What are some TIPS for Successful Real Estate Property Investing?
#1. Make sure you are ready.
What are this year’s property-value trends? What are the mortgage rates? How soon will your purchase turn profits and income into exceeding outlays so that you will soon be debt free? Do you have the time for those regular meetings with contractors, tenants, and local officials or are you hiring a property manager for most of that business? That could cut off 8% to 10% of your income, moreover you are still not guaranteed full occupancy, pleasant tenants and a structure needing few home improvements. The ideal approach is to be open to wait for stretched periods, if you need to get your desired price.
#2. Know who is paying.
You could fail to earn money because you cannot keep tenants. Hiring a property manager to find a tenant does not all ways work. Frequent vacancies may occur, if the property manager is too mean to the residents. Being an absentee landlord can create those kinds of problems. Finding a system to recruit reliable renters or mortgage leads is vital. Also crucial is doing credit checks while tracking leads and seeing if they have ever owed any judgments in the courts for due rent. Knocking holes in the walls is becoming the norm for credit unworthy tenants who are evicted by probate lawyers.
#3. Mind the cap.
You can quickly figure out whether a house or condo is likely to generate positive cash flow. For complex properties, such as with small office buildings or retail spaces, you should check the cap rate, a single number that can tell you if you are overpaying.
The cap rate or capitalization rate, is a property’s net operating income as a percentage of its price. The figure is real estate’s version of a bond yield. If a property sells for $500,000 and generates net income of $50,000 (rents minus expenses), the cap rate is 50,000 divided by 500,000, or 10%. The lower the cap rate, the more you pay for each dollar of annual income. The average cap rate on commercial property in the U.S. was 10%. But recently the average cap rate has sunk to 8%. Thus, your holdings must be diversified between different types of investment properties. To invest in commercial real estate leads, always seek a purchase price to facilitate results of a 10% cap rate gain. Remember that the cap rate depends on how much you collect in rent. If needed, hire a real estate lawyer and a property inspector. If you have any doubts, walk away from it.
#4. Know when to sell.
Think long term. Yet, once the time comes for hiring a lot of home remodeling, you may start getting ripped off by them. If they know you are desperate and have a loan refinanced, many charge a 20% price increase, maybe billing you $20,000 over the quote for simple plumbing in the Chicago home improvement market. Negotiate home improvement contracts to lock in as much of the cost as possible in advance.
By leveraging yourself and knowing these techniques, you will make profits without turning into a slumlord.
