Estimate Rents Conservatively!

Our tip today relates to one of our earlier tips about being careful to consider worst case scenarios before you make a deal. This tip is don't overestimate rent! However, don't be afraid to look for rental property deals now either.
In a soft economy, it is very possible that the rent you received 2 years ago will not be what you may receive today. If you purchase property with overly optimistic assumptions on rental return, you may find yourself unable to repay loans or have that important reserve we mentioned before, needed for repairs and vacancies. Now it is true that with increasing foreclosures, the demand for rental property is likely to increase. Additionally, those landowners who are in over their head may be unable to rent their property at a level able to keep up with their purchase obligation, and there may be some good rental distress deals to be had.
There are some interesting subtle clues out there that you can pay attention to discern if the rental market is going to be supporting rental price increases. Watch commercial lenders- are they heating up for multiple family units? If not, this may be an indicator that they believe there are going to be more vacancies. This is currently the case in many markets today. Obviously increased demand with decreased availability will translate to higher rent potential, and vice versa.

Just be cautious. Make your deals based on what the immediate area is likely to rent for now, by analyzing similar properties in the neighborhood. Keep an eye open for the signs of an opening up of the rental potential. If those early signs seem promising, make the deal based on the income you are fairly certain you will get now, knowing you are more likely setting yourself up for a much better return in the future. If you are careful with your expenses now, and cautiously pessimistic regarding rental return, there are definitely deals out there now in the medium to larger rental properties.

Hot Tip for Landlords

Hot Tip for Real Estate Investors, particularly those in Rental Property, is Always Have a Reserve.This tip is especially critical if you plan on fixing up the property before renting. That of course seems obvious but it is equally essential to have a reserve for those in-between tenant times, when repairs and upgrades will always be needed. If a tenant is willing to settle for shabby quarters in disrepair, they are not the kind of tenants to whom you want to rent.You do not want to face the prospect of having to qualify for a new loan if you have run out of cash, the property goes vacant, and not only are you losing income, but the carpet and paint need replacing.If you own your own home, you should be sure to have an equity line of credit open and available for use. Oftentimes when you most need credit is when you are least able to secure it, so it makes sense to plan ahead with this simple step. Not only can you then finance and borrow with your own money, but you protect yourself in the unfortunate case of lawsuits. Even if your house is paid off, the attorney sees a mortgage amount of your HELOC, and your assets are protected.It is also important to realize that a lender will only count 75% of rental profit as income. They know that 25% of that cash flow will be needed for repairs and vacancies. In securing future loans, it is critical that you consider that.Remember, be prepared with a ready reserve. If by some miracle you don't need it, you have lost nothing, and if you do need it, it may make the difference between disaster and success.

Best Rental Houses

Buying Rental for ResaleWhen you are looking for the deal of the century, be sure to consider the best use for the property given the neighborhood and size of the home. There are many neighborhoods that are perfect rental area, others are ideal retail areas, and some better for lease/purchase options. Some are mixes of all three. When buying and fixing up a property for quick sale as rental property, it is important to analyze the best potential of that area's specific market.Additionally, when purchasing property for rental potential, it is almost always to your advantage to find a 3 bedroom as opposed to 2 bedroom home. Most customers interested in purchasing rental property will pass over the 2 bedroom, unless it is in a high demand vacation location, like a beach house. In unique and unusual areas, one may also be able to effectively market 2 bedroom rentals. Generally however, for rental resale, the best deals are the small 3 bedroom houses in the $50-$70,000 range which will rent on average $500-$700 monthly . A 3 bedroom will almost always be preferred by a renter over a two bedroom. When looking to purchase a 2 bedroom home, always look at the floor plan and consider if there is a way to convert it to a three bedroom to most advantageously market it as rental property.While it is difficult to attract buyers for rental purchase with a 2 bedroom house, it is similarly a small market interested in the high end as well. The cost/profit margin is just too small to make it as attractive to the real estate investor in most cases. Most investors able to secure loans to purchase a 2 bedroom rental home can often qualify for the 3 bedroom home too and a positive return is more likely.So know the area, know the potential, and convert to 3 bedroom when possible to most effectively market rental property.

Landlord, Protect Thyself!

Landlord First Commandment- Protect Thyself! Almost every landlord would state he is a good judge of character, and with the thorough credit report he does on every tenant, he has nothing to fear. He rents in a reputable area, in a nice building, with good neighbors. However, this attitude is naive. Every tenant has the potential to become enraged with the landlord, and if that tenant knows where you live, you and your family are in potential danger. There are countless stories of tenants "flipping out" over perceived injustice, damaging the apartment, and worse, attacking the landlord or his family. Every tenant has an extending circle of direct friends and family. The landlord will also be involved with a multitude of workers, any one of whom could be an opportunist waiting to take advantage of a too trusting manager. Remember, essential as they are, credit reports do not weed out alcoholics, drug users, or violent tempers, which can all be easily concealed in interviews.While this is intended to give you pause, it is not to scare you into selling off all your hopes of owning rental property. There are steps you can take to optimize your safety. Never give out your address, home phone number, or personal information on your family. Have a PO Box and a separate phone number for any business related communications. For $7 a month, get a separate phone number which forwards calls to your home phone, or for $10/month, get an extra cell phone number on the family plan, with voicemail. Take your name and address off of any group or public directory, and identify your wife who answers the phone as "the secretary" and yourself as the "maintenance manager". Use common sense in dark or isolated places, and always be aware of who is around you. Do not place yourself in vulnerable positions, particularly when you know a tenant is upset with you or others. Having a gun may be useful if you are home, but your dependents may not know how or want to use a weapon. The best defense is a good offense- arm yourself with these simple precautions, and you can deflect a host of potential problems.