Categories
Landlords

How to Calculate Rental Return: How Much are You Making from Your Rental Property?

How much can you actually expect to make from rental property investments?

This is a great question, and one without a straightforward answer. 

That’s because the amount of rental income you receive from a particular property depends on the financial viability of the deal, as well as how well you manage it. 

In this article, we’ll give you some tips for identifying profitable rental investments, and some rough rules-of-thumb for calculating the potential profitability of a rental property. If you want a better idea of how property management can impact these figures, check out this article. 

Financial Viability

Here are some formulas you can use to help you determine the financial viability of a real estate investment.

Return on Investment (ROI)

ROI is used to measure the performance of an investment by evaluating the expected return relative to a property’s cost.

Add up the cost of acquisition, closing fees, repair costs, and annual expenses. Then, divide your total annual income (from rent) by the sum of your expenses to arrive at your yearly projected ROI. There is no sweeping standard for a “good” ROI, but if we were to aim for a benchmark, you’d want to look for a yearly ROI that’s above 15%. 

Cash-on-Cash Return (CoC)

CoC calculates the yearly returns based on cash income and cash invested. In other words, it measures how much you’ve made on the property in relation to how much you’ve paid for the mortgage.

Get your annual pre-tax cash flow, divide that by the total cash you’ve invested, and you’ll get your CoC return. Expert investors advise aiming for a CoC return that yields around 8% to 12%.

Capitalization Rate (Cap Rate)

Cap rate is the ratio of net income to the property’s acquisition price. There’s no “good” or “bad” cap rate, but it’s great for comparing your return across multiple properties. Here’s a quick guide on how to calculate it:

Get your net operating income (NOI) by taking your gross rental income and deducting every expense you have (excluding financing), like taxes, insurance, water, HOA fees, etc. 

Then, divide your NOI by the current market value, and you’ll get your cap rate. In riskier neighborhoods, 6% probably won’t be worthwhile. But in high-demand, high-quality neighborhoods, 6% could give you an amazing return.

The 1% Rule

Lastly, the 1% Rule is a quick calculation to determine if the monthly rent earned will generate positive cash flow for a property or not. The rule is that the amount grossed through monthly rent should be at least 1% of the final property purchase price (including the cost of any repairs). 

Calculating Profit

Now that you can identify money-making opportunities, the next step is to answer the following questions to calculate the profit you’ll get to keep.

How much rent will I realistically charge?

Start by surveying other rentals in the vicinity to get an estimated rental amount. You can ask a local realtor or property management company for an accurate number, or visit sites like Rentometer.com for a rough estimate.

If you end up with a range, stick to the lower number for a more conservative approach when assessing a deal and making your other calculations.

How do I know what the expenses will be?

When calculating your profit, you must add up all the expenses, including property tax, insurance, property management, and possible vacancies. Assume that these expenses will cost roughly 40% of your rental income. 

While it may sound like a lot, this figure is actually a conservative estimate and doesn’t cover any serious renovations or overhauls that a property might need.

What about the other 60%? 

If you took out a mortgage on the property, the mortgage payments will be covered by the other 60% of your rental income. This means you should only secure loans with monthly payments which total less than 60% of your estimated revenue from rent.

What happens to the remaining money?

Whatever is left over will be your profit. However, this is also what the government will charge taxes on. The taxes you pay on this income are not included in the property tax you pay annually. 

There are ways to lower your taxes as a real estate investor, but for this article, just remember to budget for paying both income and property taxes when calculating your potential profits.

Conclusion

How much can you earn from rental properties? How do you know if a rental investment is worth it? 

Just answer these two questions:

  • Is the investment you’re eyeing a profitable opportunity?
  • How much can you earn from renting out the property?

If the property passes all these common metrics with flying colors and earns you the rental income you’re looking for—you’ve just found a profitable rental property to invest in.

Image courtesy of David McBee

Categories
Flipping

5 Signs You Better Walk Away from a Flip

Finding houses that are suitable for flipping is difficult – but that doesn’t mean you should jump on every opportunity that comes around.

Every good flipper knows how to choose properties—and when to walk away from an inevitable flop.

You don’t want to be a rookie who overlooks the basics and ends up with a smaller margin than your time and effort is worth.

So here are five signs to know when a distressed house is better left alone:

1. The location isn’t good.

The most important factor that decides the value of your flip is the location of the house.

  • What kind of city and neighborhood is it in?
  • What kind of residents are in the area? What do they want in a home?
  • How much do similar houses sell for in the immediate area? What features do they have?
  • What are its positive factors (e.g., good schools, shopping centers, etc.)?
  • What are its negative factors (e.g., highways, airports, factories, etc.)?

You need to understand the property in the context of where it’s located to estimate its value, and how fast it’s likely to sell (based on the level of buyer demand in the area). 

Do the same research that your buyers would do, and you’ll see if the location is going to appeal to them.

2. The house is too unique.

While every property will be somewhat different from another, you want to flip a house that’s fundamentally conforming to or better than the standard of the local competition. In other words, they have to be similar to the houses around them, but better somehow.

For example, if the neighborhood is full of single-family homes with 3 bedrooms and 2 bathrooms, you might have a hard time selling a house with 2 bedrooms and 1 bathroom. You will, however, easily sell a 3-bedroom, 2-bathroom home with an attic that can convert to an office area.

