Protecting your rental property can take many forms. There are mistakes to be avoided, scams that you will want to stay clear of, the possibility of damage done to the property, etc etc… Your best bet is to get ahead of the issues before they happen, and make sure that you know how to properly protect your investment.
Avoid Common Mistakes – In real estate investment, some mistakes could cost you quite a bit of money. There are more common mistakes that would be best to avoid.
Know What to Expect – The difference between success and failure can boil down to preparation. Part of that is knowing what to expect and knowing how to avoid any common mistakes.
“Real Estate Guru” Scams – It’s always a good idea to seek out advice so that you can make the best decisions possible in your real estate investments, but be careful that you are looking to the right places and people for that advice.
Safely Applying for a Mortgage – When you apply for a loan you will be providing very sensitive, personal information. Check out these tips on how to protect yourself from identity theft during this time.
Protecting Your Vacant Property – There will often be a bit of time between an outgoing tenant and an incoming one, and this will leave your property sitting vacant. You will want to make sure that it will be protected.
Uses of a Security System – Security systems installed in a rental can help protect both your property and the tenants that are living there, as well as make your rental more profitable.
Renters’ Insurance – As a landlord you will have your property insured, but you may consider requiring renters’ insurance as well so that your tenants and their belongings are covered and protected.
Protecting Your Property With a Lease – When you accept an applicant as a new tenant you will want to sign a lease with them. This is meant to protect both parties involved and detail out what is expected.
How to Handle Late Payments – If your tenant doesn’t pay their rent on time you may have trouble paying the mortgage on the home or the upkeep. Make sure that you know how to handle late payments.
Do you know how to spot a real estate opportunity? Can you spot a “time waster” property before you pay out for surveys?
Initially, it can be more difficult than you might think. This is especially true when looking at two of the same kinds of property on the same street. How can you quickly compare the merits of both in terms of financial return?
This post aims to show you how to spot real estate opportunities quickly and easily, allowing you to move on from duds and choose properties to investigate more thoroughly.
Why Invest in Real Estate?
Investing in real estate is growing in popularity and is widely considered to be a better choice versus stocks when it comes to return on investment (ROI). People also enjoy the control over their cash when investing in property. As the landlord, you can choose whether to upgrade a property, raise the rents, etc. You are the CEO. There are also tax advantages to investing in real estate over stocks, and a house is, of course, a tangible asset.
But, in the recent times of economic change people are beginning to panic and the market is changing. This is the perfect time for great entrepreneurs to strike. Look for an opening in the confusion and buy when sellers are nervous about the value of their home.
There are also benefits to be found in certain tax rules, so investigate the aspects that appeal to you and your goals. A financial advisor may be able to assist you with this.
Indicators of a Good Real Estate Opportunity
1. Accelerating home prices in one particular area compared with other surrounding areas is a sure sign that things are changing in that location; try to catch this trend early to make the most out of the upward growth.
2. Look for early signs of development in an area, for example, land clearing, construction of roads, widening of lanes, etc. Spotting early signs of growth in a town is a great way to keep abreast of changes in housing prices before other investors sweep in.
3. Visit the town hall to find out about major projects in the area and details of upcoming developments. This can provide you advanced notice that an area may soon experience declining housing values.
4. Look for the construction of new schools and shopping centers in an area. This indicates that new people will start to take an interest in the location.
“When buying a property to live in, you should always check the surrounding schools, and the same goes when buying an investment property. Good school districts often mean a more stable housing environment, which can play an important role when you eventually decide to sell. Plus, they might act as a draw for tenants that have or are considering a family.”
5. Investigate the tax structures of an area. Sometimes two almost identical locations can demonstrate a striking difference when it comes to housing prices, and this can sometimes be due to the tax structures. The lower tax location tends to be more desirable. With a little further investigation, you can find out when an area is due to be reassessed … a useful bit of information.
6. Identifying the ratings of the local schools is a great way to determine if an area will attract buyers. Parents are often governed in their real estate choices by the results of the schools in the area.
7. Another factor to watch out for is whether a town has become either overpopulated or overpriced. In these instances, it is useful to start watching the outlying areas, analyzing early signals of growth in the outskirts.
8. Once you have identified opportunities within a particular area, it is still useful to know how to find which properties within your chosen zone could be investment opportunities. The following quick calculations can narrow the pool further, allowing you to uncover a real estate gem.
