A growing number of investors have decided to flee the volatile stock market seeking safety, and they will find this in hard assets like in real estate. Nevertheless, many people wish to stay a passive investor, and they don’t want to knock on doors seeking foreclosures and fixing toilets while working as the landlord. A simple search on Google for passive real estate will equate to people becoming the victim of online advertising in a market property known as turn-key rental properties. But what is a turn-key rental property? And is it truly worth your investment?
Turn-Key: What Does It Mean?
To most investors, turnkey sounds like nothing more than a buzzword, and a lot of people throw it around. Many times, the people who throw it around are the new companies that don’t have a definition of what this means. What’s the standard that defines this word? For the uneducated buyer, you might assume that turnkey properties mean that you don’t have to do anything. Don’t let something that looks too good to be true pull you in. The false belief that someone else will renovate, buy, lease and manage the property while all the other people have to do is deposit the rent check is false.
Some companies will sell a turnkey property that will be fully renovated to what looks like-new condition. You will need a property manager who understands how this works. Some companies only slap on a little paint, calling it turnkey. They have hopes that they will attract buyers from out of state.
How Can Investors Protect Themselves
People have to learn how to disregard the marketing in the message. The marketing is what investors have to stay alert to the most. People don’t want good marketers to manipulate them simply because they understand how psychology works. Beware of messages that say, “This is turnkey, and you won’t have to lift a finger.” In addition, investors should go to see the property before they buy it because of what it looks like in photos might be misleading in person.
What’s the bottom line with these investments? Although a may look like it has a cheap and reasonable price, chances are that there will be more work and time you will have to put in. If investors decide to pursue turn-key rental properties, they should always check to make sure that they will be receiving the best price.
If you’re looking to turn some extra cash into profit, you have a multitude of options. Real estate investment is only one of them, and many people enjoy it. While it is a solid business, you might find yourself encountering these common myths when researching this subject.
It Takes a Lot of Money
You don’t have to be a millionaire to become a real estate investor, and you don’t need to be free of debt. Many entrepreneurs make money by finding opportunities and presenting them to buyers who have existing capital. Even if you have only $5,000, you can enter a real estate investment trust and split profits down the line.
You Have to be Rich to be Successful
Thankfully, your level of success doesn’t depend on your existing bank balance. You can choose from three different types of real estate investing: residential, commercial and land. These come in assorted sizes, shapes and price points. Mostly, your skills and knowledge determine the level of success.
You Need Special Certifications
Real estate professionals often function as investors, but it’s because they know the market and deal with properties daily. Their success does not rely on a real estate license. Since any adult can legally buy property, you can purchase real estate that’s in any type of condition for investment purposes.
Real Estate Investing is Time Consuming
People see frantic professionals darting from place to place with a phone pressed to their ear. This makes them think that investing in real estate takes a lot of time. While it is true that engaging in pursuits that lead to profit takes time, it won’t eat up your day.
Consider that many people spend at least three hours per day watching television. What if you used some of that time to research sound investments? Additionally, when you go house hunting, you can involve the whole family and have some fun too.
You Need Experience
Chances are, some people might try to talk you out of real estate investing because you lack experience. However, don’t let irrational fear stop you. While experience improves chances of success, it’s neither necessary nor does it guarantee anything. At one time, everyone is a beginner and will gain experience by practicing.
While there are plenty of myths out there about real estate investing, do not believe them before you conduct some research first. With the right information, you will be ready to take on the world of real estate investing in no time.
When built-ins and fixtures in a home start looking worn and old, it’s time to update.
Homeowners don’t usually think about making changes that can increase the value of their homes until it is time to sell. Then they may be short on cash or the time to make improvements that can add value. The key is to make gradual changes along the way that will keep a home looking fresh and contemporary. Consider the following ways homeowners can increase the value of their homes.
Keep the outside looking fresh
Nothing grabs attention more than a home with curb appeal. Since the outside of the home is the first impression a buyer will make, the outside should be neat and inviting. Keep shrubs and other vegetation under control with regular trimming. Pressure wash concrete surfaces and siding to keep them looking new. Remove dead flowers and plants. When perennials start to get grassy, it may be time to dig them up, clear out the weeds, and start fresh. Make sure wood trim is painted, and clean the cobwebs from around doors, windows, and light fixtures. Curb appeal is usually a matter of regular maintenance and costs very little.