Generally, people like lots that are higher than the average size in the neighborhood, so a large lawn is always a good distinguishing feature. Likewise, you might have to be prepared for price adjustments if your lot is smaller than the average locally.

The biggest thing to look out for is a strange floorplan. Awkward layouts will seriously turn off buyers, even if you finish a home to a high standard throughout, and some layouts can’t be changed easily (if at all). Honestly, if you end up with a seriously out-of-date floorplan, you could be better off completely rebuilding a house from scratch in some cases, so this is a definite sign you should walk away if you’re a new flipper.

3. You don’t have enough skills or knowledge.

Unlike professional builders and professionals who’ve been honing their skills for years, you might not have the necessary knowledge to DIY fixes for a higher profit.

  • Do you know your way around basic construction tools?
  • Can you lay carpet, hang drywall, roof a house, and other common but important fixes?

There is money in sweat equity. If you lack knowledge and have to constantly outsource professionals to do the renovations, you’ll deplete the profit you could’ve gotten from your investment. If you lack the skills and still try to fix everything yourself, you might end up making rookie mistakes that’ll be expensive to salvage.

Furthermore, if you don’t have enough knowledge, you could run the risk of hiring a contractor and getting ripped off.

Instead, be realistic and account for your lack of skills when budgeting your flip. If the costs are properly accounted for, you’ll increase your chances of exiting with a good flipping profit.

4. You don’t have enough money.

All real estate investments are expensive.

You need to research your financing options to find which mortgage type will work best for you, and if there’s a lender that can offer you lower interest rates. Cash is possible, however there’s still property holding costs and opportunity costs that you need to consider.

More importantly, there’s the renovation costs. How much will you get after acquiring, holding, and fixing up the house? Novice flippers often underestimate the costs, resulting in net loss instead of gross profit.

To see if your budget is enough to flip-and-sell a house, you need to:

  • Identify how much you need to acquire the property
  • Scan the competition and see how much you can realistically sell and still make a profit
  • Determine how long the renovations will take and budget accordingly
  • Remember to take into account the loan you’ve taken out, taxes, utilities, insurance, and more
  • Be aware of the seasonality that can sometimes affect home prices and the number of days on market (e.g., higher sale prices in late spring compared to winter)

5. You don’t have enough time.

Flipping and selling a house takes a lot of time and dedication—often requiring you to give up a large chunk of your time for a couple of months. 

Not sure if the hours dedicated to flipping will be worth it? Answer these questions:

  • Are you maintaining a separate full-time job? Are you willing to give up weekends and evenings?
  • Do you have the budget to pay someone else to do the work?
  • Will you be available to oversee demolitions, constructions, inspections, and other procedures?
  • How much time will you spend marketing your property? Can you show it to prospective buyers yourself, or do you have the budget to pay for a real estate agent’s commission?

For most people, the time all of this takes isn’t worth it. They’d rather stick to their day job to have a guaranteed income, without the headache of flipping houses, so think carefully about whether or not this commitment is right for you before buying your own investment property. 

Summary

To be a successful flipper, you need to understand the risks involved and how to mitigate them.

Evaluate your house flipping opportunities by doing the following:

  • Check the location of the house in relation to the neighborhood.
  • Determine if the house is competitive enough versus other properties in the area.
  • Budget property and never underestimate the possibility of expensive, underlying problems.
  • Calculate the time it’ll take for you to enter and exit the flip profitably.
  • Be realistic with what you can repair and what you’ll need to outsource.

Making profit from flipping houses isn’t as easy as some other real estate investment methods, but it’s definitely possible with the right knowledge, planning, and courage to walk away from bad opportunities. Keep looking and doing your due diligence, and the right one will eventually come along. 

Trust us, it’s worth the wait.

Categories
Shortterm Rentals

Short vs. Medium vs. Long-term Rentals: Which is Best?

The kind of rental model you choose directly relates to your overall real estate investment goals – like how much time and energy you want to put into managing your properties. Generally, short-term rentals (like Airbnbs and VRBOs) offer high-profit margins with sporadic high-maintenance costs, while medium- and long-term rentals offer a more stable revenue stream, while also requiring more regular maintenance works.

Between short, medium, and long-term rental models, are you wondering which you should focus on? We’ve laid out the pros and cons of each, so you can make an informed business decision that fits with your goals for rental investing.

What’s the difference between short vs. medium vs. long-term rentals?

Each rental model – short, medium, and long-term rentals – has its own benefits and risks. You should know what those points are before deciding which to go for, so you can choose the one that best compliments your investment purpose and strategy.

Short-term rentals (STRs) 

Short-term rentals have guests that usually stay for around 3-7 days. These rentals are often called “vacation rentals” because they often cater to travelers. Compared to hotels, STRs are often cheaper, more spacious, and provide a homey atmosphere—making them much more attractive to many business travelers and tourists. 

STRs fit investors who prioritize business flexibility over stability. Cash flow is fast and substantial, but it’s also inconsistent and requires a lot of leg work. Nevertheless, STRs can be lucrative with the right marketing, location, and season.

Pros:

  • STRs tend to charge a higher rent amount at $184/night.
  • There is flexibility in having guests only stay for a couple of days at a time. There is also the flexibility to charge different rent prices, depending on the season or demand.

