Investment Thoughts
Once you decide that real estate is the right investment vehicle for you, you need to find a Realtor that has experience with investment properties. Preferably owning them and not just selling them. Obviously, I hope that Realtor will be me. But, no matter whom you decide to work with, a few lessons I paid dearly to learn the following so maybe you will not have to:
- If you are not going to use an investment experienced Realtor, you will need to go through dozens or even hundreds of properties to find a few good ones. Never settle for a bad deal.
- There is no good time or bad time to invest; there are good deals and bad deals. Use analytics to eliminate bad deals but rely on common sense and a solid process for validating good deals. Remember, there are no analytics that will alert you to a bad area, noisy road, smelly dumpster, etc.
- If there is any mold present, walk away unless it is a very small well defined area. If it involves sheet rock, just say no.
- Develop a trusted set of vendors and get to know what it costs to have a house painted or carpets replaced. Start by spending time at Home Depot or other places so you know how much it costs to replace carpet, etc.
- Do not over-improve, if the area is renting well with basic appliances, don't go for stainless steel. You will not recover your investment since the unit will not rent for more.
- Do not attempt to manage a property yourself. After you have several properties and good tenants in place, you might consider this but I question whether you will save any money.
- Vacancy rate can be more important than the rental rate. I have not discussed how to estimate vacancy rate in the training material but know this is critical. For example, suppose you determine that a property has a 10% cash/cash but you don't take into account that the average time to rent the home is 90 days and the maximum length lease agreement you can get is 6 months. Almost no matter what you paid for the property under these conditions it will not be profitable.
- Selecting the right tenant is critical. The right ones are going to stay for years and will pay the rent on time. This is another topic I did not cover in this series and I advise that you employ a professional property manager and, before you do, have a clear understanding of their criteria for a desirable tenant. If it sounds like they rent to the first warm body that passes credit, walk away.
- The type of contact you have with a tenant can make all the difference in the world. When I first started real estate investments I was spending so much time repairing stuff (I was managing it myself) that I was considering buying a truck. Also, properties that should have been profitable were not since I was spending money all the time repairing them. After I changed the rental contract, almost all of this went away. With the new contract I might go weeks with zero phone calls and my profitability rose to what it should have been.
- Shop landlord insurance carefully. You may be surprised at the differences between the costs of policies vs. what is covered. Also check out what supplemental policies are available and what they cover. For example, Vandalism & Malicious Mischief insurance financially saved me. At the time, this supplemental was $5 or $10/year more than the standard policy. When one tenant decided to allow their children to roller-skate with metal wheels on a restored hardwood floor in a house I owned in Atlanta it covered almost everything. Without it, I would have been out a lot of money.
- If you are managing the property yourself, do not accept "excuses" for rent. It sounds harsh but I knew of a very nice person who literally went under because every month his tenants had exceptionally heart wrenching stories for why they could not pay. If tenants do not pay, it is time to evict. Know the evections process in your area before you buy the first investment property.
- Do not rent to family or friends. I've been burned by this one more than once
- Be consistent about the carpet, pain, faucets, etc. For example, if you use the same color of carpet in multiple properties and you end up having to re-carpet two places, you may be able to piece together enough clean carpet from two places so that you only have to buy carpet for one.
- You might want to consider a home warranty. If you choose the right policy, it can control your repair costs. For example, once client decided to save money and not buy such a policy (about $330/year). One month after he bought the property the air conditioning died. The repair bill was over $5,000.
Contact me if you are considering buying or selling Las Vegas real estate. You will be glad you did.
...Eric
Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
Email: EricFernwood@gmail.com
Website: www.EricFernwood.com
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