Demystifying Real Estate Investing Part Two | Real Estate Investing for beginners

​Demystifying Real Estate Investing
 Part Two 
Real Estate Investing for beginners

I have been working with Real Estate Investment Properties and Owners for over 30 years and the one common thread I have found that is the primary roadblock to investing in real estate is fear. Of course, this is true in a lot of other areas of our lives as well. We are afraid of the unknown and afraid of failure. We want to be sure of something before we take a risk with our time, money and heart.

This is Part 2 of our 4-part series on Demystifying Real Estate Investing. In this article, we are going to focus on the Beginner Real Estate Investor. I strongly believe that once you learn more about a subject and it becomes more known or familiar to you, the less fearful it is. It is my desire and passion to demystify the investment process and help empower you to think more seriously about adding Real Estate Investments to your plan for wealth and or retirement.

The next 4 months Newsletter will be focusing on Demystifying Real Estate Investing.

In last month’s article, we discussed how to buy a property with no money down as well as customary financing options. Yes, last month’s article was a little bit of putting the cart before the horse with the “Buy with no money down”. But it got your attention so you could decide if you wanted to know more.

You can read last month’s article here: ​Part One ​​​

In this article, we are going to discuss the below items to consider before selecting an investment property.

• Is real estate investing a good fit for you
• Educate yourself on your market
• Get Pre-qualified
• Property selection
• Search the market for your potential properties
• Preliminary run of the number

Before you invest money in anything you need to study up on whether it will be a good fit for your investment goals. The very first thing to consider is…… “Do you want to be an investor”?

Owning and managing rental properties is not the easiest way to make money

Owning and managing rental properties is not the easiest way to make money. If you’re not cut out for something you generally don’t do it well. I find not all people are a good fit for being an investor. Hiring a professional to manage your property will certainly take a lot of the stress off of you but the fact is sometimes just knowing of the potential for liability or repairs creates a lot of stress and fear for people.

If that is you, then you probably shouldn’t own rental property. Your Real Estate agent and Property manager can certainly guide you through all the below items but if it still stresses you out to hear about them or know of their existence then it is just not worth it. The stock market is likely a better place for your money.

Below are some things to consider to help in that decision of “Is being a landlord or investor a good fit for me?”

Does the thought of negotiating a purchase contract or lease to get your best price scare you? Most people know that real estate prices can be negotiable. Do you have what it takes to stand your ground and let a tenant or seller take a walk if the deal doesn’t meet your needs?

Do you have access to good vendors to handle the repair, renovation, and upkeep? Even if your handy do you have the time to drop everything and go fix a toilet that is overflowing or repaint after a tenant vacates? The amount of time it takes to get the property ready is very important to the overall bottom line cash flow. This is where most first-time investors fail. Falling prey to a bad vendor can make or break this investment endeavor. Real Estate is just too big of an investment to trust to a vendor you do not know. I can’t tell you how many times I talk to Owners that were taking on a very costly ride by using vendors that didn’t do the job right and or didn’t do what they said they would do. What is the point in fixing up a property if you hire people that do a terrible job?  Paying a vendor before inspecting their work is a huge no-no. But sadly, I see it happen all the time and these investors are left completely frustrated and turned off by the entire event.

Do you have what it takes to pick out desirable materials and supplies that will improve the property to keep up with a competitive market? Are you in town to measure and purchase material? For your property to be able to appeal to the masses you want to try to keep the colors neutral throughout. You can add a lot of wow factor that is relatively cheap by a few design touches like a wood or stone wall, updated lights or ceiling fans, tasteful and modern Mirrors and plumbing fixtures etc.

Are you prepared to hire and take the advice of professionals? Sometimes I find Owners will hire the professionals (a property manager, a vendor or a sales agent) but still won't listen to them and take their well-meaning advice and so they become their property’s own worst enemy.

Do you know the Landlord-Tenant Law or are you willing and able to learn it? There are a lot of legalities in renting properties that the average Real Estate agent is not even aware of, which is why they refer Investors to a good property manager. If you are managing the property yourself, you must fully understand the landlord-tenant law Chapter 83.52 or be prepared to pay for attorney advice often.

Do you have the ability to screen the tenant? This is probably where most do it yourself landlords fall short and it is one of the most important parts! What is the point of owning an investment property if you are not prepared to protect it from loss? Having a bad tenant can break the bank so be sure you do a thorough screening. You should do a credit check, criminal background check, verification of previous rental history and verify their income is sufficient. Our standard is the income must be at least three times the amount of the monthly rent.

Do you have the guts to confront your tenant to find out why they have not paid rent? Debt collection is an uncomfortable conversation for most people. I find landlords will procrastinate for months before confronting a tenant about their unpaid rent. Sometimes they do a terrible job of keeping up with whether the tenant even paid rent for the month. When it comes to having to knock on the door to have a face to face with the tenant a lot of people are not cut out for it.