Quick Calculation for Rental Income
Below is an overly simplistic but useful calculation to implement when narrowing down properties. It will give you a rough idea of how much rental income a property will command.
2% of the purchase price = rough estimate for rental income
This is not to be used as the final rent, but it will give you a ballpark figure. You should know if a property is worth considering for rental or not in a few seconds with this figure.
Quick Calculation for Profit from Rent
The next way to identify if you are looking for a good real estate opportunity is to determine the amount of the rental income that will reach your pocket. Below is the calculation.
50% of the rental income should go to expenses, not including mortgage payment.
The remainder is your income.
Once again, this is overly simplified but it is helpful for quickly spotting opportunities. The expenses include repairs, builds a buffer for times of vacancy, taxes and insurance. Fifty percent seems high, but landlords nearly always underestimate how much they should set aside.
The remaining 50% of the rental income should pay the mortgage repayment and remainder is your “passive income.” Most landlords are satisfied to receive $100-$400 per month from each unit.
When Is a Refurb a Good Opportunity?
One type of property that catches the most entrepreneurs out is the “fixer-upper.” The asking price is usually nice and low and surely it will only need a bit of work … right?
It is nearly always not as simple as that. The first thing to do before even considering a property that needs to be refurbished is to accurately estimate the after repair value (ARV).
“It is vital to estimate the ARV figure as accurately as possible, as it is one of the most important determinants of the profit you will make with your investment.” (Landlord Station)
This means walking around the place with a trusted contractor and obtaining a quotation for the materials you will need and the labor required to make it happen. You should also find out how long the updates will take as that will affect how long your property will stand vacant.
Quick Calculation for Fixer-Uppers
Once you have the ARV of a property requiring refurbishment, you can apply this overly-simplified but useful calculation to decide if you are looking at a good opportunity or not.
70% = the maximum purchase price you should offer, based on ARV minus repair costs.
You will find this calculation rules out several properties you may be considering.
Purchase Price Is Everything
Never forget when buying real estate that the profit is made at the point of purchase. Be sure to stop your emotions from getting in the way when you are buying investment property; this is not your personal family home.
Decide on the exact criteria you are looking for in your real estate, keeping your “shopping list” handy as you search to avoid being sidetracked by something that is almost right. Do your research so that you know what is on the local market and how much property is selling for right now. Be aware of the trends and stay focused.
If you haven’t enlisted the expert services of a real estate agent, you will have to learn to find a seller that is motivated to sell. This could be the deciding factor on whether you make money or not. The earlier comment about taking action during economic unrest comes into play here. Nervous homeowners may be more likely to sell for under market value.
Whatever happens, do not overpay! You should always aim to purchase investment property for below the market value and let your head govern the final decision.
Finding a good investment opportunity in real estate may not be as difficult as you initially think. There are a few key indicators of growth in an area you can look out for and with these, the earlier you can act, the more potential for profit.
Accelerating home prices in one particular area compared with other areas surrounding it, early signs of development (e.g., land clearing and construction of roads), town hall announcements about major projects in the area plus the construction of new schools and shopping centers are important signals when deciding to purchase property. It is also useful to watch for towns that have become overpriced or overcrowded and begin to analyze the growth of the outskirts.
The calculations shared here are overly simplified and are meant to be used as tools to enable you to quickly sift through the properties on the market to find the potentially great opportunities hidden amongst them. With these to hand, you can think clearly and quickly make decisions without wasting time on non-profitable investments.
Landlords, we know you have a great deal to contend with. Maintaining a property, paying the mortgage, keeping the tenant happy … these are just three items on a very long list. Most landlords have a career and even family responsibilities to handle, too. So, when it comes to landlord insurance, it might be tempting to simply find a well-priced deal and sign on the dotted line.
We are here to tell you that by spending even a brief amount of time researching the particulars of the insurance policy, is an absolute must. Don’t be fooled into thinking that all policies are the same.
Many people don’t realize that landlord insurance is completely different compared to standard homeowner policies, where the policyholder actually lives on the property, but rentals are considered to be a greater risk for insurance companies. It’s simple: Tenants are not invested in a home in the same way the owner is; therefore, they may not treat it with as much respect.
Oftentimes homeowners have been caught when they fail to notify their insurers that they have moved out of home and are now renting it. The problem is, if you fail to distinguish your insured home as a rental property, the policy may not pay out when you may need it to. So, be sure to protect your investment and know that you are covered with adequate insurance.