Cons:

  • There’s a lower occupancy rate at 87%.
  • STRs require around 30-40 hours of work/month (PER PROPERTY). You need to reply to messages, give and receive keys from guests, clean up the units, deal with demanding guests, and more.
  • There are stricter rental laws in some cities. Some have banned short-term rentals (like Airbnbs) altogether, or limited the number allowed to operate within a given area.
  • Vacation rentals are hit harder by economic downturns. For example, in the state of Michigan, STRs were banned during the height of the pandemic. Nowadays, STRs are allowed to operate again, but potential government restrictions are something to keep in mind for the future. 
  • Both income and business tax are required for STRs.

Medium-term rentals (MTRs) 

Medium-term rentals have tenants that typically rent on a weekly or monthly basis, and often they take the form of a boarding house or mid-term rental apartment complex. This model is also called the “month-to-month” rental model and is the least popular among the three.

MTRs may seem to have the best of both STRs and LTRs, but it also comes with some challenges:

Pros:

  • The occupancy rate is closer to 87%, which is almost the same as STRs, but with longer-term tenants.
  • The number of hours required to manage MTRs monthly is significantly lower than with STRs. 
  • MTRs are subject to standard landlord-tenant laws. 
  • Only income tax is required (business tax is not needed). 

Cons:

  • MTRs charge an average rent of $952 per week (or $136/night)—which is 28% higher than long-term rentals, but still 35% lower than STRs.
  • The turnover rate for MTRs is better than STRs, but still higher than long-term rentals. You’ll still need to do a lot of marketing for these, as your tenants only stay for roughly a month at a time.
  • Marketing is more difficult, as there aren’t many channels that focus on MTRs compared to the other two models.

Long-term rentals (LTRs) 

Long-term rentals have tenants that live in the property for 1+ years. Most rental properties in the real estate market are long-term rentals.

LTRs are a commitment both for landlords and tenants. Despite that, this rental model is favored by most in the real estate industry, as it offers landlords and investors a stable, steady rental income with minimal turnovers. Main responsibilities include property maintenance and dealing with tenants—both of which can be done by property management companies. 

Pros:

  • The occupancy rate of LTRs is very high at 95%. 
  • The work needed to manage and maintain LTRs can be as little as an hour/month. However, it should be said that the work hours required depends on how big your portfolio is—many landlords have more than a couple of LTRs. As their portfolio expands, most will consider hiring a property management company.
  • The turnover rate for LTRs is significantly lower than STRs and MTRs.
  • LTRs are subject to standard landlord-tenant laws.
  • Only income tax is required (business tax is not needed). 

Cons:

  • This may vary greatly from location to location, but LTRs generally earn less than STRs and MTRs. LTRs charge an average rent of $98/night or $3k/month. 
  • You can’t increase your rent amount seasonally, as you can with STRs.

Conclusion

We hope this guide helps you figure out which rental model to choose. Each of them has its pros and cons—the decision wholly depends on what you want to prioritize in rental property investing.

Which model have you applied to your portfolio? Any tips you’d like to give for those who are starting out?

Image courtesy of Andrea Piacquadio

Categories
Uncategorized

Decorating Your Rental: How To Attract More Customers To Your Short-Term Rental Properties

Compared to long-term rentals, short-term rentals are constantly in flux. STRs generally don’t have tenants that stay long—it’s mostly vacationers and travelers who stay for a few days max.

The fast turnover makes marketing all the more important for STRs. You need to keep attracting guests, ensuring that your rental is occupied as often as possible to maximize profits. 

What’s the secret to attention-grabbing marketing? Great photos of a great-looking rental. 

A well-decorated rental gives a great first impression. Good design choices also make the space feel more comfortable and functional. The rental should feel just like home—only better! 

So, how do you decorate your rental to get the customers you want?

How to decorate your rental

Decorating is more than arranging flowers or hanging picture frames. Designing your rental to attract more guests requires strategy. 

Here’s what you need to do when developing an interior design plan for your STR.

Step 1: Know your guests.

In order to know how to impress your “customers” or potential guests, you need to know who they are and why they’re visiting the area. This will help you decorate your rental according to their needs and tastes.

The following information can provide a lot of insight:

  • Age range
  • Gender
  • Hometown (where they’re from)
  • General interests
  • Purpose of their stay

For example, teenage guys from California who want to hike a nearby mountain will have extremely different design preferences over families who are visiting for the weekend. 

The former may prefer cool gadgets, a more nature-focused design, and plenty of cold water at the ready. The latter, on the other hand, may prioritize clean, spacious, and baby-proof spaces. 

Step 2: Find updated, modern inspiration.

You have to make your STR look fresh and new. Nobody wants to rent a place that feels like it hasn’t been occupied (or redesigned) since before the millennium. 

Search online for inspiration. The following sites are goldmines for decorating ideas:

  • Pinterest
  • Instagram
  • Furniture catalogs (e.g. IKEA catalogs)
  • Google search

If you have a friend with an eye for design, you can also ask them for advice on how to spruce up your STR to make it more modern!

Step 3: Check out your competitors.

The easiest way to impress people is to be better than your competitors.

Take a look at the other STRs and hotels in your area, paying more attention to particularly popular listings. Look at their reviews online and on-the-ground. 

From there, all you have to do is make sure that your STR is equal to (or better than) the rest. And avoid what under-performing rentals are doing! 