Are you prepared to check in on the tenant throughout the lease to make sure the tenant is not damaging the property? Your rental investment property is too valuable to be left unchecked. There are very few landlords that take the time to look at their property during the lease to make sure the tenants are not destroying it. Again, it can be uncomfortable to confront a tenant or to even get the tenant to agree to let you in the property, let alone hold them accountable for damages you find. We inspect our properties every four months and hold the tenants responsible for any damages found by making them correct it within 7 days or pay for the repair upfront so we can send out a qualified repair person. You cannot wait till the end of the lease to find out you had terrible tenants. Sure, they paid rent on time but if they left you with $5000 of damages at the end of the lease then it was not a success.

If after reading the above, you still feel you may be interested in investing in Real Estate read on…

The next step for you is to study the market. Most experts will tell you it’s best at the beginning of your investment career to buy property close to where you live. That way you have a pretty good idea about the market and can study it up close. It is also better logistically to be close by if you’re going to be handling the repairs yourself. Sign up for realtor.com and Zillow.com and my app Homesnap.com so you can easily follow the market that you’re interested in. Decide if you’re going to be investing in a condo or a house or if you’re simply going to look at the numbers and decide what has the best cash flow for the amount of funds, you're ready to invest. Like our last article mentioned if you’re getting a mortgage for investments property, the bank will want 20% down. How much of a down payment you can afford will often guide your selection of properties.

Become proficient with the apps listed above and set your filters for the parameters of the type of property you would like to own. I for one would prefer something a little more hands-off. I want good tenants and a home with very few maintenance needs. I know you’re thinking well doesn’t everyone. Well sure, but it means buying a home that’s in good condition (or you're prepared to put it in good condition) and in a good location. That way you don’t spend a lot of time in management and maintenance.

For the Gainesville market, I would want the property rent to be around the $1200 to $1800 mark or higher. In this market that rent amount is typically going to attract more qualified tenants and be easier to rent because there is such a large demand for that price range. Typically, people in that price range have the financial ability to pay the rent on time. You’ll also tend to have less turnover and more responsibility on repairs so you’re not having to fight with your tenant about them paying for damages they have created. There’s also a nice sweet spot between the $1000 to $1200 price range. Price is relative, so just consider the very good possibility of a little more involvement and maintenance for lower-valued properties.

Your bottom line is hugely affected by the property’s downtime (vacancy loss). That’s the time it takes to get the property ready for the next tenant and the time it takes to get it rented (Marketing). If you’re having to take time off work and travel to get this done, you can see where it’s going to have a big effect on your bottom line (cash flow). So, heads up to all of you do it yourselfers. Even though you can, don’t mean you should. Sometimes it’s less expensive in the end to have just called the plumber and had him fix it quickly. Outstanding maintenance not only wears in your mind, but it certainly wears on the tenant and will result in losing good tenants (High turnover).

Another huge factor on your cash flow is the cost to maintain the property not only during a tenant’s occupancy but also when they vacate. If your property is not attractive (due to condition or location) it makes it difficult to find the good tenants. If you cannot attract good tenants, you’ll not only have higher maintenance costs during the lease but also spend a lot of money on the turnover (make-ready) cost which will equal more vacancy time as well.

I’m not saying low-income properties can’t be profitable, but they are certainly not for the first time Investor. Low-income properties have very high maintenance and repair cost and require intensive management. The old rule of you get what you pay for is certainly applicable here.

You need to educate yourself if you plan to become an investor. Subscribe to Bigger pockets newsletter, Mashvisor, Property Manager.com, my newsletters and blogs, podcasts, Become friends on Facebook with them and LinkedIn. Often, they’ll share very good articles on industry changes and market conditions. You can also check back through my past Newsletters. Over the years I’ve shared a lot of good information about investment property and best practices.

It wouldn’t hurt to get your Real Estate license. If not to use the license for yourself and gain referral fees on every property you purchase (essentially a discount on every purchase and sale) but you’ll also gain an education which will help you make better decisions. There’s a lot of good online courses available. If you wanted to go in person, I like the Florida Real estate Institute. I attended their classes to get my Salesman ‘s license and my Brokers license.

Now that your educated and are surfing the web and Real Estate apps to find potential investments your next step would be to select your top picks to take a deeper dive into qualifying the investment. This includes, physically inspecting the property, estimating repairs and/or upgrades, running the numbers again with more facts and putting in the offer. Stay tuned for our next Newsletter for part 3 of Demystifying the Investment Process.

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No need to look at a list of property management companies! If you are interested in Gainesville FL Property Management please contact us. We can be easily reached here on our website by completing the contact form above on the right. You can also email us at [email protected] or via phone (call or text) 352-478-8029.