To save you unnecessary headaches and cost, we have compiled a list of the five critical clauses that your rental insurance absolutely must cover.
“Dwelling coverage, sometimes called “dwelling insurance,” is the part of your homeowners insurance policy that helps to pay for the rebuilding or the repair of the physical structure of your home if it’s damaged by a covered hazard.”
This is the main purpose of your housing insurance, and protects you in the case of structural issues, major plumbing problems and acts of nature (including hurricanes, earthquakes, riots, fire, break in, vandalism). The specifics will depend on your policy, so take the time to determine exactly what is covered. Various locations may exclude coverage during certain strong weather situations, for example.
The key point to look for here is whether you are receiving a guaranteed replacement cost, or GRC. GRC means that your property would be replaced and rebuilt in the event of structural damage, as opposed to you only receiving the depreciated value of bricks and labor, for example.
You should also be aware of the terms DP1 (basic), DP2 (broad) or DP3 (special), which identify the level of dwelling and fire coverage that a policy offers.
The DP1 is a “named perils only” policy which only insures those limited perils specifically named in the policy. Unfortunately, a covered perils list that only includes fire, lightning and internal explosion is not much of a policy at all. To broaden the list, the DP1 allows an insured to add an Extended Coverage (EC) perils endorsement to increase the number of covered perils to a total of 12. These nine additional EC perils include Riot, Civil Commotion, Explosion (external), Vehicles, Smoke, Aircraft, Hail, Windstorm and Volcanic Eruption.
The Broad DP2 form, like the DP1, is a “named perils only” policy and contains all the perils provided under the Basic form. The additional protection you will find on the DP2 form include coverage for damage from Burglary, Weight of Ice and Snow, Collapse of Building, Falling Objects, Freezing, Artificially Generated Electrical Current, Glass breakage, Accidental Discharge of Water and Steam, and damage from Sudden and Accidental Tearing, Cracking, Burning or Bulging of steam or water systems.
Special form or DP3 has the same “named perils” coverage as on the DP2 form for personal contents but adds open perils coverage on the dwelling and other structures. Open perils means that coverage will be provided, unless it is specifically excluded in the wording of the policy. This significantly expands coverage on the real property compared to the DP2 and, coupled with losses paid on a “replacement cost basis,” makes the DP3 policy the most comprehensive of the three dwelling forms.
Research the level of coverage you are offered for water damage, beyond that of the pipes and heating system. Excess water can cause catastrophic damage to your home, so this is something that should be carefully considered. Flood water, heavy rains and even backed up sewage may not be covered by your base policy … find out how to add this to your insurance depending on your location.
“All it takes is a few inches of water to cause major damage to your home and its contents. This interactive tool shows you what a flood to your home could cost, inch by inch.”
3. Legal Liability
It can be easy to overlook just how vulnerable you are as a landlord when it comes to the law. Your agreement with your tenant means that you have certain legal responsibilities for their safety, as described by NOLO below.
“Under most state and local laws, landlords must offer and maintain housing that satisfies basic habitability requirements, such as adequate weatherproofing, available heat, water, and electricity, and clean, sanitary, and structurally safe premises.
Local building or housing codes typically set specific standards, such as the minimum requirements for light, ventilation, and electrical wiring. Many cities require the installation of smoke detectors in residential units and specify security measures involving locks and keys. Your local building or housing authority and health or fire department, can provide information on local housing codes and penalties for violations.”
If a tenant feels that you have failed to meet any of these responsibilities, they may choose to sue you, which can be a very costly experience. Therefore, it’s wise to check, in advance, that your landlord insurance covers you in these instances, with legal fees, settlements and even medical costs.
4. Fair Rental Income Protection
Fair rental income protection is something that you can choose to add to your basic landlord insurance. This will cover the cost of lost rental, in the event of repairs or an emergency. This does not protect rental income in situations such as eviction or non paying tenants, however.
“If you can’t rent out your property because it’s damaged, you’re losing valuable rental income. With Fair Rental Income protection, if your property becomes uninhabitable because of a covered loss, you’ll receive compensation for the rental income you would have received. This covers the time required to either repair or replace the rental unit — up to a maximum of 12 months.” Allstate.com
While this is a very useful safety net, it is important to balance the increase in premium against the potential benefit you will receive from this.
5. Personal Property Protection
Personal property protection is a great addition to your landlord insurance if you are renting a furnished property. The majority of landlords rent empty units, but it is still useful to consider if you are supplying carpets and curtains, as these are covered in addition to any furniture. Again, it is wise to examine how much this clause will add to your monthly premium before you make any firm decision.
