Thursday, May 16, 2013

Good To Know: Bigger IS Better

A lot of people get into real estate investing by purchasing a small house, may it be the property next door, and find tenants and rent it out. The numerous landlord calls, the 100% vacancy, the unexpected expenses  makes it into a bad experience. So eventually they sell that property for hopefully more then what they paid for and breathe a sigh of relief.

"What were we thinking? Real estate is not a good investment."

Real estate was not the problem here. Lack of knowledge and preparation was.

For one, if you are purchasing any property to rent out and you are planning on managing it yourself. Be prepared to have a second job. If you are okay and prepared for that then great! But I would recommend you get familiar with tenancy act, which protects the tenants more then the landlord. If you do not really want the job of a landlord, then be prepared for the added expense of a property manager. Be sure to interview your property manager carefully.

Next, be sure to look very carefully into the previous expenses.You'll want to dedicate a percentage to vacancy and maintenance, even if none where recorded in the past.

Also, look out of your backyard. You'll need to be prepared to go where the numbers work, and that may very well not be in your local area.

Lastly, don't be afraid to go big. When renting out a single family home, if you are between tenants that is 100% of your income not coming in but you'll still have 100% of the expenses if not more.
I make it a personal rule of mine to not look at anything less then a four-plex. If you are saying, I can't afford a four-plex you are still looking in your backyard or at least not in the right area.