman Skills

People Skills

Fierce Negotiator

Organization, Patience and Humility

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My Expensive Landlord Mistake

Your Turn

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Negotiating A Rental Purchase

It Pays To Pay Attention

Ramblin’ On

And The Winner Is?

And The Lesson Is?

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And Why Professional Landlords Get Premiums!

The Argument For Increased Rent

The Bonus’s of Better Properties

How To Avoid Discounting Your Rents

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Location, Location, Location

The Pain

People Just Think Differently

The TakeAways

Why take a chance?

The BottomLine

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Is It a Good Or Bad Rental Investment?

Economic Factors

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Your Real Estate Plan Has To Work For You

Again I Say, You Need Your Own Plan

Preparing For Downturns

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