“If the tenants are renting the property unfurnished, it is advisable for them to take out tenant insurance to cover their property, as well as any protecting their liability for any damage that they may accidentally cause to your property. The National Fire Protection Association found the average loss from a house fire was $19,500, which could drive your tenant into significant debt, rendering them unable to continue paying rent, even after the property is habitable again.” NFPA.org
Tenant insurance is so useful to landlords, that many include it as a condition in their tenancy agreement, as there is no legal requirement for tenants to have this insurance otherwise.
When it comes to insuring your rental property, it’s best to take the time to ensure you are sufficiently covered. The amount of time, energy and, of course, money that you have dedicated to this investment must be protected in the case of accident or emergency. Here we have covered five key areas in your coverage to be aware of, and as policies are not created equal, it is prudent to dig further than the headline when you are choosing a policy. Levels of insurance coverage vary, as explained regarding the differences between DP1, DP2 and DP3, for example.
Determine whether you will receive the cash value or replacement value for any damage. It’s vital you understand the finer details of any policy in which you are enrolling, before disaster strikes. The average cost for landlord insurance on a small unit is only $500 per year, and this may be classed as a business expense. It is a small price to pay to protect your investment, and the right insurance could prevent the kind of loss that damages your financial future.
Everybody knows there’s a huge potential to make lots of money in real estate. But if you’re working with a brokerage, the pressure to close a sale can be killer. And if you’re the individual running the brokerage, you take home a larger sum of money with each sale, but the nonstop work of acquiring properties, finding referrals and closing sales is enough to make even a seasoned professional’s head spin.
It’s important to educate yourself about the basics of how to make money in this potentially volatile, exciting field.
Read on to learn some basic tips on how maximize the amount of money you make in real estate.
Remember: You Work on Commission
Some brokerages work differently, it’s true. But if you’re like most realtors, you only get paid when you sell a house. Never lose sight of that. Your goal is always to close a sale.
Most jurisdictions require that, as a realtor, you learn the basics of real estate law and ethics.
They won’t teach you how to close a sale or make a property look most enticing. It’s up to you (and your brokerage) to teach you that, so grab a book (or find an experienced broker to tutor you) and start educating yourself.
Don’t Be Afraid: Network!
Early on, when you’re just breaking into the business, it can be very difficult to make the connections you need to make a sale.
It’s easy to conceive of your relationships with other realtors as strictly competitive, especially if you’re working in the same area.
And to be fair, an element of that does exist.
But don’t forget about referrals.
Houses aren’t identical commodities. If someone knows they can’t close a sale with a potential customer, and they know you have a property that’s more in line with the customer’s needs, they may very well send the customer your way — so long as you’ve forged a positive relationship with them, and are willing to pay a portion of the resultant commission.
Likewise, if you can’t meet a client’s needs, reach out to someone else in the area and offer to hook them up in exchange for a portion of the commission.
The going rate may depend on your area, but many brokers charge up to 30 percent for a referral.
Reach Out to FSBOs
People who try to sell their home themselves are typically trying to avoid having to pay a brokerage like yours to do the legwork for them.
But the fact is that the legwork is exhausting, and is often best left to the professionals.
If you’re aware that a for-sale-by-owner house has been on the market for a while, you may want to reach out to the owner and see if they’re interested in switching things up and going through your brokerage.
Make it clear what you have to offer and why it’s to their benefit.
If you succeed in convincing them, you’ll make a percentage of the money they get from the sale – how much, exactly, is something for the two of you to negotiate.
Consider Becoming a Broker or Branching Out
While laws vary from place to place (and the precise names used to refer to each profession may vary), many jurisdictions draw a distinction between real estate agents (who work for a brokerage) and real estate brokers (who are able to run their own brokerage, and have greater independence in general).
If you’re serious about making it in the field, and have the time and money to spend on the additional education required, you should think seriously about taking steps to become a real estate broker as soon as you can.
By starting your own real estate brokerage, you’ll be able to work independently and make decisions about what properties you acquire, and how much money goes into your pocket. There’s more potential for risk here, and you’ll have to learn how to make wise investment decisions, but the rewards can be great.
Investigate the laws in your area, but be aware that if your brokerage is holding on to properties you can’t sell, it may be better to try to rent them out instead.
