Managing Your Rental Investment Property

When it comes to the day-to-day management of your rental property there are a few options open to you. You can take on the responsibility yourself or you can outsource it to a Property Management Company. There are pro’s and con’s for each and depending on your situation, one option may suit you better.

Managing the Property Yourself

Managing a rental property involves sourcing tenants and conducting the relevant background checks, doing a pre-inspection of the property before tenants move in to note any damage/faults that are already in place. Once tenants move in you have the responsibility of checking that rent is paid on a regular basis and conducting scheduled inspections to ensure that the tenants are looking after the property sufficiently (some insurance companies state that this must be done at set intervals for their cover to be effective). You will also be the first point of call should anything go wrong with the house, i.e. if a water cylinder bursts in the night! All this can be very easy provided you have good tenants, but should you encounter difficulties then the stress involved can put a lot of people off having rentals in the future. As a result, many people choose to outsource the above tasks to a third party.

Property Management Company

If you want the benefits of having a rental investment, but are not the type of person that handles confrontation well, then going with a Property Management Company may be for you. These companies take care of everything outlined above from finding tenants, to doing inspections and collecting rent. They can also take care of any maintenance that needs doing without bothering you at all hours of the night. All these services cost money though. Standard rates vary from between 7.5%- 8.5% of rent collected each week. They generally take the first weeks to rent from your tenant as a finder’s fee, whether they charge this to you as the owner or to the new tenant depends on the company. 7.5% is a reasonable amount on a weekly basis and as such will eat into the budget you would have prepared as detailed in Point 1) above.

Other Options

In some countries, it is possible to rent your home to a State housing Agency who will then guarantee you rent for a set period of time. Ten-year leases are not uncommon. They source the tenant and cover basic maintenance costs; you do not need to have any involvement what so ever. The drawback to this is, of course, the standard of the tenant in your property will be outside of your control. This may have an impact on the value of your home and area going forward. The guarantee of income for a set period of time is a big incentive. Most organizations like this have a strict location and housing conditions so it is best to talk to your local organization before purchasing a home if this is an avenue you wish to pursue.

Whilst there are many other factors to consider when purchasing your first investment property, the points mentioned here give you a place to start.

Ten Key Reasons to Sell your Rental Property Investment by Auction

Property Investment requires selling of houses almost as much as it requires buying of houses. Here are the ten key reasons why property investors need to consider using an auction instead of a negotiated sale to sell their investment property.

Transparency

If the rental property investment is owned by a group of investors, then transparency is a must. The person managing the sale needs to show his fellow investors that the sale was genuine. Too many scandals involving backhanders and under the table dealings have emerged during the recession aftermath to take any risks with your credibility.

An auction is more transparent than an open sale because it is visible, and the formula is simply – the highest bidder wins the sale. This is not that case in an open sale, where the winner may just be the person who entered negotiations first, and this is too vulnerable to a sale happening because the two parties know each other.

The potential for Investment Gains

The increased potential for improved property investment gains is obvious. Buyers are competitively outbid each other. They are under more pressure to bid higher than could ever be replicated in a negotiated sale.

Completion Rate

One of the biggest issues with a negotiated sale is contract conditions. Buyers and sellers list their conditions in the contract as to what needs to happen or what can’t happen to complete the sale.

Skilled property investors use conditions effectively. However, compared to an auction sale they can just create a hassle.

Auctions have a higher completion rate due to not having conditions placed on the sale. At the end of the auction, the buyer and seller sign on the dotted line and the sale is complete.

Conditional on Finance’

Of the conditions, the ‘conditional of finance’ is the biggest hurdle for investment property sellers. If a buyer enters the negotiations with that in the contract the seller is forced to wait and see whether the buyer gets the finance. If the buyer doesn’t come through with the finance, the seller simply has to start again with a new buyer.

Cash Buyers

The presence of cash buyers increases both the likelihood and the ease of a sale. Cash buyers make a sale easier for an obvious reason – they have the money. Even if bidders are not cash buyers they will at least be financed or have pre-approval.