If you find that most of your target tenants prefer warm lights, thick curtains, and a large TV set, incorporate those elements into your design. Even better, figure out why those designs appeal to guests more, and use that to guide your design choices. 

Conclusion

Most people want to stay in pleasant-looking accommodation—where they stay is just as much part of the vacation as the rest of the trip! With great decor, your STR will stand-out from the countless other options online.

Know your target audience, find design inspiration, and level-up your STR against its competitors. If you make your STR look impressive, you’ll have no problem attracting guests and increasing your revenue.

Got more tips on great decor? How do you decide what to put in your STR?

As the pandemic is still on-going, visit our article on how to attract guests during COVID as well. There, we shared our advice on attracting guests with safety and cleanliness as a highlighted feature.

Image courtesy of Ksenia Chernaya

Categories
Wholesaling

Where to Find the Best Real Estate Wholesaling Deals

Like plenty of new investors, you may have decided to try out real estate wholesaling.

Using this investment method, the turnaround period is short, and you don’t need a lot of money (if any) to start—this is why a lot of first-time investors gravitate towards wholesaling.

However, to be successful at it, you do need to find the best properties for wholesaling. After all, not all deals have an equal potential for giving you the returns you desire. You’ll need to source houses significantly (ideally around 50%) under market value, and for that, you’ll also need to be dealing with motivated sellers. 

Finding these kinds of properties isn’t easy – that’s why not everyone and their mother is out there working as a successful wholesale. But to get you started, here’s a guide to help you source profitable wholesaling deals.

Offline Methods

There are two main kinds of wholesale deal sources: offline and online. Though many will consider online methods to be more efficient—especially in today’s digitally driven world—offline techniques also have their benefits.

Those who were successful at real estate wholesaling started their careers with these old-fashioned methods. Though these methods often require more time and resources to set up, you have a good chance of sealing your first deal with the help of these proven techniques:

Driving for Dollars

Before the internet, driving for dollars was one of the most popular ways to hunt for wholesale leads. If you’re tight on budget, this old-fashioned way can still work wonders.

You simply hop into your car and drive through target neighborhoods (i.e. places where buyers actually want to live or invest), looking for properties that show signs of neglect. Some signs to look for are the following:

  • Abandonment or vacancy
  • Overgrown lawn and plants
  • Boarded-up windows
  • Visible damages
  • Uncollected trash

Once you spot a potential property, use public records to find the name of the registered owner, and contact them to make an offer. Often, an unused property could be more of a burden to the owner than a boon – like the unwanted home of a deceased relative, for example – and they’ll be fairly motivated to consider letting someone take it off their hands.

Bandit Signs

Bandit signs are another low-cost and effective way to find deals in your local housing market. Often spotted on random street corners or busy traffic areas, these signs say things like “We Buy Houses” or “Sell Your House for Cash”. Place them in the neighborhoods you want to target for your real estate wholesaling deals.

However, before you start putting up your own, just make sure that these signs aren’t illegal in your area!

Direct Mail Campaigns

This involves sending out postcards or letters to potential sellers, expressing your interest in buying their property. Direct mail campaigns can be effective, though they’re a bit pricier and slower to generate leads than their equivalent online methods.

You’ll need to secure mailing lists and be persistent with getting a response. To increase your success rate, only target owners of pre-foreclosure properties, high equity or delinquent mortgages, probates, and other types of motivated sellers.

Networking

Joining local real estate investment clubs is a great way to find deals. There may be sellers that just haven’t listed their properties yet, which a network of agents, investors, and attorneys can inform you about. Making connections in the industry will also grow your buyers’ list, increasing your chances of closing deals on both ends.

Newspapers

Old-fashioned newspaper advertising can help you reach sellers who aren’t online. After all, 10% of all Americans aren’t online—equating to nearly 33 million Americans!

To avoid missing an opportunity for a real estate wholesaling deal, you can reach more people by posting “I Buy Houses!” ads in local newspapers.

Online methods

Online methods are often more convenient and faster at producing results, though they may not always be as effective as offline methods—and there’s plenty of competition online that you have to contend with, too! Nevertheless, you can still discover a lot of good deals online that you wouldn’t find otherwise.

Here’s how:

Wholesaling Website

Creating a website allows you to target a larger customer audience. With a single click, you can reach thousands more people—a lot more than you can reach with local signages.

Your website should sell yourself as a willing and capable real estate wholesaler, convincing people to trust you with their property. You should optimize your website with SEO, PPC advertising, and social media marketing (as well as retargeting ads) to generate leads and seal more deals.

Expired MLS listings

Expired MLS (Multiple Listing Service) listings are properties that weren’t sold by the date specified in the listing contract between the seller and the listing agent. There aren’t a lot of properties that get this far, but a real estate agent or broker should be able to help you find these deals.

To do this, focus on a particular city or neighborhood, check the properties within, and get in touch with the owners of the expired listings to show your interest in their property. Usually, they’re pretty motivated to sell, since the property has already sat on the market for a long time with no buyers coming forward.

Online Forum and Auction Sites

Craigslist, Hubzu, ForSaleByOwner, and Auction.com are places where people often post to sell quickly. This makes them potential gold mines for real estate investors, and wholesalers in particular. If you move faster than your competition, you can snag some great deals from these websites.

