Category: Landlording and Rental Properties
Jul 14, 2022
How Much Does An Apartment Complex Cost?
Most times when the question of how much an apartment complex costs comes up, the first thought that comes to mind is the monetary cost; how much does it cost to buy, build, rent or lease one. The other side to the story is the ongoing costs of maintenance, repairs, rehabbing, and countless other expenses tied into the asset. Getting into the real estate business as an investor or a developer can be a lucrative venture, though it carries significant risk and extensive upfront and ongoing cash injections.Even the cost to build an apartment is not a straightforward question. It involves many factors and questions that have to be considered, which we're going to explore in this article. We'll also look at how you can tap into the profitability of an apartment complex without the ludicrous upfront expenses in a way that's more palatable to individual investors. Apartment Complex vs Apartment Building According to the Collins dictionary, an apartment complex is a group of buildings that contains apartments and is managed by a company. Apartment complexes are set up with property managers who ensure the proper running of the apartments.Apartment buildings, on the other hand, refer to a single building with apartment units. They are independent buildings, rather than multiple structures under common management comprising shared facilities such as a swimming pool, gym, or convenience store. Types of Apartment Complex Despite apartment complexes containing several units of housing alongside other facilities, they are generally categorized into high, mid, and low rise. High Rise Just as the name depicts, high-rise apartment complexes are characterized by up to 50 floors of apartment units. These high-rise buildings often contain luxury units like penthouses and condos.Due to their structure, they are located in larger and more urban cities like New York, Los Angeles, and Chicago. Mid-Rise These are apartment complexes with about 5-20 floors. Mid-rise buildings are usually the most common complexes, present in cities, suburbs, and even in schools. Low Rise Predominately residential with floors ranging from 2 to 15 apartment units. They are common in suburbs and less populated towns. Apartment Construction Costs BreakdownIt has previously been mentioned that the costs of an apartment complex go beyond the money. The costs involved in building a multifamily apartment complex are divided into different aspects. Hard Costs These are expenses that go into the physical aspect of apartment construction. This aspect of the cost accounts for materials, labor, equipment, utilities, and other physical activities that are involved in the construction process. The hard costs usually make up more than 60% of the entire construction budget. Soft Costs These expenses are responsible for taking care of the technical and non-mechanical aspects of apartment building construction. They involve things like taxes, permits, legal fees, architectural fees and development fees, and other service charges. Finance Costs In some instances, real estate developers do not have all the funds required for apartment complex construction. When this happens, they are provided with the option of seeking investments or loans from financial organizations. These investments come with interests and financing charges, all of which are added to the total cost of construction. Long Term Costs This aspect of the budget is as important as the apartment construction cost. Although it is not part of the construction cost, it includes the expenses that are needed to maintain the building systems and utilities. Altogether, in the breakdown of the development budget that includes the land purchase. Hard costs make up about 40% of the entire project costs; soft costs about 25% and 20% for land costs, and in instances where investors are involved the remaining 15% to equity returns. Investment Cost Of course, if you want to make money from a multifamily housing or apartment complex investment, you don't need to be positioned to sign up to a multiple-million dollar debt, or ongoing risky cash injections. With Holdfolio, you can own equity in a highly-profitable apartment complex, receiving regular dividends and capital appreciation with as little as $20k in the bank.Simply create an account, select the apartment building you want to invest in, and deposit your money to start passively investing in multifamily today. Get in touch with Holdfolio to learn how to get started. What is the Construction Cost of an Apartment Building? In the United States real estate and construction industry, the construction cost of building an apartment complex is calculated per square foot. This construction cost does not include many things, and should not be mistaken for total building costs. Due to variations in the price of building materials and other charges like sales tax, construction costs vary by location. They also vary based on the type of apartment; for example, the construction cost of a high-rise complex is considerably 'higher' than that of a mid-rise building.Similarly, the construction costs of a luxury apartment building are more than that of a regular apartment. Typically, in the United States, a mid-class apartment complex with 4 to 5 stories costs about $170 to $300 per square foot and varies greatly in total costs between about $5 million - $14 million. This is quite small in comparison to prices as high as $120 million for a luxury high-rise apartment complex containing