Point Acquisitions is a full service real estate investment company in Philadelphia. This blog will regularly provide what we consider to be the “How-to’s” and “Why’s” of real estate. For this first blog, we want to get back to the basics because Real Estate Investing starts with the details and grows from there.
There are many considerations and strategies with real estate investing and we want to focus on basics of rental properties and what we think are the core aspects of buying and owning a rental property. Regardless of whether you want to own a couple properties as rentals or build a Donald Trump-esque portfolio, here are five investing tips that offer head start insight into the real estate investment world.
Know What You Want
If you’re looking to buy the home to live in yourself, consider what amenities you and your family will need. Bedroom numbers, square footage, one bathroom or two, etc… If you’re buying with the intent to rent to a tenant—take into consideration the following questions:
- What is my demographic? If you’re looking to accommodate members of society’s elite, your standards are going to be higher than if you’re looking to give college kids affordable housing or Section 8 housing.
- Single Family or Multi Family? More tenants, obviously, means more money. A lot of people starting in real estate start off with owning Single Family properties as rentals as they are typically more affordable than a Multi Family building. The advantage is with Single Families is that there is a huge pool of buyers and financing available to single family users so it may see more equity appreciation and be easier to liquidate upon the exit. The advantage with owning Multi Family properties is that you have multiple tenants in the property but only one roof, one boiler, one tax bill, etc. versus have multiple roofs, maintenance, and overhead you would with owning a couple single family homes as rentals.
- Most Importantly: Is this a place I would live myself? General rule of thumb, do not purchase a property you yourself would not be willing to live in if you were in your tenant’s shoes. Not only will this lead to happier renters, but it’s just better business.
Credit Scores Galore
Before considering any investment, a general overview of your credit score is your starting place. Not only will this give you an accurate understanding of your financial allocations, but also a reflection on how consistently you pay your bills. This affords you a solid foundation when consulting with local bankers on mortgage and loan possibilities. The beauty of real estate is the ability to leverage your financial position. For example, let’s say you can buy a property for $100,000 – you can either buy it all cash with your own money or use a bank loan to finance $75,000 (75%) of the purchase. In this simple example and assuming good credit and income, you could buy four (4) properties compared to just buying one all cash. Additionally, if you have a lower credit score, you might be able to secure a lower down payment on certain properties.
You can check your score for free here.
The 1% Rule
The 1% Rule is a concept created specifically for owners wanting to lease out their properties for the purpose of raising capital. Asset creation is the most solid investment on the market today, and real estate your most steady bet. Everyone needs a clean, affordable place to live, and a conscientious landlord is always a plus. Simply put by Huffington Post’s AJ Agrawal, “an income producing property must produce 1% of the price you pay for it every month.” Therefore, if you purchase a property for $100,000, the monthly rent collected must accumulate to at least $1,000.
Just as you want to choose a space your targeted demographic will find comfortable, you want to choose a tenant who you feel will take care of your place. Having an ample security deposit may hedge against damages to the property but a careless renter could create a nightmare of expenses that exceed what you collected for a deposit. We recommend that you check out this link to view a list of questions for your prospective tenants here.
Tricks of the Trade
Any realtor or sale agent will tell you – to sell any property no matter the value, using simple tricks like a neatly tended lawn will make the property seem more desirable than it actually is. This method is far from dishonest, as any place can look wonderful with the right type of care. However, tricks like the perfectly manicured lawn or the house itself smelling like grandma’s apple pie, often sway potential renters into choosing your property over another landlord.
At the end of the day, be sure to talk with local real estate investing experts before making any financial commitments on your purchase. They will help you weigh your options so you can be focused during your personal evaluations of the prospective property. Remember, enjoy the tricks of the trade, but let the beautiful property speak for itself.