And if you’re having a really hard time finding clients, in a lot of jurisdictions you can take your talents — and your real estate license — and work as a property manager instead or on the side.
There’s a stereotype that real estate brokers make a ton of money.
It takes time to find your sea legs as a broker, and it’s all about building connections, refining the art of closing deals and figuring out exactly what each customer needs.
You may not make a lot of money for your first year (or your first several!) in the industry.
And if you’re operating your own brokerage, you’ll swiftly find that finding properties to sell (or acquire) can be far more taxing and expensive than you’d estimated. If you’re actually acquiring the properties, you run the distinct chance of actually losing money.
But be patient.
Stick with your work, network, research and continue to educate yourself.
You’re getting better, and success will come over time. Good luck!
There has been a notable shift in the rental market in the last few years. The Millennial generation has come of age and is trending heavily towards renting rather than purchasing their homes, and this has opened up a new set of needs for the marketplace to allow landlords and tenants to more easily communicate and do business with each other. Renters took their search online years ago with sites like Zillow and Trulia, but are now demanding more than just the ability to look at listing sites for possible places to live.
More than any generation before them, Millennials are transacting on their mobile devices, not just looking for information, which is why we believe that the future of the rental business, especially for the independent landlords who make up more than 50% of the market in the US, is not a software (like Yardi or Realpage) or a lead gen media site (like Zillow/Trulia) but a transactional marketplace; effectively a 12-month long Airbnb.
This is why we acquired RadPad.
A new generation of renters needs new ways to pay rent, find a home, build their credit, get insurance, and interact with their neighbors. While LandlordStation was building a position as one of the largest service providers in the country for independent landlords and property managers, RadPad was busy innovating for renters. With a cutting-edge technology platform, RadPad had begun to change the way that renters approached this market, and adding that technology to our existing base of landlords, as well as some of our insurance and utility products, was the best way to push both platforms even farther.
So what is a “rental marketplace”?
One of the biggest shortcomings that we see in the old way of doing things, is that the time period from vacancy to first rent payment is a series of awkward introductions, cold leads, and mistrust. Renters and landlords find each other semi-anonymously online with no real knowledge of the other’s history. The landlord demands that the renter go through a background check and bases their decision off a credit score (which is not necessarily built as an indicator of a good tenant). This system worked when people signed one or two leases in their entire lives prior to buying a home. But for a generation that is renting well into their 30s, it’s like the car buying process x 10.
Radpad’s solution to this is simple and elegant: allow renters to build their profiles within a confined rental marketplace, and thus build trust within a verified community. Renters can verify all aspects of their rental lives from ID, social security number, credit score and income to Facebook, Linkedin, and contact information, and they can share those verifications with landlords with a single click from their iOs or Android app. They can log in socially so they can see if they have friends who are in the community, or if they share a friend with their potential landlord. They can message within the apps, so they can avoid giving out their mobile number to every listing they come across. And they can build their credit history by opting to have their rent payments reported to the credit bureaus in the same way that mortgage payments are.
On the landlord side there are similar benefits. In markets with a critical mass of tenants like Los Angeles, Chicago, and Dallas, landlords can fill vacancies faster, with warmer leads, and verified tenants. They can shorten the process of rental applications and background checks because they are effectively built into the renter’s shareable profile. Their listings on RadPad look and feel better than on other sites because they are free of ads, promoted real estate brokers, and pay-to-play pitches, all of which leads to a clean interface that drives higher engagement and better lead generation for the landlord.
The best part about the marketplace model is that there is no barrier to entry for either party. The system is completely transactional and based on success. Our goal is to be the platform that is the default transaction processor for the rental market, from listings, leads, and background checks, to rent payments, insurance and utilities. Each individual rental unit produces more than 75 individual transactions annually, and RadPad + LandlordStation has the ability to process them all.
With its most innovative feature, RadPad also allows the tenant to pay their rent online with a credit or debit card even if their landlord does not accept online rent payments. The payment is made through the RadPad app, and if the property does not to accept payments online, RadPad simply sends a check through the mail with a guaranteed on-time delivery to the tenant.
Combining RadPad’s technology and listings traffic with LandlordStation’s product expertise and more than 80,000 existing landlord accounts will pave the way to a single transactional marketplace allowing for a seamless experience for renters, landlords, and the various vendors that serve this market; making things easier, quicker, and cheaper for all parties involved.
We look forward to the many challenges ahead in building the rental marketplace of the future.