up to 100 apartment units. Costs of Apartment Complexes by Type As previously mentioned, there are three types of apartment complexes; which are different in the number of floors they have, and how high they 'tower'. The higher a building is, the more complex the construction of the same building becomes. Complexity in building an apartment equals more money per square foot. Building high-rise real estate involves more equipment, expertise, precision, and higher quality materials, all of which are considered in the cost estimates. High rise We will start with the big guns, the towers, the skyscrapers, the 25 to 50-story apartments, or as we generally call them, the high-rise apartment buildings. The price to build one of these ranges from $235 to about $500 per square foot. These types of complexes are subject to zoning laws that dictate exactly how high they can be. Also, developers make up for the presence of non-residential spaces such as corridors, gyms, laundry rooms, lobbies, and apartment managers' offices by increasing the price per unit cost.. Mid Rise apartments Mid-rise apartments are more common and the average building costs are slightly lower than the high-rise buildings, at prices ranging from $190 to $280 per square foot. Low-Rise apartments The construction costs required to build a low-rise apartment are not far off from the costs of a mid-rise building. Lower but fairly the same, with prices ranging from $160 to $250 per square foot. How Much Does an Apartment Cost Per Unit? Another way to look at construction costs is to estimate how much an apartment complex costs per unit to be built. This better fits the needs of some investors or real estate companies rather than the per square foot billing. As of 2020, building a multi-family apartment complex would cost prices ranging from $64,000 to about $86,000 per unit. The flaw that arises with this technique of estimation is that in some apartment complexes there are different unit types. For example, you can have a combination of studio, one-bedroom, and two-bedroom apartments, all of which may not be the same size. Therefore, it can present a serious miscalculation in the budget and financing costs of the apartment complex. What Affects the Cost of Building an Apartment Complex?Now that you have a fair understanding of what an apartment building might cost you, it is also important to note the factors that influence the variability of these costs.Interestingly, these factors relate to one another, meaning that one factor can influence another, and they do not only affect the cost of construction but also that of maintenance and the returns from the investment (how much and how often rent is paid). Location and Land Costs Location is arguably the most important factor affecting project costs. Just as with anything else, location determines the value of the real estate. For example, eating at a middle-tier restaurant in Upper Manhattan or New York would be more expensive than even a 5-star restaurant in parts of Ohio or Delaware. The same thing applies to the real estate and construction industries. Location affects land purchases, which usually make up about 10-20% of the proposed budget for the project.Areas with high demand and reputation would have land scarcer and be more expensive, both of which translate to higher rent prices. There would also be opportunities for rentals, a great means of real estate income. Compliance and Development Fees Compliance and development fees could quickly whisk away most of the building budget. The amounts to be spent on these depend strongly on the proposed location of the apartment complex. Location in terms of local, state, and federal laws and regulations guiding multifamily housing and real estate construction in general. These laws have provisions for charges, dues, and taxes to be paid by a developer before, during, and after construction. Getting building permits falls under this category and again, getting this is dependent on the location and type of building to be built. Building permits are easier to get in developing areas of the country, where commercial real estate is needed. While for already densely populated regions where land isn't readily available, and the purchase and demolition of buildings have to take place to create space for construction, getting approval to build in such areas might be strenuous. Affordability Another important factor that determines the total cost of a project is the type of units to be built in that apartment complex. Are there going to be affordable units or high-end luxurious apartments, or maybe both?Although the building costs per square foot of any of them are relatively similar, how much you spend on a luxury apartment largely depends on how luxurious you need it to be. This is why the costs for site improvements have to be included in the initial budget. As much as many real estate developers would like to build an apartment complex with only luxury apartments, many states have inclusionary zoning laws. What Are Inclusionary Zoning Laws? These laws regulate housing costs and provide affordable housing to those who cannot afford a regular apartment. Different states have different zoning laws that state the number of affordable housing units to be included in an apartment complex. While the rent of these affordable apartment units does not correlate with construction costs, the government offers incentives such as tax breaks and subsidies to developers.During the planning stages of construction, it is important for every developer to do the necessary