InvestorLoft Real Estate Investing Blog

When you’re a real estate investor, it’s likely you fall into one of two categories: those who use property managers and those who don’t.

This entry isn’t meant to bash one particular choice or the other, but rather explain some of the benefits to using a qualified and reliable property management firm for your rental properties.

• On-Site Property Management: For real estate investors holding rental property in a condo complex or the like, an on-site property manager offers many benefits to prospective tenants. Faster response to maintenance needs, a friendly face to answer questions and the benefit of having an on-site eye on your property more often than not. When your property goes on notice when a tenant decides to move out, they’re also a great source of walk-in traffic for potential new tenants. Make sure you obtain PTE (permission to enter) from your tenants so that you may show the property to prospective tenants when the time comes.
• Marketing: While Craigslist and your local newspaper are excellent places to list your property for rent, property managers establish relationships with local publications and sometimes the local MLS to get your property seen. Remember – they don’t make money for LISTING your rental. They make money from RENTING your rental.
• Tenant Screening:  Let’s face it – tenant screening is a time-consuming process and the credit report isn’t an end-all/be-all indicator of a quality tenant. Property Managers are interested in securing tenants for their clients that have all of the signs of being favorable long-term renters. Let the property manager do the tenant screening for you – and feel free to ask in-depth questions as to how they select tenants and their screening criteria.
• Potential Tax Benefits: It’s possible to reap some tax savings from the professional fees charged by your property management firm. Be sure to consult your tax advisor, but how cool is it to think that you can write-off what you’re paying your property manager to keep an eye on your investment?

Rental Property: The Time is Now

Real estate investors – get ready! There’s no better time than now to capitalize upon current market conditions and make your rental properties work for you. Tightened lending criteria dictates that many would-be buyers are likely to remain renters for an extended period of time. This means that a strategics acquisition of a rental property could potentially add value to your portfolio and give real credence to the power of the “buy and hold” strategy.

It’s a great time to work with your Realtor to explore the foreclosure/REO market. In many major metropolitan areas suck a Phoenix, Las Vegas and Denver, you can find both foreclosed and REO properties (single family homes and condos alike) in prime areas – many times newer construction and never occupied! In the case of condos, be sure to speak with the property manager (on-site in many cases) to explore average demogaphics and vacancy rates. You don’t necessarily want to buy a unit in a building where there’s a 60% vacancy rate and a ton of units just like your available. Rather, it’s the time to look for single family homes at steep discounts (maybe with a little TLC needed) and condos in areas close to colleges where you can take advantage of a steady student demographic.

Also consider condos and single family homes in areas that are adjacent to major business centers with convenient access to public transportation like light rail and bus lines. These tend to attract working professionals that are the ideal tennant – means to buy but cannot currently qualify, and thus, a candidate for a long-term renter.

The Treasury Secretary wants to drop mortgage rates to 4.5% in hopes of stimulating more buyers to come back into the market. Certain regions have had moratoriums placed on foreclosure proceedings for those who qualify.

Is it all truly necessary, however?

Is it the government’s responsibility to ensure that every home buyer can continue to pay their mortgage note or should we revert to a more Darwinistic approach and call it a weeding-out of natural selection proportions? 

Some say that if we don’t take strides to end the slide in housing prices then banks will never be able to stabilize and lending will remain out of whack. And on top of it all, unemployment numbers are surging and it’s likely we’ll see the foreclosure trend continue as the economy presents its inevitable challenges.

What say you, the real estate investor? Should the Fed step in to stabilize or should we adopt the “laissez-faire” mentality and let the natural selection process take its toll on the banks, mortgage lenders and homeowners as a whole?

Evaluating investment property. It stands to be a tall order to fill if you don’t know what you’re looking for! For the residential real estate investor, granite countertops and a built-in backyard BBQ island aren’t so important as the financial p’s and q’s of the purchase.

When evaluating your next potential residential investment property for your real estate investment portfolio, here are 5 key criteria to keep in mind throughout your search:

1. P/E Ratio – for what the property is going to cost you, will the annual cash flow put you in the red or the black at year’s end? You can determine this by researching average rents and vacancy rates in the area in which you’re looking to buy and dividing the purchase price by the property’s annual estimated income.
2. Accessibility – Depending on where your prospective property is located, accessibility will be key. School districts are always a top consideration and proximity to bus lines and/or public transportation and staple amenities like grocery & discount stores (think WalMart & Target) are important things to keep in mind as well. Dog parks (if you’ll allow pets), running and biking trails (think college towns like Denver and Phoenix) and family-oriented recreation like parks and public swimming pools are considerations.
3. Purchase Strategy – Are you rehabbing? Flipping? Aiming for a buy-and-hold? Knowing your goals before you buy will help you narrow-down the choices in shorter order.
4. Cash Flow – What are your needs? Some investors don’t mind a little bit of a negative cash flow when historical appreciation rates will make-up the difference upon final sale. Know what your cash flow needs are prior to getting into a place and understand that vacancy rates vary greatly between geographies. Have your Realtor do the homework for you on vacancy rates so you know what your financial carry is going to be in advance.
5. Crime Rates – Know what you’re going to own. If auto theft and burglary are off the charts, it’s going to be difficult to attract quality tennants regardless of how good a deal the property is. Your homeowner’s insurance will take a hit as well if you need to invest in repeated repairs due to criminal activity. Visit the local police station for crime stats before you buy. And don’t forget to drive-by at night!