Consider a kitchen upgrade
An upgrade can make the kitchen a place where the entire family enjoys gathering, but an out-dated kitchen can be depressing and a deal-breaker for a buyer. Swap out tired looking white or black appliances for edgy stainless steel. When today’s homebuyers walk into a kitchen, they expect to see stainless steel appliances and granite countertops. Something as simple as s trendy new backsplash can add pop to an otherwise boring kitchen.
Turn a bathroom into a spa
Not only do homebuyers expect kitchens to wow them–clean bathrooms with that spa vibe are also on many homebuyers’ wish lists. If you can’t put in a new shower, consider adding a rain shower head. Clean the tub and shower until it is sparkling. Replace old sink fixtures and faucets with updated versions. Consider adding a new mirror and get rid of the 1990s vanity strip lights. Replace the wallpaper with a fresh coat of paint in a spa-inspired color.
These are just a few simple, and mostly low-cost changes that a homeowner can make to increase a home’s value. Even when a homeowner is not thinking of selling, updates can make a home feel like a brand new living space.
is one of the most critical aspects of real estate investing. It is a situation where the winner of a bid pays more than the worth of the property. It is an unfortunate occurrence since no one wants their efforts to go into waste. Performing objective due diligence is the best way to dodge the curse or any other unforeseen circumstances. Additionally, it helps to overcome bias in decision making.
Although the winner’s curse is unfortunate to an investor, it is a benefit to real estate fund managers. This is because they can differentiate early enough whether a valuation is optimistic or conservative. The curse has also caught experienced investors. They tend to overlook certain property fundamentals or rely on unviable strategies.
Atlantic Richfield engineers noticed that sometimes aggressive bids might prove to be too optimistic. They discovered that in the oil and gas auctions, essential information might be hidden beneath the surface.
Although valuations may vary in different industries, in real estate, prices might not reflect the underlying value. This is maybe due to the risk in investment property of setting the wrong prices, false assumptions or business plans that are not feasible. Furthermore, in private equity real estate, there is the rush to close the deal instead of waiting for the right opportunity or time.
For most investors, sticking to conservative strategies seems the most rational thing to do. However, behavioral economics indicate that markets are not always rational. In most cases, sellers hold unrealistic prices while buyers concentrate on factors that do not add intrinsic value.
There are limitless deals in the real estate industry. However, it is advisable to carefully check the inefficiencies that prevent investment opportunities to achieve the expected value. In fact, nowadays there is growing data science that can help to evaluate properties before committing an investment.
Due diligence is the best way to control the risks involved in real estate investment. However, it may not provide the nature of the risks. There are two major lessons when investing in real estate. First, joint ventures do not always guarantee favorable returns. Although getting into partnerships might reduce structural risks, they also limit control of investment and ultimately lessen the proceeds. Second, making off-market deals does not always guarantee a better return on investment. Therefore as an investor, find a suitable data-driven procedure that will help evade the winner’s curse.
If you want to be a better real estate investor, you have to overcome common challenges. The two biggest problems that real estate investors face is finding the property and then actually getting the funding to acquire it. However, it doesn’t have to be as hard as it used to be. Here is how technology is changing the way people solve these issues:
Finding properties is one of the biggest challenges that investors face. After all, the market value of an area is not set it stone. In order to understand if something will pay you back, you need to know the area.
You can now know about an area and what kind of demographics it has easier than before. First of all, with online maps, you can scout it on your laptop. Secondly, people on the ground can be hired to walk around and film with a drone to capture video so you can really get the feel for the location.
You can look into the local economies of locations that you are considering. See how their local businesses have been doing in recent months with sales. In addition, find out the employment rates to make sure there is an economy that is healthy enough to support the investment you are looking to make before just jumping in without the information.
The Need for Capital
You might have the best information in the world, but you still need funding to get that property. Therefore, raising capital has always been a burden to investors. Thanks to technology, there are new options, however.
Using public sites you can raise funds from investors, large and small, all around the world. This lets you act quickly on properties without breaking the bank. In addition, you might find properties that you didn’t otherwise think you could afford.