research regarding the zoning laws of the state and city, where they intend to construct their apartment building, and how these laws would affect their investment and eventual returns. Construction Materials and Labor In a way, the type of material you use in construction is dependent on the type of units you want to build. This falls under the hard costs and it includes expenses for construction materials such as steel, concrete pipes, and so many others. The tricky part about these materials is the high tendency for fluctuation in price, which can be a burden if adequate preparations are not made. Therefore, it is advisable to make provisions in the budget and give room for eventual price increases, considering inflation and all that is going on with the supply chain.Labor costs include the fees for hiring any personnel involved in the construction project, including structural engineers, architects, contractors and subcontractors, and others. Expected Occupancy This is dependent on the type of apartments in the complex. How many affordable units are therein? How many studio units, 3- bedroom, 2-bedroom, or even penthouse apartments are to be built? All of these are important to note because they would determine what the rent and income from the apartment would be and ultimately affect equity and the financing costs of the building. Who is Involved in Building an Apartment ComplexGetting an apartment complex to translate from an idea to the actual building involves an elaborate amount of processes. However, amid these events, it is important to take note of the people who make them happen. Architect The architect has the first major responsibility in apartment building construction. Their job is to design and draw plans for the proposed building. They even go as far as creating small models of the building. During this stage, the architect might be required to make adjustments to the model or the design of the building until the final plan is agreed upon. This building plan is created to give the contractor a picture of what the developers have in mind, and because most architecture firms want their design to be executed properly, they have contractors that they recommend to the developers. Usually, the architect acts as the project manager alongside the general contractor. Contractors We have two types of contractors based on their level of responsibility. The first type is the general contractor - the architect and the developer employ the general contractor, who is responsible for hiring and finding all the other subcontractors. They also handle and supervise the entire project. The general contractor is in charge of technicalities such as permits and compliance. It is important to carefully select a competent general contractor because they are in charge of everything and the success of the project depends largely on them. General contractor fees can be as high as 10% - 20% of the entire project cost.The subcontractors, on the other hand, are responsible for the different aspects of building an apartment complex, according to their specialty. From the carpenters to the engineers, masons, and others.Contractor fees differ from state to state because of differences in real estate sales tax laws in respective states. Real Estate Attorneys Apartment complex costs run into millions of dollars, and investments such as these require formal and legal backing. Legal processes such as acquiring necessary permits, understanding zoning laws, and land acquisition documentation usually require the services and input of a legal officer. Accountant The amount of cash flow and exchanges that occur during apartment building construction is a lot, and all of these funds have to be accounted for during and after the completion of the project.Also, things such as payroll and disbursement of funds are the responsibilities of an accountant. Apartment Complex Cost Calculator Some resources are available to support people in estimating project costs. Whether it is per unit cost or per square foot cost, or even the total cost of an apartment complex. These resources make use of algorithms that consider market costs of materials, the state and national average land price, the average contractor fees, architectural fees, and other construction costs; essentially all the factors listed above, and run the maths to give you an estimate. Conclusion Finding out the cost of an apartment building complex might seem like an arduous task, but proper preparation takes away all the worries. As a developer or an investor looking to get into this space, it is important to make adequate consultations and ask all the necessary questions to get clarity on whatever you need to know. Building an apartment complex as an investment project requires a significant amount of capital, and that money should be put to efficient and good use. If you're an investor who is syndicating the deal or undertaking the project alone, it also entails a high level of risk. It's wise to ensure you have the skills, experience, and ability to do the project justice with due diligence before you more forward with the venture.If you're interested in investing in profitable multifamily real estate found in prime location without the risk, high capital investment, and managerial responsibilities, become a passive partner with Holdfolio today. Through your investment, you will receive quarterly dividends and capital appreciation without having to life a finger. Plus, you can invest with as little as $20k in the bank. Give Holdfolio a call today to learn how to get started.