Marketing Costs

Auctioneers and realtors that specialize in auctions generally have large databases of potential buyers. The database plus the strict timeline an auction offers is perfect for reducing marketing costs. Simply contact the database, put a sign out on the front lawn and conduct open homes for the next three weeks. To increase the buzz around the neighborhood a simple mailbox drop could be considered.

Compare this to the limitless marketing costs that could be involved with negotiated sales through traditional newspaper advertising that could go on indefinitely.

Definitive Timeline

An open sale has no clear timeline. It can go on indefinitely. An auction sale, however, has a deadline: the end of the auction. Providing at least one buyer bids the seller has the option to complete the sale.

Controlled Viewings

The open nature of a negotiated sale’s timeline means the viewing schedule can be very open for buyers and a burden for sellers. Alternatively, the contracted timeline of an auction sale reduces the amount of time a seller needs to spend showing people the property. Three weekends’ worth of open homes is often adequate.

More likely to end in a sale

An auction is more likely to end in a sale because motivated cash buyers arrive in a competitive bidding environment willing to make a sale.

Pre Auction Offers

Even before the auction takes place many property investors receive offers. For the reasons stated above sellers may not want to accept these offers. However, the fact that they have this option as well as the opportunity to take into a competitive bidding scenario really does allow for the best of both worlds.

Negotiating The Right Price For Your Dream Home

Getting what you want is not something that you can just get. You have to come into play with words and how you deliver your requests or demand. Every day we use negotiation to get what we desire may it be regarding food, movie or a suit. This is also the same when it comes to buying or selling a property.

Property Negotiation since time immemorial has become a way of dealing with house buying. You as the buyer want to get what you want in a house at an economical cost. On the other hand, the seller of the house wants to sell her or his house to the highest buyer possible. Property negotiation should be a partnership. A give and take process would be a perfect solution.

People go into negotiation to find the middle ground where they can agree. Sometimes the seller hires a Real Estate agent that will act as a link between the purchaser and the owner of the property. This is especially true for those owners who are too busy to sell their own house to the customers. When a good negotiation has been achieved both the owner and the purchaser of the property will be satisfied with the outcome and both are pleased.

In buying real estate, you need to be clear with the reason why you are buying one. Take for example you want a one bedroom house, you made need to identify if it is for your retirement a vacation house or for your entire family. Surely if the purpose for buying a house is identified you will end up with a more suitable dwelling.

The location of the property for sale should also be taken into consideration. There are cases that your dream house is located near a factory but you have small children with you, then the location might cause a problem in the future. Do your own research of the possible locations that you might want to consider to buy a home. Is it near your children’s school? How about your workplace? Is it safe? Is it prone to flood during the rainy season? These are just some of the questions you need to ask yourself.

Money plays a big role in buying a property. The amount of money you are willing to spend can be the determining factor in whether or not you will acquire the house that you want. Setting a price range will give you a bigger option of selecting the right house that will suit your budget. The house features should correspond with your financial resources.

If buying a property is not easy, the same can be said about selling the property. One of the mistakes often committed by the seller is selling the property to the first buyer. The owner most of the time sell their property because they need the money right away. This is when they commit the mistake. Since they needed the money they will go and give the house to the first buyer in a much less value than it should be. Learn to take your time and negotiate we do not want you to be in the losing end of your bargain. Also, learn to negotiate and do some repairs if you have to. You will have a greater chance of acquiring a buyer if your house is in good condition.

Buying an Apartment for Investment

Apartment buying for property investment can be risky. Therefore, it is important to keep some property investment tips in mind. For example, being mindful of oversupply and questionable quality can be an issue.

Location is linked with oversupply. There needs to be an actual need for apartments in a given area. If a city is closely surrounded by suburbs and is easily accessible, then apartments are not really required. The success of your property investment, therefore, hinges on the novelty or glamour aspects attached to it, and not the practicality, which is not ideal.

Investing in ApartmentsIn regards to quality, leaky building syndrome can be a particular problem. In New Zealand, if the building has it then the entire building (ie all the tenants) may be required to foot the bill as many of the building companies responsible have declared bankruptcy. The Government makes some contribution but ultimately the bill falls back on the owner.

