One of the easiest ways to build wealth is through owning investment properties. I have worked with investors throughout my career and have learned how to spot a smart investment. Here are a few things I have learned over the years.
Every investor sets their own expectations. It is important to discuss your strategy with your Realtor so you are on the same page. What works in my portfolio might now work for you. I like to calculate a 25% maintenance and vacancy factor into my budget. I also like to calculate a 10% property management fee into my budget even if I plan to manage it myself. I might not always be able to do so. The rate of return is up to you but most investors are happy between 6 and 10%.
If you are self-managing, keep your property close. If you cannot easily check on your property, your tenants will take advantage of the situation.
Pets can be tricky but pet owners can be very loyal and might be long term tenants. The best strategy is to be very direct about your concerns and partner with your tenant to keep damages at a minimum. Make sure your tenant understands that the only pets allowed are the ones on the lease. Require a picture of the pet on the application to make sure that the 40 lb lab mix doesn’t morph into 100 lb timber wolf while you are not looking. Do routine inspections early in the lease to make sure the pet is settled in. Catch any urine stain issues early before they get out of hand. Don’t be afraid to charge large pet fees.
Keep a close eye on who is actually living in the home. The lease will stipulate permitted occupants and will have a penalty for violations. Enforce those penalties and make sure any new occupants are on the lease.
You want to consult with your home owners insurance agent and determine how much renters insurance to require your tenants to carry. This will cover them against any loss in case of fire, theft or other damages. It will also cover you against any loss caused by the tenant such as a fire.
Do not let tenants accumulate junk. Students especially will gather junk and leave it behind when they leave. Have a clear policy for junk removal in your lease to address the cost of removal.
Set the expectation that mold is caused by excess moisture and the tenant is in control of the moisture in the home. North Carolina has a maintenance addendum to all leases that addresses this issue. Insist that tenants run exhaust fans and run the Air conditioning. Monitor this situation on all inspections.
Change air filters on a regular basis and use the opportunity to inspect for other issues.
Sale of Property
When selling or buying an investment property, always provide or review all documents. You will need the P&L, rent roll, leases, deposits and non-refundable pet deposits. A good strategy is to close in the middle of the month so that most rents will all be collected and you have time to notify the tenants in time to pay the new landlord. Closing at the end of the month always creates confusion with tenants.
Make offers based on your numbers and your investment strategy. Don’t lose an opportunity for a 10% return because you wanted to see if you could save $2000. Know your numbers and act.
Lead Based Paint Disclosure
Always provide your tenants a lead based paint disclosure and the EPA brochure, Protecting Your Family from Lead in the Home, if your property was built before 1978. Always use certified contractors when working around lead based paint on your property.