When it comes to real estate investing, it can be one of the most lucrative opportunities in the world. However, to make money with real estate, you need to find the property first. Then, you need to get the funding to purchase it. Technology has made these two things much easier than they ever were in the past. Therefore, you should look to utilize this technology in your own career to leverage the benefits contained.
While many people are rightly skeptical of going into debt, experienced real estate investors know that the judicious use of leverage
can dramatically boost their bottom line. Leverage is used by real estate investors to boost what is known as their internal rate of return. This is simply a reflection of the fact that the less capital one has invested, the higher their potential return on invested capital is.
How does leverage increase returns?
If a new real estate investor had $50,000 to put towards the purchase of a property, they would have a number of options on how to best invest that money, starting with whether or not they wanted to use mortgage financing or pay cash. Some people may opt for the latter option, deciding that the risk of taking on mortgage payments is beyond their tolerance levels.
However, for the astute investor, using mortgage financing can provide a much higher rate of return. In the case of buying a property for $50,000 in cash, if that property nets $5,000 per year of income, then the total rate of return on capital for the property will be 10 percent. However, if that same $50,000 is used on a down payment to buy a $200,000 property with the same 10 percent return on the purchase price, the return on capital for the second deal will be 40 percent! This is because the investor is earning $20,000 per year of income but has only invested $50,000 of their own capital.
It is important to understand that leverage works best, by far, when rents and property values are rising. Using leverage can still work in other markets, but investors need to have sufficient liquidity to cover downturns, such as high vacancy rates or declining overall property values. Generally speaking, investors should stay away from using leverage in markets with a negative macroeconomic outlook for the short to medium term. While these investments can still prove to be highly profitable over the long term, the short-term capital requirements can bankrupt smaller investors.
The best way to mitigate the risks of using leverage is to perform in-depth due diligence on the local macroeconomic trends. Study trends in property values, employment quality, and quantity and net migration trends. Try to avoid entering into leveraged real estate deals near market peaks.
4 Ways Landlords Can Improve Their Relationships With Their Tenants
Investing in a rental property can offer many benefits. Not only can it help provide a steady monthly income, but it can help build your net worth. However, by investing your time with rental properties, as a landlord, you will have to maintain it, and make it attractive for tenants, and find renters who can be trusted.
Often the relationship between landlord and tenant is poor and strained. Talk to any landlord and they are bound to share a tenant horror story or two about an unruly renter. By establishing a more professional and positive relationship with your tenant, you’ll find that you will have less tenant horror stories to share. The following are four ways that landlords can improve their relationships with their tenants.
Often, tenants are afraid to contact their landlord about issues they are experiencing. Sometimes tenants don’t tell their landlords about repairs until the problem worsens or is out of control. Tenants are afraid of asking for help because they don’t want to bother the landlord or are afraid. Landlords should be both supportive and approachable to ensure that their tenants feel comfortable calling in their time of need.
Be An Effective Communicator
A good line of communication is essential to solving many rental problems. Tenants should have an understanding of why something is happening and be given proper notice for anything that may be disruptive. By landlords providing the most up-to-date information, the tenant will be more willing to work with the landlord rather than against.
Be Hands On
When you lease your property, you must be hands on. Often landlords will want to have rent out their property but make little repairs to the home. You should help your tenant feel important by going out of the way to make improvements. Not only will this make your tenants happy, but it will keep your resale value high.
One of the most important things that any landlord can remember is that tenants are people too. Sometimes it can be easy to forget that your tenants are people with feelings and not just a monthly profit. As a landlord, you have a direct impact on the social and emotional environment for other people. That being said, treat your tenants with the same support and respect that you would want.
Real estate investment has changed. House flipping is commonplace. Increased competition makes finding profitable investment properties more challenging.
Rising above the competitions often means turning to technology. There are two main ways that technology can benefit the real estate investor. Technology can help find new opportunities and improve upon the results of current investing techniques.
New Investing Opportunities
The main areas where technology can assist a real estate investor to find a profitable deal are in bidding, optimizing online efforts, and efficient property searches. Each plays a significant role in staying ahead of the competition.
DealMachine is an innovative tool for finding undiscovered properties. It is a simple idea with amazing applications. Investors merely take a picture of a house, then the app provides owner information. DealMachine’s other features include sending the owner information and express a willingness to buy their property. It also automatically follows up to encourage an owner to respond.
