A Couple of Tips for wannabe Real Estate Investors
Although the past couple of months have been a headache with the rentals, it typically isn’t like this. Usually we receive rent, pay the mortgages and that’s about it. Every so often we get a call about something minor such as a leaky pipe, and usually I will call a plumber and it will be fixed. Rarely do we get a major call for something like needing a whole new furnace. Side note: Yes we did get that call last year and yes a new furnace happens to be very expensive. But all in all, so long as you have paying tenants, land lording isn’t bad. So maybe you think you could get a rental property. If so I encourage it, with just a couple of hints.
1) First and Foremost if you plan on acquiring a rental property make sure there is a Cash flow. What is cash flow? It is money left over after receiving rent and paying for the taxes, mortgage, water bill, and any other expense relating to the property. If you do not have a cash flow with a rental property then really, it’s not an investment, since it’s just sucking money out of your pocket. Trust, me the property will find a way to suck money out of your pocket even if you have cash flow. I recommend making a MINIMUM of two hundred extra dollars in cash flow each month. DO NOT TOUCH this extra money for toys, a vacation or anything that is for your own entertainment. Let it build and save so when a doozy comes along-and it will-you will have the means to take care of it. Side note: Cash flow is the very reason we have been able to keep our head above water. It also helped contribute to closing costs on our second rental property.
2) LOCATION, LOCATION, LOCATION!! It matters where you buy. For example, if you bought where Danny and I bought-in the inner city-then rental prices, taxes, and cost of the home is much cheaper, BUT, you will also find more tenants not paying rent and more evictions. Solely from my experience I recommend picking a more desirable area, where the neighborhoods are safe, the rents are higher and the properties are more likely to increase in value at a more rapid pace. Resale value makes a HUGE difference so I suggest one thinks this over when buying.
3) A list of businesses and their phone numbers: There will be problems, and if you are a current home owner you know this. So a list of businesses with their information will come in handy. A local plumber, oil guy, handy man, your accountant and etc. It’s nice to have this information plugged into your phone and in a file somewhere. It’s also great to have an accountant.
4) EMERGENCY FUND- Even though you have cash flow, it is important to always have an emergency fund on hand. Because cash flow can go quick if you haven’t gotten rent in several months and the oil tank needs to be filled. ;-) Remember if you renting, you better be in this for the long haul. They call it buy and hold for a reason, because if you buy and sell two years later then say goodbye to all of your money.
There you have it. Four small tips to making real estate work. There is so much more, but I needn’t bore you. Besides, I'm still learning myself. Any tips for me? Any questions? Please ask, I adore your comments and questions.