When it comes to securing your retirement through rental properties it is best if you understand your criteria when buying income property. Today I sat down with a fellow realtor here in the Kansas City area and two investors that own one rental property with plans to add many more.
What I found is what I usually find. You see, I asked them what their criteria was for what they were looking to acquire. I’m not picking on them, I’m really truly not when I say they did what most newer real estate investors do… they went silent.
Investment Property Criteria Part 1
Investment Property Criteria Part 2
Those links above the picture are the links to a series of videos I did for real estate agents seeking to work with investors and for the investors themselves. Here are a few things you should know what you are looking for before going too deep in to your next investment property search;
- What return are you expecting?
- How do you measure the return?
- Single Family Home or Multi?
- Rehab or Turn-Key?
- Is the school district important?
I could add a whole bunch more. Or, you could watch those videos. Listen, I know the videos are boring. I don’t know how to make real estate investing more exciting unless I stand in front of a rented garage full of luxury sports cars and half dressed women. Oh wait, for the gurus out there I’m sorry (not) if I offended you.
Remember that when you own residential income property that you own a “business.” Everything you do that is an expense is deductible from the income of that business. And don’t forget the mileage.
Each time you drive over to show a house, fix a door knob, check on the trash the tenant left outside the house, etc. you are conducting business and those miles are tax deductible. So don’t forget to have a log book that logs the mileage and purpose of each trip, as required by the IRS.
I use a digital log book on my phone called TripLog. But there are several good apps out there.
Mileage adds up quick! Don’t forget this deduction. Plus, it helps you to think of your rental properties like a business.
Maintenance is by far, and it’s not even close, where most of our time is spent in property management. Why?
- Everyone has different expectations
- Houses are constantly deteriorating
- Sewer lines
- Where trees and sewer lines intersect
- Tenant turn-over
- Bad weather
But nothing, aside from tenant selection, is as important. Proper maintenance keeps up the value of the house. Proper maintenance attracts a better tenant. Proper maintenance keeps repair costs down when it’s time to sell.
If you haven’t figured maintenance, and updating, into your costs of owning residential income property, you need to go back and do so. Because selling a “melting ice cube” doesn’t leave much at the end.
People often ask where I draw the line at what homes we sell to buyers or what homes we will manage for owners. My answer is always a question.
Would you live in it?
We want clean safe homes in decent neighborhoods when it come to real estate investing. Now, decent is a relative term. Where you come from, how much money you make, etc have a lot to do with what you consider decent. But to me, decent has to do with the relative value of a home in proximity to it’s surroundings.
Let me explain further. If the neighborhood the house is in is mostly rental property, it’s probably not going to appreciate along with the city or county rates. Too many rental houses bring a neighborhood down. Lack of maintenance or tenant care are usually the biggest reasons for that.
There are several neighborhoods around Kansas City where investors (usually out of state) have come in and bought so many homes in an area that I worry about the long term viability of those investments.
Clean. Safe. Maintained. In a neighborhood of “stake holders” and one that has long term viability as far as expected appreciation relative to city averages. That’s what I’m looking for in property to recommend to my investor clients. And those are the kinds of homes we love to manage.
Ad Astra Realty works with real estate investors every day. We manage over $26,000,000 in assets here in Kansas City. We know investment and income property.
We also know that many of our readers here at BBQ Capital are real estate agents. We just want you to know that we are happy to work with your real estate and property management referrals. You can read our Realtor Referrals web page to find out more.
I was asked by a fellow REALTOR about the best economy in which to buy a rental house. I had to stop for a second and realize how silly the question really is. At least in my mind.
Now. This one. This is the best economy to buy a rental house. Or the next economy. Or the one after that. Or the one 5 years ago!
Yes, those that bought investment property in 2009-2011 are doing great compared to now. But, frankly, if you bought your income property correctly, even if you purchased in 2006-2007 when price versus value was sky high, it was a great time to buy a rental house. (Those people may have bought high, but it’s 7-8 years later and tenants have been paying down their loan balance, etc.)
There is no time like the present to start your retirement savings.
Yes, your returns will fluctuate depending on your interest rates (if financing) or your local city’s vacancy rates. But people always need to live in houses. People will always prioritize housing. Heck, I’m so old I remember my parents buying houses with interest rates in the mid teens. Yes, 14.5% interest. (I just heard a 30 year old ask “What the F@&%?)
Start your retirement TODAY. If you have the funds for some real estate in your retirement mix, start today. I’m just sayin’.
Property managers and rental property owners love to talk about how stupid tenants can be. Well, it’s my experience that investment property owners can be equally stupid.
NOTE: Yes, my use of the word stupid is meant to illicit a response. Perhaps ignorant would be a better word. Webster describes ignorant as “lacking knowledge or information as to a particular subject or fact”.
Landlords and Owners, here is something you need to know: Tenants that move at the end of each lease cost you money!
It’s my general rule of thumb that you need to keep tenants on average about 18 months to make sure you are making money. Especially if you are using a property manager. Why? There are so many costs to changing over tenants.
- Paint, carpet, repairs
- Lease out fees if using a property manager
I see owners squabble over repairs that will cost them $175-$200 and piss off tenants because they won’t fix something. Then the tenant leaves, they end up with 30-45 days of vacancy, some electric bills to pay and more.
If your rent rate is $1,100 /mo and you take in to account some of the other expenses you may have cost your self $1,500 – $2,000 over a $200 repair. Is that good math? Am I missing something?
This isn’t a rant. But I see it happening right now with an owner who is new to investing. I am not mad at him. I actually am trying to educate him. But I seem to be losing the battle sometimes.