Optimized websites benefit real estate ventures. Carrot excels in this area. It also helps find relevant leads for buying and selling properties. HouseCanary is a nice compliment. It provides filters to determine which are the most profitable rental properties and areas within a community.
Improve upon Results
Managing customer relationships, finances, tenants, and cultivating leads all improve results of real estate investing. Most investors do not make the most of cultivating their leads, REIPro provides a tool for managing real estate relationships. It builds trust and nurtures relationships through features designed specifically for investors.
Another piece of software that benefits lead generation is Call Porter. Among its features is personalized phone communication. Overall, Call Porter is a specialty software that aids several aspects of investing like managing appointments and callbacks.
In regard to technical aspects, DealCheck goes a long way toward improving profits. It is a forecasting tool that estimates repair costs. This aids in analyzing properties and actualizing profits. Roofstock is of benefit in this area as well. Its focus is on cash-flow properties. Investors can purchase properties free of the concern of disrupting tenant occupancy. For out of state investors, Roofstock is a blessing.
More competition has indeed entered real estate investing. However, so have some very useful tools. The savvy investor can still rise to the top in profitable deals.
While your rental property can bring you in a nice passive income, it’s always a good idea as a property owner to reevaluate your property from time to time. Even though you can make money every month on your rental property, there are certain times when it might be more feasible for you to simply sell the property.
- When The Money You Invested Could Be Earning More Elsewhere
While you can’t predict the future, you can make an educated guess of how the real estate market will be by evaluating the present. If your rental property is located in a location with a dying industry, then it might be time to sell and reinvest elsewhere where you’ll be able to earn more in the future.
- When You Need Cash Now
If you need cash now or in the foreseeable future, you might want to consider liquidating your rental property. For instance, if you’ve had to undergo a major medical procedure or your need to fund your child’s tuition, then you might need to go ahead and cash out your rental property to get the funds you need.
- When You Could Get a Significant Tax Benefit
Tax laws are always changing, so it’s important for you to stay up on the latest. If you could realize a significant tax benefit from selling your rental property, then it might pay off more for you to do so than it would for you to keep the property. For instance, under Section 1031, you could avoid paying capital gains taxes when you sell your rental property so long as you buy another one in the next 180 days.
- When The Property Is Draining You
Sometimes you need to sell your rental property simply because it is draining you to upkeep it. If you’re ready to retire, for instance, you might not be up for all the property management and maintenance required to run a rental property. You could simply sell and cash out, or if you still want to keep earning the money from rents, you might want to consider automating as many tasks as possible and turning the rest over to a property management service.
Knowing when to buy and sell can be tricky parts of the real estate. If you already own rental property, the above situations can help you know when to sell.
There’s an age-old debate in the real estate market as to whether primary residences should be viewed as investments or simply as a place to live. While this debate is something that every homeowner should carefully consider, it is clear that there are reasons for buying a nice home, no matter the market conditions, other than simply to maximize one’s wealth. After all, everyone needs a roof over their head.
The same cannot be said, however, for professional real estate investors or anyone who is investing in a property that has the main purpose of income generation. These investors need to be much more careful about things like market timing. Real estate cycles can often last even longer than business cycles, meaning that an investor that buys into an overheated market could be waiting decades to realize any returns at all.
Unfortunately, there is currently ample evidence that real estate markets from coast to coast are overbought. While there still may be opportunities for solid long-term returns that can be located by savvy investors, the current trends in real estate prices indicate that there will be a reversion to historic averages in the near-term future. Buying into a market at a peak like the one we’re very likely seeing now can have disastrous consequences for the long-term performance of any real estate portfolio.
One of the key indicators that the real estate market is well above sustainable price levels is the number of hours that the average wage earner needs to work in order to buy the median home. In some cities, like Los Angeles and San Francisco, the average wage earner would need to work the majority of their waking hours in order to afford minimally decent housing. Contrast that with the norms of the 1960s when many American families only needed a single wage earner to work for 10 hours per week in order to afford the median home.
Another key factor that may bode poorly for the performance of real estate prices over the next five years is the almost certainty that interest rates will soon begin rising. The real estate market is exquisitely sensitive to interest rates, and worst-case-scenario interest hikes could put a big dent in the price gains that housing has seen nationwide since the financial crisis of 2008.