Purchasing and maintaining your first rental property is a big step. It can easily become overwhelming. When you are making such a large investment, there is a lot of pressure to ensure you achieve a positive cash flow in return.
There are many successful real estate investors out there. How do they do it?
Most of the rental property basics for success are likely things you can assume, but may not think about until you list them out and make them more manageable. As with any investment, long term success is about running the numbers and doing your fair share of research.
Residential Versus Commercial Investment Properties
Most first-time real estate investors will choose to purchase residential property, such as a single-family home or duplex. This is a smaller investment than purchasing an apartment building or office space (commercial property).
Other benefits to residential real estate include that it’s easier to secure investing, it’s a more familiar purchasing process to most buyers, and the path to finding renters is more straightforward. It is easier to manage one tenant than it is to maintain a building full of them or deal with the concerns of business spaces.
Choosing a Residential Property To Invest In
While there is certainly ongoing maintenance to make a rental property successful, most of the work for a financially viable rental is done before the purchase is ever made. You need to choose the right property to invest in.
The old adage about real estate is true: location is everything.
While many investors will choose to purchase something close to where they currently live, this may not always be the wisest choice and deserves careful evaluation.
If you want to manage the property yourself, as opposed to hiring a property management company that would take 10% of the revenue, you will want to be near by to handle maintenance emergencies.
However, you will need to run the numbers to see if this earns you the best returns in the long run.
When looking at a location, consider property taxes that will need to be added to your regular expenses. You should also consider the type of renters your location will attract. Will you be renting a property near a college campus? You will likely have more maintenance problems than a property rented to someone older. Are you renting to a family? In this case, what are the schools in the neighborhood like? The crime rate and job market are other important factors to take into consideration.
To have a profitable rental property, you will need to look at what your projected expenses are (mortgage payments, property taxes, and a healthy maintenance budget) and put that up against your projected income. Take a careful look at the average rent in your neighborhood and add in some time for the property to be empty while you find renters.
The more work you put in to finding the right property to invest in, the better chances you’ll have for a long term successful investment.
State lockdowns have only been in effect for less than two months — and many states are already beginning to reopen in stages — but the impact of the coronavirus pandemic on the real estate industry is already being felt. Real estate transactions are difficult to complete, many apartment buildings are unable to handle showings, and nearly two million homeowners across the country have missed a mortgage payment already amid skyrocketing unemployment rates.
The impact of COVID-19 on the real estate market is widespread and comes from many sources.
Mortgage rates continued to fall and reached an all-time low in March but may fall as low as 0% or lower as the Federal Reserve worries about keeping the market functioning and credit and liquidity available.
The market has already been slow, but Chinese buyers, who for years have been a significant source of foreign demand for U.S. real estate, are no longer buying in in-demand markets in California and New York. Some of this impact is due to rules by the Chinese government on international spending as well as tightened U.S. immigration rules, travel bans, and quarantines.
Delays in closing are also having a major impact on sales. In many cases, it can be very challenging or even near-impossible to close a real estate deal with travel restrictions, different state definitions of “essential business,” and mandatory quarantines. These complications can make it difficult for a buyer to see a property before making an offer and complete due diligence.
In a handful of states, real estate transactions can only be conducted with significant limitations. In New York, for example, real estate must be conducted remotely, including appraisals, inspections, and title services.
As unemployment skyrockets and uncertainty grows about the state of the economy in the upcoming year, demand for homes has also fallen. More than 10 million unemployment claims were filed in two weeks at the end of March alone, and this number is expected to rise.
Some banks are suspending foreclosures, and many cities and states have enacted eviction and foreclosure moratoriums as one-third of renters failed to make rent payments in April. While this is a temporary fix to ensure people have homes, it doesn’t fix the long-term problem of how rent and mortgage payments will be made. If mortgage payments are suspended for too long, it will also strain lenders who will not have the capital to lend to new homebuyers when demand increases.
While this is an expected impact, other forms of damage to the real estate market aren’t so apparent at first glance. Homebuilders are facing supply chain disruption as nearly one-third of materials come from China, which may delay construction when demand does pick up.
The mortgage and real estate industry may rebound very quickly from the uncertainty and impact of COVID-19, but it will likely still lead to fewer people in the market in the year or two to come.
Real estate presents a lucrative opportunity to you if you can do due diligence, yet having business partners will boost your individual potential. Using the skills or experience of other professionals in real estate is smart, but partnerships can also be more challenging than sole proprietorships. Just don’t be discouraged by the potential cons of partnerships, for many people do thrive within them. Below is a better look at what partnerships in real estate can and can’t do.
A lack of resources in generating leads or building a property portfolio can be overcome through partners who have the contacts you need. What you must ask, however, is if you have anything to give to your partners in return.
You reduce your personal exposure to risk if others share in with your liabilities, but you’ll have to state how much liability each partner has. Be sure that you’re also comfortable with any risks that you agree to.
Business partners are ideal when they can offer strategic perspectives. You know the phrase that “two heads are better than one,” but if you can’t always communicate professionally with a certain person, then they might begin a habit of disagreeing with you without cause.
Having diverse skillsets gives a business the ability to expand by specializing in more than one area of expertise. Your objective, before acquiring partners in real estate, should be to examine how you can use the diverse skills of your associates.
Some professionals see the potential of profit as being reduced if it’s to be shared, but you should consider that more money can actually be made when more manpower is available. Try to also measure your end rewards based on your individual sacrifice. You can come into a partnership knowing that your share is small if your input is also kept small, having little to do or oversee.
