Category: Uncategorized

Becoming a Rental Property Owner

Why should I become a rental
property owner?

Real Estate Holds its Value:
Real estate is one of the most popular investments available, because income-producing rental properties have held their value through many economic cycles over the decades. Throughout history, the tangible nature of real estate has been extremely important to both people and the economy.
Real estate is cyclical. Many businesses have their ups and downs, and real estate is no exception. However, real estate usually rebounds and grows in value after a slump. Historically, many solid real estate investments have depreciated for a period of time but then grown again in value. Real estate appreciates because its quantity is limited. Over the long run, real estate is an established performer and offers a solid foundation for your financial future.

Diversification of Investment:
Buying rental property helps vary your investments. Owning your own home is a first step toward diversification, but owning rental real estate is a prudent strategy to protect your assets from volatility in certain areas of the economy. Unlike owning your own home, owning a rental property that someone else calls home is an investment because you don’t have to live there.

A Little Capital Goes a Long Way:
A lack of money is often cited as the number one factor that keeps people from investing in real estate. But you can typically purchase real estate for a down payment of 20 percent or less, with the balance provided by others. Real estate loans are readily available at very competitive terms throughout the U.S. Some sellers are willing to assist the buyer by financing a portion of the purchase price. Plus, if you’re a first-time home buyer, you may qualify for up to 100 percent financing. So basically, you can take advantage of a first time home buyer program, build up equity in your home, and then refinance it to generate additional capital, which you can use as the down payment to buy rental property.

It is a Second Income:
If you have any doubts about real estate’s role in making many of the world’s great fortunes, just look at the annual Forbes 400 list that catalogs the richest people around the world.
The majority of residential rental real estate in the U.S. is owned by working middle-class individuals of all backgrounds and ages who sought viable opportunities to augment their current incomes or careers. Real estate investing can truly begin as a part-time job and supply a second income.

Great Tax Benefits:
The federal tax code has many unique advantages for real estate. Property owners can benefit from expense deductions, depreciation write-offs, tax deferred exchanges, and favorable capital gains tax rates. Owning and operating rental property is a business, and the tax laws allow deductions against your rental income for the cost of payroll, property management, advertising, maintenance and repairs, utilities, insurance, and property taxes.
Disclaimer: Be sure you understand the basic concepts of real estate taxation issues, but rely on a tax specialist, accountant, or attorney for advice on details, procedures, and tax laws. Tax codes change from year to year, so discuss your personal tax situation with your accountant or tax preparer.

Utilize Leverage for Profit:
Real estate leverage is the use of mortgage financing to purchase an investment property with only a small cash outlay, with the expectation that appreciation and inflation will create a disproportionately high return on the original cash investment upon sale. The key to successfully using leverage is having a mortgage interest rate lower than the return on your real estate investment.
Here’s an example: A buyer purchases a $150,000 rental home for $30,000 cash down and a $120,000 loan at a 7 percent interest rate. If the property appreciates and sells in three years for a net of $180,000, the owner will have earned $30,000, or 100 percent return on his money. This is called positive leverage. Conversely, high interest rates and flat real estate values with no increases in cash flow result in negative leverage, and under capitalized investors may lose their properties.

Stay Ahead of Inflation:
Inflation is the loss of buying power as prices rise. Most investments, such as money market accounts, bonds, stocks, and mutual funds, have trouble keeping up with the inflation rate. As a result, investors in these assets often find that they lose purchasing power over time. Real estate, however, is a formidable tool in the battle against inflation. When rental property is purchased with fixed-rate financing, the property’s price and financing cost are set. Other operating costs, such as property taxes and utilities, are bound to increase, but rental property owners typically can increase the amount of rent charged to offset these heightened costs. Of course, temporary softness or downturns in the rental market may delay rent increases in the short run, but historically, real estate cash flows have been able to maintain an owner’s purchasing power in the long run.

Retire Wealthy:
Real estate investment is one of the best methods to fulfill the dream of retiring wealthy. This worthy goal requires a diversified investment strategy with assets that are purchasable with leverage, generate cash flow, appreciate consistently over time, and maintain their purchasing power in an inflationary environment. Like most investments, the earlier you begin your real estate investment career, the better your results. Buying and holding the right rental properties for 20 to 30 years is an ideal way to hedge inflation, take advantage of unique tax benefits, and build wealth for retirement.
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Are you interested in making your dream of owning rental property into a reality?
Contact us, so that we can work together to achieve your goals.

