What are the Things to Consider When Considering Owning an Investment Property?

What are the Things to Consider When Considering Owning an Investment Property? 

Our clients often ask us, “what are the Things to Consider When Considering Owning an Investment Property”? Within each of the 6 criteria below, there are a whole host of other concerns and challenges that should be addressed.  Each property has its own unique set of circumstances too, as does each investor.

Here are 6 things to consider:

1. Buy a Property in an Area with Strong Rental History. A good Realtor can help you research different areas to determine rental history, going rates and available properties to consider. If you want to buy a single family home, consider the schools in the neighborhood. Often that is a determining factor for tenants. Or research other draws to certain neighborhoods, like proximity to major employment or transportation. If you are considering a condo or a town home you should research the Home Owners Association (HOA) to make sure it is fiscally sound and learn what type of maintenance they cover. You should also find out if there are any restrictions to making the property a rental. Some lenders will not make a loan in a complex with a high rental occupancy rate. A good Realtor can also help you find out all of this information.

2. Weigh the Pros and Cons of What it Takes to be a Landlord. Owning rental property long term can be a great investment, but it can also be expensive. Are you prepared to take on the stress and financial obligations involved with tenants and repairs? Over the years, given market appreciation and pay down of your loan, you could build a nice nest egg for retirement, if you do it right.  Just fully understand all the pros and cons before diving in.  The right property can make all the difference, so do your homework and hire a professional.

3. Know your numbers. Make sure your monthly rental income covers not only your recurring expenses, but also any unexpected expenses and lost income through vacancy. Before you even buy the property, you need to truly understand what you are getting into today. Never buy a property based on “what if’s” and other uncertainties.  Wishful thinking is not a good investment strategy.

4. Understand Tenant Landlord Laws in Your State. Each State differs, so if you have owned property in another state and are venturing into new territory, check up on any differences, so you don’t get yourself in trouble. Two good resources for rental rules are the U.S. Department of Housing and Urban Development’s Web site (www.hud.gov ), and The Landlord Protection Agency (www.thelpa.com ), which includes state-specific rental guidelines and standardized forms for rental agreements.

5. Take Time to Properly Screen Tenants. Getting a good tenant is critical to protecting your investment. Always ask for previous landlord references, run a credit and a criminal records check. If you decide to allow pets, obtain an extra pet deposit, if allowed by your state regulations. Once you find a tenant, be sure to conduct a pre-move in walk through with the tenant to thoroughly document the current condition of the property. This will help avoid any disputes at move out.

6. Consider Using a Professional Management Firm. An experienced professional property management firm can help you take care of all of the above and more. If you already own a property and feel that you cannot budget the fees, consider what it costs you in time, aggravation and repairs each year. A commitment with a property management company will help protect your investment and increase your bottom line year over year by ensuring the property is rented to the right tenants, maintained effectively and ensure reduced vacancy time. If you are buying a property, right off the bat you should factor in the cost of property management into your ROI. If the property numbers don’t work, then find another property. There’s always a good investment out there, you just have to be patient and persistent and work with a professional!

Southern Group Property Management is experienced in managing rental properties in the Raleigh metro area.  We currently have over 100 properties in our portfolio.  We have a full staff of professionals to help you every step of the way.  From researching properties, crunching the numbers, getting financing, the contract to close process, finding a tenant and collecting rents, we’ve got it covered.

Contact Us today for a free Investor Consultation to see if owing an investment property is right for you.

Dealing with Tenants when Selling a Home

Dealing with Tenants when Selling a Home

Tips for Selling Investment Property

Do you own an investment property that you are considering selling? Unlike selling a personal residence, selling an investment property has its own set of challenges if you have tenants occupying the property.

The simplest route to take is to give the tenant notice that you will not be renewing the lease upon expiration, but this isn't always possible. You may also be able to market the property as an investment property with tenants in place. It may be very attractive to an investor to have instant income and no lag time for finding a new tenant. And your current tenant may be very happy to stay.

If you must sell with tenants in place, check your local real estate landlord tenant laws with regards to giving notice and tenant rights. Each State is different and there may also be other local regulations you must abide by.

Work with an experienced local agent who can offer you the best information regarding the local market conditions. To minimize hassles, you want to get an offer as soon as possible to avoid months of sitting on the market and multiple showings. Your agent can guide you as to what fair market value is based on condition and other factors.

Worst case scenario, if the home is not priced to sell based on condition and other market factors and your tenant moves out, you are left holding a mortgage with no income. You have to determine if a few month's lost income is worth not having to sell the home with tenants in place.

While there are some excellent tenants, a large number of tenants tend to ignore maintenance issues, and so when it comes to selling a home with tenants in it you may find it has become rundown. This leads to the problem of having to do repairs while the tenants are still living in your house. Again, you will have to weigh the cost vs benefit of conducting repairs after the tenant moves out.

It can get even worse if tenants don’t want to move, because they can become very hostile, which can put even the most eager buyers off and hamper showings. There are also ways that very reluctant tenants can delay sales for as long as a year.

An empty house means no income, so planning an exit strategy far in advance is the best bet. Assess your tenants willingness to cooperate, conduct a thorough inspection of the home, make repairs, plan the best time of the year to sell and the best time to inform your tenants you intend to sell.

Tips for Dealing with Tenants

Clear, honest communication is essential when you’re selling a home and dealing with tenants. Just as tenants can become hostile, landlords can seem threatening, even when they don’t intend to be. Explain what’s happening to your tenants and reassure them that their privacy won’t be exploited. For instance, make sure they know you will give them ample warning before buyers are invited to view their home. It’s usually best to choose one or more specific days and times that suit tenants.

If you encounter hostile tenants or tenants who have destroyed the property and appear that they will make selling a challenge, and you need to sell, you may have to consider other options. You could wait until the end of their lease and then start an eviction process, which can be costly and time consuming. Or you could possibly offer them a major concession to move. It may be cheaper than eviction, although hard to swallow. You may even have to consider pricing the property attractively so a prospective buyer will be flexible with the condition of the home and the uncertainty of the tenant situation because they are getting a good deal.

One strategy for maintaining a good relationship with nice tenants is to offer some type of reward to persuade them to do their best in terms of keeping the house looking good while it is on the market, as well as being pleasant when agents and prospective buyers visit. For example you could offer them a discount on rent for maintaining a good showing condition. Or you could also offer a gift certificate for dinner for two for each month your home with tenants is on the market.

A good landlord (which is what you should aim to be) will also be concerned about their tenants’ belongings. So suggest they keep valuables safely locked away whenever strangers are in the house. Put it in writing.

Ultimately you need to remember that while selling a home with tenants in it is challenging, for these people your investment property is their Home. It’s difficult for them too, so open communication is always the best policy.

At Southern Group Property Management, we can guide you through the entire process of preparing your investment property for sale. If you decide it's not the right time to sell, but you don't want the hassle of being a landlord, CONTACT US, we can help. Property Management is much more affordable than you may think.