Ready to start you rental portfolio? Have you done enough research to know what you are doing so that your first investment property is a winner? In our article “Should You Start With Fix And Flips Or Buy And Holds?” we covered the fact that you should start with fix and flips and build some cash before jumping into rentals. Here are a few tips to make sure that your first rental property turns into a good cash flow property and not a nightmare that bleeds you dry.
Rental properties are a great way to add some additional cash flow every month, as well as creating generational wealth for your children and grand children. However there are a few things that you MUST do to make sure that you are making a good investment. Not every property is a good candidate for becoming a rental property.
Run The Numbers On The Property
This by far is probably the most important aspect. You must take into consideration how much you are paying for the property, what the note is (if you’re not paying cash) and how much you can rent the property for. You also have to calculate in things like insurance and HOA dues.
Kayleigh Kulp had a bit to say about this back in August:
Run the numbers, then run them again. It’s important to treat each rental property like its own business to serve as a good investment.
“The most important consideration for prospective landlords is to accurately estimate rental income and the costs associated with leasing,” says Lucas Machado, president of House Heroes, a South Florida real estate investment company. “Until a landlord has a precise grip on these issues, they risk owning a property that – rather than a profitable investment – is a net loss every month.”
Betting on appreciation alone is not a good idea.
“Rental purchases should have positive cash flow and good rate of return,” Machado says. That could be anywhere from 8 to 15 percent in a residential market. Investment real estate is often valued by its capitalization (cap) rate, which is computed by taking the net operating income divided by the going cap rate in the neighborhood to come to an appropriate price.
Your monthly expenses will include the mortgage or debt service, taxes, insurance, lawn and pool maintenance, property management (optional) and insurance. At least 20 percent down payment will likely be required if financing the purchase.
Vacancy, turnover and eviction are realities of leasing any property, so wise landlords must assume at least a month’s rent loss annually, Machado said.
Read The Full Article Here”A guide for investing in rental property“
Besides making sure that your property is in a decent neighborhood and that you will be able to rent it, running the numbers is the most important thing. In a later article we will dive more into calculating cap rate (capitalization rate).
So the numbers work on the property, now onto renting the property. One mistake that some first time land lords do is over update or flat out just make to many improvements to the property for tenants. In fact there are some things that you really shouldn’t have at a rental property.
Chris Deziel wrote about a few things that you definitely don’t want at your rental property:
4. Garbage disposal
Garbage disposals are useful, and they aren’t that expensive to repair or replace, but they may be behind more maintenance calls than any other appliance. Think carefully before supplying one at your rental, especially if children live there.
Some parents won’t even let their children play on a trampoline, but those that do should buy their own. Even that small trampoline you use to tighten your abs is a potential hazard for kids. Take it out of the garage or basement, and put it in storage or donate it to your local gym before renters move in.
6. Swing sets
Kids love swings, but it’s safer for you if they use the ones at the local park. The possibility of injuries is your main concern, but you should also think about how difficult it is to maintain the lawn around a swing set. It’s best to avoid swinging chairs on the porch as well. They can break.
Inflatable pools need to be refilled often, or they quickly become unsanitary. It takes 810 gallons of water to fill a 6-by-6-foot wading pool to a depth of 3 feet. That’s roughly the amount of water the average household uses in 10 days.
A note about in-ground pools: If your rental property already has a pool, you probably aren’t going to take it out. You might consider covering it and keeping the gate locked, however, for the following reasons:
- Maintenance is expensive, and the pool pump uses energy.
- A poorly-maintained pool is unsanitary. It’s an eyesore and could earn you a visit from the local health authorities.
- Pools are hazardous for small children.
Continue Reading “10 things you shouldn’t have at your rental property“
Those are 4 things you really don’t want at your property!
First, the garbage disposal – tenants may tend to use this for a garbage can! And if your property is on a septic tank, you are probably going to end up pumping it sooner than if you didn’t have a garbage disposal.
Trampolines -really? You are just asking for a law suit when a tenants child or one of their friends bounces off and breaks one of their legs in multiple places.
Swing sets – this is one that we sometimes let slide depending on the building materials and how well it’s anchored. Metal swing sets we always remove. However if it’s a nice pressure treated swing set that has a little fort and so on we may leave.
Lastly a pool. Whenever we consider purchasing a property for rental OR fix and flip and it has an in ground pool, the first thing we ask ourselves is “where are we going to get enough dirt to fill that in?”. Pools are extremely dangerous for small children! The risk of a child drowning is too great, much less the possible law suits.
Summing It Up
As we stated earlier, a rental can add some great cash flow to your monthly income. However you have to run the numbers and make sure that it’s going to cash flow. And lastly, be careful about what amenities you provide or leave on the property when renting it.
Lastly, be sure and check us out for investment properties for sale in Atlanta GA!