Final Thoughts

For you to be successful in real estate wholesaling, you have to make numerous offers to seal enough deals—both online and offline.

Once you find a motivated seller with a distressed property, make sure to move fast to get them under contract. Then, follow through with assigning the rights to your buyer and collecting your fee, before beginning your search anew!

Any other sources we’ve missed? Which one’s your go-to strategy to find deals?

Image Courtesy of PhotoMIX

Categories
Wholesaling

Can You Wholesale Real Estate 100% Online

Wholesaling real estate appeals to many investors, because it allows you to invest in properties without any upfront capital of your own, or the headaches that come along with owning and maintaining a physical property. 

Now, with work-from-home seemingly here to stay, more and more people are searching for ways to get into property investments (while they can still hopefully secure a good deal on a home from a motivated seller) – only they want to do it 100% remotely. 

But can you wholesale a property completely online, without ever seeing it, or meeting your buyer or seller, in person? Let’s consider why or why not. 

What is wholesaling real estate?

Wholesaling real estate is essentially matching sellers to buyers, and taking a fee for your troubles. There are a few different ways to carry out the process, but in general, it works like this:

  1. A wholesaler finds a motivated seller and negotiates to purchase their (often distressed) property at a below-market-value price.
  2. They sign a purchase agreement.
  3. The wholesaler finds a buyer and signs an assignment contract, assigning to the buyer the right to buy the house at a slightly higher price (the amount specified in the initial purchase agreement + the wholesaler’s “assignment fee”).
  4. The wholesaler hands over the paperwork to a local title company, the buyer and seller close on the deal, and the wholesaler receives their fee.

How can real estate wholesaling be done online?

Viewings

Wholesaling digitally is not impossible. In fact, according to the National Association of REALTORS®, more than half (52%) of homebuyers in 2019 found their home through the internet. And, because of the pandemic, shifting to online viewings  is only going to become more common.

Nowadays, you can use 3D tours, video calls, and Google Street View to get a feel for the property and its surroundings, no matter where you are in the world. 

However, there are some definite cons to wholesaling without ever viewing a property in person: 

  • You’re limited to what’s listed online. Many wholesalers find the best properties by driving around target neighborhoods and looking for distressed houses. If it’s already advertised online, chances are you won’t be able to negotiate as good a deal, since there will be agent commissions to pay (although you can still find some deals this way, and by focusing on FSBOs). The other option is to have an awesome inbound marketing strategy – more on that below!
  • You can’t catch hidden problems. 3D tours and video calls will never completely make up for seeing a property (and the area it’s located in) for yourself. You can work with a local inspector or field agent on the ground, who will give houses a once-over for you, but you’ll have to ensure you trust them to spot any potential problems with a discerning eye.
  • You won’t be able to negotiate contracts in person, which can make it a lot harder to read the seller and build a rapport with them. 

That being said, lots of experienced investors do buy houses sight-unseen. So, if you want to know how to wholesale online, here’s what you need to consider next:

Building a cash buyers list

The goal of a wholesaler (once they’ve negotiated a Purchase Agreements) is to find a buyer for the property. To do this efficiently, you need to build a list of contacts—either owner-occupiers, or individuals/companies that are looking to buy distressed houses and flip them at a profit.

Typically, you build this network by sending out mailing lists, taking out ad placements, or attending in-person events. The goal? Make distressed sellers come to YOU. Just keep in mind that, for every 100 ad impressions you get or emails you send out, you’re probably only going to get 1 response – maybe up to 3, if you’re really lucky. So it’s a numbers game. 

Fortunately, though, there are also lots of ways to develop your cash buyers list completely online, by:

  • Joining real estate groups in MeetUp.com or Facebook
  • Running ads on Facebook, Google Ads, or other social media platforms
  • Setting up a website and gathering emails through a signup form – then sending out regular newsletters to your mailing list with details of all your available properties

Ideally, you’ll want to get the contact information and purchasing criteria of these buyers, and keep a simple database of their requirements and preferences, like:

  • How can I contact you for real estate deals?
  • Which area do you want to invest in? 
  • What kind of properties do you prefer? What do you want to avoid? 
  • What type of investment are you looking for? Is it cash flow, house appreciation, flipping, or do you want to live in the home yourself?
  • How quickly and often can you close deals? 

Negotiating the Purchase Agreement

Once you’ve found some properties and have a cash buyers list, you need to evaluate each deal based on the following:

  • The market value of the property
  • The cost of repairing/renovating the property
  • The Assignment Fee you’ll be taking as part of the wholesale deal

Keeping these three things in mind will help you calculate your maximum allowable offer (MAO). 

Then, you have to negotiate with the seller to agree to a price that leaves room for you to make your profit as a wholesaler. This is where working online becomes potentially tricky: at some point, you’re going to at least have a phone conversation (or several) with the seller, and without meeting them face-to-face, you need to have some pretty great skills as a salesperson to seal deals consistently over the phone. 

Except, of course, if you’ve done a great job advertising your wholesaling business online, and motivated sellers are beating down your door trying to sell you their houses. In that case, the sales calls should be pretty straightforward!

For more wary sellers, you can try using video calls, but many won’t be used to Skype or Zoom, and many others won’t bother giving you the time of day. A lot of homeowners balk when they hear you’ll be putting in an offer without viewing the property in person – however, if you have a local agent going to view properties on your behalf, this isn’t usually a problem. 

