Purchasing income properties opens a realm of possibilities for financial growth and long-term prosperity. Whether you're a seasoned investor looking for advice on managing your rentals, or a first-time buyer hoping to diversify your portfolio, the expertise of real estate professionals can be your guiding light in navigating the intricacies of this endeavor.
Check out the invaluable insight below from two of our investing pros, Todd Schenkenberger and Heather Smith LaPoint. Together they offer a treasure trove of tips and strategies to empower you on your path to successful property investments!
todd schenkenberger
(419) 280-0676
toddschenkenberger.danberry.com
1.) The best advice I have for landlords is to screen your tenants for credit, criminal, and eviction history. Have the tenants pay for the screening. Does it guarantee you a perfect tenant? No, but I liken it to counting cards at blackjack; you are trying to tip the odds to your side. Remain consistent with your screening and require background checks for all adults living there. Reject tenants who have evictions within the last 5 years.
2.) Get verification of income. If it's not documentable it doesn't exist. I suggest an income of at least 3x take-home to rent.
3.) Credit does matter— you can fill vacancies in a second if you allow anyone that can come up with the first month rent and security deposit to move in, but you'll be more likely to have problems. Credit is an indicator of whether or not they will pay. I suggest 550 as a minimum.
4.) Keep your rents close to market rates, but not necessarily at the very top of the market. By trying to get every last dime out of a tenant, you'll have higher turnover. Keeping them too low is a disservice to yourself and doesn’t help your tenants— they won't know what the real market is if they are too low.
5.) I recommend supplying the refrigerator and stove because having tenants move those items in and out will tear up walls and flooring. Don’t supply the washer and dryer; they break down too often and it will eat away at your profit.
6.) Know your numbers. Calculate your investment— acquisition costs, repairs needed, closing costs. Know your expenses— loan servicing (mortgage), taxes, insurance, add in some maintenance, cost of water/sewer, utilities. Net income / investment = Return on investment.
7.) Start your investments by concentrating in one area. This will make you an expert on prices, ideal renter, and the area.
8.) Respond to issues promptly; don't let maintenance issues linger. Have a team of professionals you can call: handyman, electrician, plumber, HVAC person.
9.) Try to avoid co-signers; they’re not going to be reliable for missed rent payments. The only exception is if it's a student and parents are paying the bills. Then make the parents sign the lease, as well.
10.) Get a good lease. Try to compare different leases and ask other landlords/investors about different aspects they have in their lease.
11.) Don't allow smoking in your house. Put it in the lease. I do a full addendum stating it's a non-smoking property. Cleaning up smoke can be extremely costly.
12.) Be careful about allowing pets. Certain dog breeds can void insurance. If your tenant has a pet that attacks someone and they sue, you will get sued as well even if you have a pet addendum. Allowing pets means more clean up and repairs in between tenants.
13.) Install vinyl flooring instead of carpet. Vinyl is much more durable and cleans up easier.
14.) Document the condition of the rental before your tenant moves in and have them sign it. Use that condition addendum when they move out so you can document what kind of shape it’s in. Take lots of photos of the condition at move-in.
15.) Don't accept partial payments for rent or deposits.
heather smith lapoint
(419) 360-0922
heather.danberry.com
1.) I try to find out if the buyer’s goal is to purchase at a low price and have as much cash flow as possible, or is this a long-term investment? You can obtain great cash flow with homes that are inexpensive but they can have higher turnover which eats into your profits. You’ll likely have to make repairs and invest money in preparing the home for the next tenant.
2.) Long-term investments are great if you can purchase in a higher price range and in areas that have higher appreciation rates. Sometimes the return on the investment isn’t as high because you have to pay a lot more for the home and the property taxes will be higher, but the turnover may be less and the property will be worth more years down the road. So if you get tired of being a landlord, you’ll make a lot more money when it comes time to sell.
3.) Another conversation I make sure to have is whether the buyer wants just one property, a few properties, or several. A lot of buyers think they want several but change their mind after owning just a couple. Being a landlord is not for everyone.
4.) I also discuss the difference between having a mortgage or paying cash. Paying cash allows a lot more gain on the investment. Having a mortgage doesn’t allow nearly as much room for profit.
5.) I inform the buyer that having rentals isn’t always easy and glamorous like they might expect. I recommend starting with one or maybe two and seeing how that goes before you plan on earning a living in the rental business.
Investment properties can be a wonderful way to generate income, but it’s not always passive work. It’s important to plan ahead and protect your assets before you jump into a purchase. We hope these tips give you food for thought! May you have good returns on your next property!