by Dan Krell
The real estate market in the Metro DC area has broken sales records for the last few years. Each year sales numbers and average home prices surpass the previous year by a wide margin. Besides the many homebuyers who are buying homes for their own families to inhabit, there are the devout few who are always on the lookout for a bargain home to turn into a rental property. With home sale prices rising seemingly as fast as a jet taking off the runway at Reagan National Airport, it may be a wonder how, or more appropriately why, investors buying homes for rental properties.
Serious investors are a remarkable breed. They come from all walks of life and socioeconomic backgrounds. Although they have a diverse background, their one commonality is accumulating wealth. The goal for the average investor is to accumulate real estate and sit on it as the value appreciates. The payoff for the investor is when they sell off their assets and retire.
This over simplified and brief article is an overview of some difficulties that most real estate investors encounter. Some of the difficulties that many real estate investors encounter are tenants, maintenance of the property, and cash flow.
Finding good tenants to rent your properties is essential for success. A good tenant is described as one who pays in a timely manner and who will treat your home as if it was theirs. To find tenants, you can advertise in the local papers for tenants, subscribe to placement companies, or hire a professional management company to do all the work for you. The best tenants usually come by referral.
Making sure the prospective tenants have good references is essential. One way to do that is to ask them for a recent copy of their credit report, which would report any past delinquencies. Rental companies usually report delinquencies and non-payments to credit reporting companies like Equifax, Trans Union, and Experion. If they do not have a credit report, some investors accept references from past landlords.
Once your rental property is leased, it is important to keep it maintained. Good tenants will usually do the basic maintenance for you. If things go wrong, however, it will be up to you fix the problem. It never fails, the emergency calls will come in the middle of the night or while you’re on vacation. You will need to respond to the emergencies fairly quickly as you build your relationship with your tenants.
The most important issue with a rental property is cash flow. Cash flow is the perpetual incoming of cash so the mortgages and other real estate related expenses can be paid. Cash flow can be positive or negative. The goal with cash flow is to at least come out even, as most investors bank on the appreciation of the property itself for wealth building.
To help overcome the pitfalls of owning investment properties, some investors hire professional management companies. These companies can help find quality tenants, collect rents, and maintain the property. As the art of being a landlord is becoming legally complex, the management company and a good attorney can help you through the difficulties.
Anyone that is serious about beginning a career as a real estate investor should attend classes and find out more about the field to make an informed decision. As a real estate investor, you will find that there are many complex issues that require experience and support. However, once mastered, it can be very rewarding.
This column is not intended to provide nor should it be relied upon for legal and financial advice.
This column was originally published in the Montgomery County Sentinel 8/8/2005. Copyright Dan Krell 2005.