Getting Your Property Rented

How do I achieve success in getting my property rented?

One of the first and most important lessons we learned when starting in property management is that vacant real estate isn’t a very good investment. You need to fill those vacancies and keep them filled with tenants who pay on time. Of course, renting your property and retaining your tenants doesn’t just magically happen; it requires a plan and a lot of work. But you want to work smart and not just hard, so that’s why we walk you through some of the best practices for preparing your rental units, setting your rents, attracting qualified prospects, and closing the sale.

In order to be a successful property manager, you need to follow certain steps. In our blog posts, we seek to cover the highlights of what to do — from getting your property ready for tenants to getting prospects to sign on the dotted line.

Getting your property rented involves five distinct parts:

    1. Prepare your Property:

      If you are interested in more information, contact us for assistance in your preparation process. We can show you the best way to determine what to upgrade and renovate in order to meet the needs of your target market of prospective renters. In addition, we can explain how to ensure your property’s curb appeal, or its exterior appearance, makes your potential new tenants want to see the inside of it and not keep driving to the next property on their list


      Before you can rent your property, you have to make sure it’s ready for a tenant to move in. However, you can’t simply put a For Rent sign up and expect to rent to the first caller. You need to spend some time properly preparing the property. And by “some time” I mean a lot. Use caution when companies offer to renovate your fixer-upper because you can prepare your property yourself. Just remember to focus on the inside as well as the outside.

    2. Know how much to charge:  In such cases, overestimating the market value of your rental unit becomes very easy, because you have so much personally invested. But your prospects aren’t likely to be impressed that you laid the tile. Instead, they’ll quickly point out that the color of the carpet doesn’t match their furniture, but if you lower the rent $300 per month, they’ll consider taking the unit off your hands, almost as if they’re doing you a favor. You may be able to structure some mutually beneficial rental concessions, but don’t be a pushover.  In addition to setting the rent, you need to make the following decisions before a tenant moves in: 

      The amount of the security deposit: Setting security deposits is a function of not only market conditions but also limitations on the amount you can charge and whether that amount’s fully refundable. These restrictions are determined by your state laws          

      The type of rental contract: Another important decision that has lasting consequences is deciding whether a lease or month-to-month rental agreement is best for your property. Such conclusions are often reached after conducting a market survey and understanding the pros and cons of each type of contract.



    3. Marketing- Gaining the Interest of Potential Prospects:  A successful property manager needs to understand the role of marketing in creating demand and meeting the needs of local renters. Fortunately, your marketing and advertising possibilities have increased dramatically with the availability of the Internet and social media. You can develop a fantastic web campaign with digital photos, technical specifications, and floor plans, while following Fair Housing Laws. Or… you can save time and potential headaches by considering Virtue Residential. Our targeted marketing plan includes multiple strategies to drastically improve the amount of interest in your property.
          
    4. Turn Prospect Interest into Property Visits:  Although the ways to attract potential tenants are endless, the fundamentals of getting them to visit your rental property are centered around your ability to answer their questions on the phone. You need to understand how to qualify your prospects both for what you want in a stable, long-term resident, and what they need in order to call your rental property their “home” for years.  Converting your e-mails or phone calls to actual property visits is the next essential step to creating maximum interest in your rental unit. At Virtue Residential, we streamline this process to ensure the maximum amount of potential clients are provided the essential information they need to make a decision.

    5. Pick Your Tenants:  What seems to be a fairly straightforward process can actually be tricky due to the various limitations on the questions you can ask and the information you can request from interested applicants. We assert that the same procedure is used for everyone so that it complies with Fair Housing laws. In addition, we verify each prospect’s rental application in order to ensure the best fit for your property. Virtue Residential makes sure to decide the best tenants based on objective criteria, and then properly communicates your decision to both the approved tenant and the unsuccessful applicants.

Sources: Real Estate Manager, R. Griswold, 978-0-470-29329-4