Leaky building syndrome is caused by the use of inappropriate materials, installation or improper design, resulting in weather tightness issues. In New Zealand, the use of untreated timber has also been an issue as it was considered acceptable to building requirements until recently. Now that the untreated timber used in construction has been exposed to moisture, it has deteriorated and rotted.

When buying any building, but in particular when investing in apartments, one of the key property investment tips is that an inspection process should be thoroughly undertaken. Leaky building syndrome can cripple you if your apartment or home has it. Repair bills in the hundreds of thousands are not uncommon. Those cheap deals you see may not have been a year or two ago but due to circumstance, the owner may now be taking a huge hit to get rid of the property. There is a heap of stories of people losing lots of money in apartments. There are success stories of course, but they are less common.

Another big issue with apartments is obsolescence, in 5-10 years time, the building can look like a slum from the outside, which will drive your value no matter what you do to the inside.

When buying apartments for a property investment you need to consider that all you actually own is a small chunk of a large building. It is harder to control your interests in the investment compared to a house, for example.

It’s not all negatives though. Apartments can be a cheap investment that probably has ok cash flow; just don’t bank on any capital gains to be safe, and remember these property investment tips of being thorough with your inspection and research!

Properties Team

Responsible property investment means having a good Properties Team. It is one of the most important Property Investment Tips.

John Donne once said, “No man is an island”.
When talking about Property Investment, this expression could not be more fitting. Whilst it may be possible to build a property empire all on your own, it is a lot easier to build upon the knowledge and skills of others where possible. By employing the help of an expert, the amount of time that you can save as well as the amount of money you may save in the future should make the decision a “no-brainer”.

Who are these mystery experts that no Property Investor can do without? I’m talking about Solicitors, Accountants, Real Estate Agents and of course the support of Family and Friends. They can all be very valuable for Property Investment Tips and advice.

A Solicitor

Now a Solicitor may sound like a dirty word to some of you, but I guarantee that a good solicitor is worth his or her weight in gold. However, they will need to be specialized in the property field. A commercial litigator will not be a lot of help to you in this respect but a good property lawyer will be. They can examine all the legal aspects of any prospect you have, they can set up trusts, partnerships and companies for you to structure all your dealings and they can advise you on any legal obligations you may be accountable for, now or in the future. Solicitors are very easy to find and most should advertise their credentials. Shop around and ask people in the know who they may recommend for your properties team.

An Accountant

An accountant will be able to advise you on the best ways to set your respective empire up from a tax and benefit perspective. They will prepare your financial accounts at the end of the financial year and the really good ones will be able to set out your finances in a way where you may be able to save yourself a bit of tax. You may have to liaise with both your accountant and solicitor to set out your portfolio in the best way possible. Like a solicitor, accountants are very easy to source. Try to find one that specializes in property. Most accountants will offer a free consultation before they commence working with you. Talk to them and get a feel for how they operate, if you don’t feel comfortable, then try someone else. Remember they are there to work for you, not the other way around.

A Real Estate Agent

Real Estate agents are the men and women on the ground in your properties team. Until you are in a position to know your market 100%, these are the people to talk to. From sales volumes to what prices are doing and where the place to buy is, a real estate agent should be able to give sound advise. Once you have been in this game for a while you will develop your own feel for things and may not need to rely on an external agent as much. It’s always good to have the contacts in place to have a catch up every once in a while, just to double-check your own thoughts. In real estate circles, big would appear to be better, with the most popular sales agents generally being popular because they sell more property and have a good idea on what the market is doing. Try to stick with these people, they will not be hard to locate.

Your Family & Friends

Whilst these particular people may not offer any particular specialist skills, they will be able to offer help, support and ideas to assist you with your decision-making. Having the support of family can do wonders for stress levels and having good friends you can call upon from time to time to help out with the odd job (as long as it is reciprocated) can save time and costs. Friends may have undertaken a similar endeavor as yourself, of which they may be happy to steer you in the right direction. Remember a problem shared is a problem halved.

Whilst there will be many others who will no doubt provide you with information and guidance along your path to investment nirvana, I believe that the 4 groups listed above are probably the most important components of your Properties Team.