Once you’ve signed the Purchase Agreement, the next step is to start advertising the deal to your buyers list – and for that, you’ll need marketing photos. Even without visiting the property, though, you can get these relatively easily, either by asking the owner to take some for you, or getting your local representative to do it. 

Closing the deal

Another common concern when wholesaling (even in person) is that, once the buyer and seller both see the amount you’re receiving from the deal as your Assignment Fee, they’ll want to back out, because they think it’s unfair that you’re making a profit from the sale. 

When wholesaling real estate online, this can be even more of a danger. All they have to do is stop replying to your emails, and work out an arrangement between themselves in person. For that reason, a double closing may seem like the better option for online wholesaling. 

In brief, the difference between assignment and double closing is:

  • Assignment of Contract is when you have the property under contract and you transfer those rights to another party (without ever owning the property yourself).
  • Double Closing is when you buy the property yourself, then immediately (often on the same day) sell it at a higher price to another buyer.

You’ll still need to have a representative attend the closings on your behalf, but it is possible to close on a house remotely, using e-signatures. 

Closing wholesale deals online can therefore have several benefits, like:

  • You don’t have to wait long for physical documents to be signed, making it faster and more convenient.
  • The back-and-forth requires less energy than driving to in-person meetings.
  • Distance is a non-issue, so you can work with buyers and sellers who are out-of-state, or even out-of-country.
  • Everything is documented properly, with a digital paper trail.
  • You can access all of your essential documents in one place using cloud storage.

Summary

So, can you wholesale real estate 100% online? Yes, you can. 

Should you wholesale real estate 100% online? That’s another question.

Most forms of real estate investing are not a way of generating passive income – unless you’re investing in a REIT (real estate investment trust). Typically, even with wholesaling, you want to view the property in person to make sure you’re getting what you paid for (and not taking on any nasty, expensive surprises which will prevent you from re-assigning the contract to a potential buyer). 

However, if you have trusted partners on the ground who can meet with buyers and sellers and attend viewings and property inspections on your behalf, then wholesaling online becomes a lot less risky. 

And, with our world becoming increasingly driven by technology, virtual wholesaling will probably only become more popular in the coming years. 

That’s because now, with just a working laptop and fast internet connection, you can:

  • View properties (sort of)
  • Build your cash buyers list
  • Negotiate Purchase Agreements
  • Close the deal and collect your fee

All from the comfort of your own living room! 

Image Courtesy of Pixabay

Categories
Landlords

How to Write a Perfect Property Description to Attract the Best Tenants

Your property listing is the very first touchpoint between you and your ideal tenant, so it’s pretty essential to get this right.  A big part of this is the written property description which should appeal to the type of person you’d most like to have as a renter, whether that be young professionals or middle-class families. This article will show you how to get inside the mind of your prospective tenant and tailor your description to speak to them, just like professional marketers do when they want their product to stand out from the crowd.

Think Like a Marketer

As you prepare your rental listings, always write to attract your target tenant. You can do this by finding out as much as you can about their interests, concerns, and needs, and addressing these within your description.While you can’t discriminate as a landlord, you can still tailor your messaging to make it sound more appealing to your preferred target demographic, making them more likely to choose your home over another similar property on the market.

Know Your Audience

Once you have an idea for who your target tenant is, you can use tools like social media to help get inside their head. Look through property groups or ads on Facebook, and read through the comments to get an idea for the types of questions that concern your audience, and even the language they use to describe their ideal home. Write these words down and incorporate them into your property description, to help your home appear when they search for these keywords online. 

Do Market Research

You can also use social media, and other property listing sites, to get a feel for the competition in your area. The point here is not to copy other descriptions, but rather to understand the ways in which your home is unique, so you can better emphasise these qualities in your own ads.

Craft Compelling Copy

There are two kinds of buyers: emotional and rational. You can make your marketing copy appeal to both of these kinds of prospective tenants by choosing the right words.

For those driven by emotion, tell a story with your property description to help them imagine themselves living in your home (e.g. “Curl up by the fireplace in the evening with a good book”). Just make sure the story you use is something that would speak to your ideal tenant.

For those driven by logic, the best way to “sell” them on your property is to remove any element of doubt from the equation. To do this, try to answer any potential question they may have about the property in the description itself. Take note of all the questions you see while doing your online research, as well as those which are asked most frequently by your prospective tenants, and incorporate the answers to them in your ads. This way, when they see your property, they’ll be able to tell right away whether it’s right for them, and this will give them confidence to choose your place over all the others on the market.

Embrace The New Normal

In the era of the new normal, tenants’ priorities are changing, so highlighting features which appeal to people in the current climate is another way to help make your property stand out.. Concerns about  privacy and seclusion from neighbors, and the presence of big indoor/outdoor spaces, entertainment or recreational areas, large kitchens, home offices, and spaces which can be easily separated to accommodate people living and working at home together are just some of the things that tenants are now prioritizing more than ever before, so if your property has any of these features, make sure to emphasize and leverage on that as a selling point.

When creating your listings, you don’t need to stand out by having the fanciest property description in the entire market. You only need to stand out to one person: your ideal tenant. The best way to do this is by tailoring your language to address their desires and concerns directly, just like the best business marketers do.

