Professional property managers have a lot of experience that can help both new and seasoned real estate investors make the best investment and property management decisions. I asked my property manager, Jill Powell, of 1st Choice Real Estate to share some of her insights into what investors should be considering. She offered 15 tips.
Interestingly, all her suggestions focus on things investors should consider before purchasing a property. Although there are things only experience will teach you, education and preparation are still key to success in real estate investing.
- New property investors should not buy older homes that have been turned into multi-units with all utilities included. These properties are often efficiencies or one-bedroom units with transient tenants. You will have sky-high turnover and sky-high utility bills. Plus, you can’t hold anyone responsible for leaving the junk sofa on the curb that you now have to pay to have disposed.
- If you buy in a college town, have the parents co-sign.
- Always run prospective tenants’ credit and have a good way to score the rest of the application findings. Make sure the application is complete and all the steps have been followed—no cutting corners or exceptions.
- If you don’t have a lot of spare time or don’t enjoy tenant calls at 3 a.m. when their heat goes out during a Michigan winter, think about hiring a property manager. After self-managing at first, I now buy my properties with the intent of having a professional property manager help me run my rental business.
- Use a cashflow or deal analysis spreadsheet before writing your offer. My property manager has seen many out-of-area investors pay for inspections, only to walk on the deal once they find out what the local taxes will be after buying, the local cost of the rental licensing, and the true cost of rehabbing the property. It pays to have a professional on your side. I always have my property manager weigh in before I make any offers. They are a valuable part of my team.
- Use a local real estate agent who specializes in rental properties. They can tell you not only what is happening with property values and market rents in the area but also things such as whether there is a moratorium prohibiting rentals in that subdivision, a limit on the number of unrelated persons in a property, or a limit on the number of pets a tenant/owner can have in a property in that area.
- Get the details from your lender before making the offer so you have the exact down payment number, as this will affect your rate of return.
- Start slowly and learn from each property.
- Investing in real estate is not a way to earn “passive income.” It is a very time-consuming business, unless you use a property manager.
- Be cautious about purchasing rental properties with tenants in place. Ask for a tenant ledger. Ask for current photos or, better yet, inspect all units personally. Look up rental/tenant violations for the property historically. Drive by the property at multiple times of the day to see how the tenants maintain the property.
- Research rental rates for the area. Just because the listing says you can get a certain rent doesn’t mean that’s what the rates actually are—verify the claim against market rents.
- Know the local laws regarding “discrimination based on income source” for things like Section 8 vouchers.
- Decide if student housing is right for you. You will have high turnover, higher costs to get the property ready to re-rent, and potential issues locally if the tenants like to party.
- Have a good CPA. They can help save you a lot of money and understand the tax implications of the investment.
- Make sure you understand the local rental laws where you purchase property.
A professional property manager is a valuable part of any real estate investor’s team. Even if you self-manage your properties, you can learn from their experience to make the best investment and property management decisions before you buy your next property.
Jeff Roth has been a licensed realtor in Michigan for the past 15 years. He specializes in investment property in southeast Michigan. You can learn more about Roth’s practice at www.moregroupmi.com/staff/jeffroth and connect with him at jeffrothsells@gmail.com.
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