May 21, 2022
How Much Profit Should You Make On a Rental Property
A rental property's prospective revenue differs from one house to another. Investors that have unreasonable earnings expectations might be in for a rude awakening. Investors who evaluate cash flow and precisely determine the possible return from an investment home, on the other hand, are more likely to be effective in the long term.We'll show you how to assess the possible revenue from leasing and address questions about what a decent return on a rental home may be for you in this post.Contact us and check out Holdfolio's exclusive deals to get started on your rental property investments. What is the profit from a rental property? The revenue from a rental home is the amount of money left over at the end of every month.It's crucial to understand that investment property revenue differs from taxable net earnings. This is because property investors employ non-cash deductions like depreciation to lower their pre-tax earnings.Property tax exemptions are also one of the reasons why certain rental landlords might pay relatively little in taxation while yet having a large amount of cash on hand. How to Calculate a Rental Property's Profits The cash flow that an investment property creates is what most property investors benefit from. Among the elements that influence cash flow are:The cost of buying a home Payment on a house (principal and interest) Rental revenue, gross Number of vacancies Managing real estate Costs of operation (such as repairs, maintenance, CapEx, and landscaping) Taxes on your homeMake a statement of cash flows for your business. A very basic statement of cash flow for calculating prospective cash return from an investment home looks like this:The purchasing price of the property is $100,000.$25,000 as a down payment.Gross rental income is expected to be $900. Vacancy loss of 5% is $45 Gross income effective = $855 Repairs at a rate of 5% = $45 At 8%, property management equals $72. Other costs (property tax, insurance, HOA dues, and so on) = $180 Mortgage payment = $320 (principal and interest alone) Monthly cash profit (pre-tax) projection = $238How to Calculate the Profits from a Rental Property There are four primary methods for calculating rental property profitability. Regularly monitoring every one of these measures will assist keep your rental property's financial performance on track and guarantee that your lengthy economic targets are accomplished: Cash Flow Upon covering all of your operational expenditures, including the mortgage, cash flow is the amount of cash you have left over as income on a monthly basis.It's crucial to remember that cash flow isn't always consistent from month to month. Repair costs may be more or lower in some months over others, or the building may be empty for longer than intended as you hunt for a suitable renter. Capitalization Rate The capitalization rate (cap rate) is a rate that equates the annual net operating income (NOI) of a property to the purchase price. Because various investors utilize varying degrees of leverage, NOI does not include the monthly mortgage payment (resulting in higher or lower mortgage payments).Generally speaking, the greater the cap rate, the more beneficial an investment may be since more revenue is created relative to the purchase price of the property. Because cap rates vary by market, the cap rate estimate is only used to compare properties within the same market or submarket.The cap rate is determined using the information from the financial statement above:NOI = $238 monthly cash return + $320 mortgage payment (included again in to estimate NOI) = $558 each month x twelve months = $6,696 yearly NOI NOI = $238 regular income profit + $320 loan payment (added later in to determine NOI) = $558 per month x twelve months = $6,696 yearly NOI Property price = 0.067, implying a cap rate of 6.7 percentReturn on Investment in Cash The yearly cash return from an investment is comparison to the number of cash invested in a cash on cash returns ratio. The mortgage payment debt service is included in the cash on cash return calculation, unlike the cap rate.The cash on cash return is 11.4 percent if an investor puts in $25,000 and makes a cash profit of $2,856 annually:2.856% yearly cash return / $25,000 down payment = 0.114 percent annual cash return. Return on Investment (ROI) Return on investment (ROI) is a metric that compares the total amount of money gained to the entire amount of money invested.Let's have a peek at how to figure out your return on investment. In the real world, gross rental revenue and running expenditures might fluctuate from year to year, but for the sake of our example, we'll suppose they stay constant.The home is sold for $150,000 five years after it was purchased for $100,000 with a $25,000 down payment. The cash returned throughout the 5-year holding period was $14,280, which included the net cash gains from leasing ($238 each month x 12 months x 5 years) plus the $50,000 gain realized when the residence was sold.The return on investment is as follows:(20.79 percent annualized ROI) = ($14,280 lease net cash income + $50,000 gain on selling) / $25,000 down payment. The 1% Rule This is a simple and quick