Image Courtesy of Ivan Samkov

Categories
Flipping

Flippers: The Best and Worst Renovations

Never over-renovate your flip!

You’ll shoot yourself in the foot if you end up spending too much on repairs or upgrades to the property. 

Your goal is to make money from buying a distressed house under market value, fixing it up to a marketable condition, and selling it at a price higher than the acquisition and renovation cost. So, it’s crucial that you hit the sweet spot of renovating the house just enough to achieve maximum ROI. 

But how will you know what to fix, and what to leave for the future buyer? Which renovations will add value, and which will only hurt your chances of making a higher flip profit? 

Here’s our guide to help you decide:

Know the Best Renovations

  • Competitive Scan

First and foremost, scan the other houses in the area where your flip is located. Research what else has sold and what factors they have in common. Figure out what the market gravitates towards and prioritize the same things in your renovations. 

  • First Impressions

First impressions are important for potential buyers. Anything that will add to your flip’s curb appeal will help attract attention, making buyers curious to see what’s inside. To achieve this: 

  • Have the front door stand out with a contrasting color
  • Maintain the landscaping (if there is any) with fresh flowers and plants
  • Power wash anything that looks dirty or faded
  • Repaint all trim work for a polished look 
  • Replace any old exterior hardware (e.g., doorknobs, mailbox, outdoor lighting, window frames)
  • Add shutters or blinds to avoid the house looking empty/unlived in
  • Kitchens and bathrooms

Kitchens and bathrooms are two of the most important features when it comes to buyers deciding on a house. They’re also much more expensive to overhaul, so many buyers don’t want to have to renovate kitchens or bathrooms themselves. 

But kitchen improvements can help recoup your investment by as much as 66%, so this is one area where you definitely want to spend. 

On the other hand, anything you spend on bathroom improvements can yield an ROI of up to 67.2%, so they’re also a good investment when planning the budget for your flip. 

  • Attics and basements

Attics have come a long way from being a horror movie location to, now, a great expansion and additional space in the house. It’s possible to get back as much as 73% of your investment when the property’s attic is converted into a bedroom or some kind of usable room for potential buyers. 

This is an expensive renovation though, so make sure you do the math properly to make sure it’s worth it for your flip.

Know the Worst Renovations

  • Competitive scan

When you check out other houses in the area, also pay attention to what won’t sell. Each area will have their own preference. Make sure you avoid having similar features as houses that have sat in the market the longest.

  • Extreme tastes

Focusing on renovating the property with elements that will appeal to the largest buying audience. Instead of decorating and renovating based on your own taste, fix it up with the general public in mind. Don’t put any design or functional feature that’s too specific and only caters to niche markets, like crazy, bold colors or wooden countertops. 

  • Home Offices

Even though work-from-home set ups are increasingly becoming popular since the pandemic, most people still don’t need a full-blown office at home. At the maximum, you can recoup around 43% of your investment by adding one to your flip.

If you see that home offices are actually popular in the property’s area, in particular, you can just have a home office that can easily be converted into a bedroom, should the future owner chooses to. An extra bedroom adds more value, too.

Profit is what you want out of your flip at the end of the day. 

To do this, you have to renovate objectively, with your ROI in mind, and not think about trying to turn your flip into a house you’d want to live in yourself. 

Begin with a solid renovation plan, and a carefully calculated budget, and make sure you don’t spend too much money in the pursuit of the “wow” factor.

Image courtesy of Pixabay

Categories
Landlords

Perks of Having a Property Manager That’s Not You

Property management is extremely labor-intensive. You need to collect rent, evict problematic tenants, coordinate with contractors, maintain the properties, and so much more. 

It’s not easy, either—if you’ve ever experienced difficult tenants or irresponsible contractors, then you know what we’re talking about. 

However, if you have a rental investment property, you can’t go without it. The solution to your stress? Hiring outside help in the form of a property management company.

If you have a lot of properties, you may not have the time or energy to manage them all. PMCs can take care of the dirty details for you, which frees you up to expand your portfolio or focus on other things. More than that, property management companies provide expertise—expertise that you don’t have. 

We understand that you may be hesitant to share your profits. Are property managers really worth the cut? 

Let’s take a look at some of the benefits of having a property manager that’s not you. 

You’ll fill vacancies faster

A good PMC uses their experience to find you the best tenants. You’ll still have the final say on who rents your property, but a property management company can pre-screen applicants for you.

Plus, good property managers will know how to keep tenants and encourage them to renew their lease. This means lower turnover rates for the PMC (so less work for them to do) and steadier revenue for you.

You’ll have more thorough rent collection.

Collecting rent payments is every landlord’s most dreaded task. But if you have a PMC, you won’t have to worry about consistent and persistent rent collection anymore.

Property managers will take over collecting the rent, enforcing lease policies, and implementing fees. With a good PMC, your income as a landlord should be much more stable.

You’ll have a more aggressive eviction process.

Whether it’s a problematic tenant that slipped through the screening process or someone who turned sour overnight, you don’t have to go through the grueling eviction process anymore.

PMCs will enforce the policies in your lease and ensure that difficult tenants are evicted. Plus, with a more thorough screening process, property management companies can help you avoid renting to problematic tenants in the first place!

You’ll have well-maintained properties.