It’s important to be able to discuss differences in opinions with your partners, for without establishing professionalism, you all may end up misunderstood. Look for partners with enough character to stay patient in the wake of misunderstandings. Partnerships are rewarding, but you dictate the dynamic between you and the people you work with.
You’re ready to make the jump into real estate investing, and you’re curious about the vacation home sector. Investing in vacation rental properties can be a great way of an extra income in real estate. Of course, there are essential factors to consider and risks you should know about. But, when it’s done correctly, a vacation rental property can be an excellent investment! Here’s why:
Higher Rental Income
One of the main factors that set a regular residential rental property from that of a vacation rental is the potential for a high rental income. Vacation rental property owners are often able to charge a higher rental amount due to its high demand. When you’ve chosen the right location and property that has a high demand for tourists, you are often able to charge higher rent costs, especially during seasonal highs. Consider any type of property close to a beach or boardwalk setting. Their properties go through high periods depending on the season, increasing their demand level for vacationers. Take a look at the rental costs within that area and see what other property owners are charging.
A great benefit that comes from owning a vacation rental property is the property’s overall appreciation level. Investing in a vacation rental property isn’t only about focusing on rental income. As the demand for vacation rentals continues to increase due to brands like Airbnb, so does the overall value of these properties. According to Mashvisor, the appreciation of your vacation rental will make it much easier to sell and profit from down the road.
Easy To Rent
As we previously mentioned, vacation rental properties are generally always in high demand, depending on the location. High demand for rentals makes them easier to rent. So, if the high season is longer, you can benefit from multiple tenants throughout the season.
An Extra Perk for You
Of course, your vacation rental is still yours. So you do have the opportunity to use it as your getaway for however long you’d like. With vacation sites, you can block off time that your vacation home isn’t available for tourists, and is exclusively yours!
If you are looking to invest for the first time overseas or if you are looking to expand your foreign property holdings, but don’t know where to start, I can help. I’ve gone ahead and collected the best places around the world to invest your capital for the year 2020.
One of the very best places to invest in real estate this year is Panama. In Panama there are many apartments you can purchase for rental opportunities. Thanks to neighboring country buyers from Argentina, Colombia, and Venezuela, Panama City’s market has remained stable and has grown quite well over the course of the decade. The same can’t be said for many other markets in this region, where some have struggled or even collapsed.
North Americans as well as Europeans are investing with Panama but Panama has recently forged a new relationship with China. This relationship has the potential to fuel the economy and make it soar. In the 1990s, many Chinese helped to grow the Vancouver economy and it is expected that they will do the same for Panama City. This will cause Panama City’s property prices to grow as well.
Brazil is a big country that has many different property markets. In 2020, focus on the Fortaleza area. Fortaleza is located along the coast and is big tourist attraction. Rentals that focus on the local holiday marker are said to earn more than 8% net yield reliably.
It’s best to look for investments along the beachfront, you will find that many of the prices are great bargain.
Thailand is known for their agriculture as well as their strong economy and expanding tourism. In 2018, Bangkok was one of the most visited cities in the world, ranking above London and Paris. It being such an attraction to tourist easily grabs the attention of investors.
The one downside to investing property in Thailand is that there are restrictions put in place on how foreigners can own property. Under most circumstances foreigners are only able to own land leasehold. Although this is seen as a setback, there is some positive news. Foreigners are allowed to own condos freehold, as long as they don’t own more than49% of the entire condominium complex.
Due to this leeway, the condo market has many foreign investors. While a condo may not be your first investment choice, it may be a blessing in disguise. Compared to an individual property, condos are cheaper and easier to mange. You won’t have too many issues managing these properties if you are across the world.
When the new year rolls around, everyone start to make resolutions. Whether it is to loose weight, find a new job, or even buy their very first investment property. However, after a week or so, people often throw their resolutions to the wayside. In 2020, don’t let this happen! As a real estate investor, here are a few new year’s resolutions you can make for the upcoming year.
Examine Your Short and Long Term Goals
The beginning of a new year is the perfect time to look at your goals. If last year you got off track, this is the time to plan how you are going to achieve those short term goals. Something that is beneficial to do at the beginning of the year is to meet up with a financial advisor. Sometimes after investing for a few years, you find that your long term goals have evolved. A financial advisor will be helpful in discovering what new long term goals you want to achieve in 2020.
Refine Your Investment Portfolio
This year, is the year, that you get the perfect portfolio. Last year you may have found your niche, so it’s time to look at properties that just don’t fit anymore. Or maybe this year, you want to diversify your portfolio, and that’s okay too! Start off 2020 planning how you portfolio will change and evolve throughout the upcoming year.
Develop Your Network
When hearing the word networking, many professionals groan. Yes, it may be a chore for some, but it is vital for any business, especially in real estate. If you think you have let a few relationships fall through the cracks, spend 2020 reconnecting. You never know who you can help or who will be able to help you reach your goals if you don’t reach out more.
Expand Your Knowledge
Throughout the year, it can be easy to get wrapped up into your own investments. It’s important to step back once and while and take in the world. In 2020, learn something new about the real estate market. There is always something new to learn, from strategies to new trends. By expanding your knowledge you are sure to experience new things, whether they are successes or failures.
Be More Disciplined
You last New Year’s Resolution should be the promise to be more disciplined with your real estate investments. In 2020, be more organized and communicative. Be open with your team, and be sure that they know the ins and outs of your vision. Try looking at where you can make improvements. An improvement doesn’t have to be big to be impactful, you can get a new planner, or you can go big and rearrange your approach entirely.