No more attending to tenant repair requests and making sure the rental is well-maintained. PMCs will keep your properties in top shape and field tenant concerns 24/7. They’ll do everything from scheduling and monitoring to documentation and evaluation of the repairs. PMCs are also in charge of paying your suppliers and utilities at the end of the year.

Keep in mind that property managers may not help you with cutting costs. However, you can leverage their expertise and connections to get better deals on maintenance.

You’ll have better legal compliance.

Keeping up with legislative changes is part of a property manager’s job. This will help you avoid having a lease or process that’s out-of-date, in violation of a new law.  

You’ll have the time and ability to scale.

If you want to grow your company and portfolio, you can’t spend most of your day managing tenants and properties. You’ll need a team to take on some of the responsibility. The less time you spend fixing problems, filling vacancies, and evicting tenants, the more time you’ll have to expand your investments.

Paying a PMC to manage your properties will result in less stress and an improved ability to scale. The bigger a revenue source you are, the more they’ll want to protect their relationship with you—so don’t skimp! Both of you will benefit from this working relationship in the long run.

Conclusion

Are property management companies really worth the money?

Well, having one will ensure that you have quality tenants, complete rent payments, someone to process evictions, well-maintained properties, updated legal requirements, and the time and ability to scale your real estate portfolio.

Just note that not all property management companies will do a good job—cheaper rates usually mean cheaper service. So, instead of asking if they’re worth the cost, ask “how can I make sure I hire a PMC that IS worth the money?”

Interested in hiring a PMC? What aspect of property management do you struggle with the most?

Categories
Landlords

5 Problems You can Avoid with Great Screening

Rigorously screening your tenants is everything in landlording. Why? Because great tenants will make you wish you got into landlording earlier, however, problematic tenants make some landlords wish they never began investing in the first place.

If you don’t want to end up with regrets – screen your tenants! Here are just a few of the problems you can avoid by doing so:

  1. MISSING & LATE PAYMENTS

The occasional late payment is one thing, especially if the tenant is just going through hard times (like a pandemic). But no landlord wants to end up with tenants that never pay on time, or never pay at all. Non-paying tenants will give you a headache trying to reach them, turn a blind eye to the lease agreements, and eventually, when you finally threaten them with eviction, pay only partially, just enough to stay a bit longer in your rental.

However, by screening well, you’ll see their employment status, current income, credit history, and talk to their past landlords to find out if they pay rent fully and on-time. This is the only way to help guarantee yourself consistent income through their rent – which is the whole point in renting out your properties.

  1. EVICTIONS

Processing evictions is expensive, time-consuming, and extremely stressful. Common reasons for evictions are non-payment of rent, lease violations, property damages, or illegal activities – all of which are pains you can avoid by screening well. 

You can avoid getting yourself into situations that require evictions by looking out for any concerning things during the interview screening. How responsible are they with their finances? How did they behave in their past rentals? Are they rule followers (e.g. did they follow the lease agreements at their previous rental)?

For more on how evictions work in Michigan, head on over to this link.

  1. PROBLEMATIC TENANTS

Some tenants don’t take their landlords seriously. They may seem great prior to renting, but this doesn’t mean they will continue to behave once they’ve secured your property. 

Some will damage your property. Some will harass the neighbors. Some will want you on standby to attend to any of their requests, no matter how unreasonable or small. Just look up “tenant horror stories” on Google and you’ll see what we mean! They will make you wish you hired a PMC (which you can obviously consider doing, too) or at least have screened them properly before handing the keys over to them. 

It’s just not worth it when you can verify their historical data and call up their references to check their behaviors. 

4. DIFFICULT MAINTENANCE

Since tenants have no attachment to the property, many lower class (C and D) tenants won’t take care of it as much as you wish they will. But you’ve invested good money in your units, so why wouldn’t you also invest in good tenants to take care of them?

It only takes one sloppy tenant to reverse the improvements you’ve done into costly damages you’ll be forced to fix. One dog to scratch the hardwood floors, one lazy tenant to neglect the overheating boiler, and one hoarder to turn your rental into an insect hub.

To avoid this, ask previous landlords how they were during their tenancy. Were there any problems with property damage, housekeeping issues, or living habits? Also ask if deductions were made from their security deposit, and get an explanation as to why. If tenants can’t provide a suitable, well-documented explanation for any sketchy rental history, beware!

5. HIGH VACANCY RATE

The words “high vacancy rate” should scare any responsible landlord, because an empty rental investment is just losing you money by the month. The vacancy rate compares the amount of time your property could have been rented versus the time it’s actually rented, so you want it to be as low as possible. Common reasons for vacancies can be because the tenants you get are always leasing short-term, the tenants are often problematic and have to be evicted, or the tenants ruin your property and you need to do major repairs – either way, your business is not generating profit during this time.

To prevent this from happening, verify the following during screening: Do they tend to move residences often? Do they have stable employment? How long do they plan to stay in your rental, and do they have the financial stability to commit to a longer lease? Look at past rental history, previous addresses, credit and employment history to figure this out.

Tenant screening is the last area of your property management that you want to skimp on. By being cautious before accepting an applicant, you can avoid more than just these five problems – you can eliminate most, if not all, of the things landlords have to stress over. 

Any experience you’d like to share on how tenant screening saved your life as a landlord? Comment below!

Image Courtesy of Ketut Subiyanto

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