tool for investors to assess a property's potential. According to the one percent guideline, monthly rent should equal at least one percent of the total property purchase price.A $300,000 house, for example, should lease for at least $3,000 per month. If this doesn't seem realistic or doesn't match market values, the investment is probably not worth it. Again, issues such as property location and size must be considered.What is a Profitable Rental Property? Because a good return for one property investor may be awful for another, there is no single right answer to this question. Nevertheless, there's a few factors to consider in determining what a decent residential property income could be for you.How much profit should you make on a rental property? Well the answer to that is profoundly personal and you are the only person competent enough to answer it. Consider the following questions to help yourself figure out how much profit you should make on a rental property.What kind of return can I anticipate from a different type of investment? Historically, the stock market has returned 7-8 percent every year. Alternative investments: How safe are they? What level of authority do you have above them?So, if you can somehow make 8% in the stock market, which many consider volatile and difficult to control or manipulate, and 3% in the government bond market, which is frequently hailed as one of the best investments available, what kind of return should you anticipate or require from a property investment?Real property is not quite as passive as stock or bond trading in the beginning. As a result, you may want a bigger return than they can provide.However, because there are so many various investing techniques that are out, there are assets that may suit everyone's needs.If you're willing to accept lower cash-on-cash returns than the share market because you trust in the market's long-term gains, go ahead and invest in those assets. Final Thoughts The amount of money you earn from property investment is only as significant as how much money you make. If you're dead set on maximizing your cash-on-cash returns, go out and buy properties that fit your requirements.If you prefer appreciation, concentrate your efforts on industries that are receiving, or are expected to experience, maximum appreciation soon. It's crucial to remember that a year in property investment is like a single glance — it goes by quickly and has no impact on you as an investor or your property.Real estate investment is a journey, not a sprint, so set a strategy, adhere to it, and don't get frustrated if your target cap rate is 8% but your properties only achieve a 7% cap rate.Things don't always go as planned in real estate investing so investing alongside a knowledgeable and experienced investment company, like Holdfolio, can help you.Here at Holdfolio our tactics focus on generating high profits without relying on guesswork. This suggests that we don't need a fast-appreciating real estate market to get above-average profits. The income-producing homes we buy create cash flow month by month and perform well throughout the real estate cycle. We place a premium on long-term wealth while enabling our business to succeed in any market environment.Contact us today and start making a profit with our exclusive real estate investment deals!
Mar 30, 2021
5 Reasons a Property Management Company is Key to Your Rental’s Success
The Benefits of a Property Management Company A property management company could be a beneficial component to your rental's success. A property management company, otherwise known as a PMC, deals directly with prospects and tenants, saving you time and worry over marketing your rentals, collecting rent, handling maintenance and repair issues, responding to tenant complaints, and even pursuing evictions. This allows you to outsource some of the tasks you don't want to deal with for a small fee. Below are five reasons that will encourage you to look into hiring a property management company for your rentals. 1. Property management companies are full of industry experience. Hiring a property management company provides many benefits to both new real estate and veteran investors. PMCs give you a support team full of individuals who have many years of experience in the industry and can assist you in making the best decisions for your rental. A majority of property managers are licensed real estate agents, meaning that they have a good understanding of the industry. This allows you to have a group of professionals that know how to price your rentals accordingly. Property managers also have in-depth knowledge of the fair housing laws and local laws that affect both landlords and tenants. These laws are very specific, and without a deep understanding of their complexities, one could easily break them. 2. A PMC is an established point of contact for tenants. One benefit to having a property management company at hand is the fact that it relieves you of having to constantly keep in contact with your tenants. A PMC can also prevent you from losing money because he or she will work diligently to place new tenants in your property so it doesn't sit idle. An experienced PMS can make life easier for your tenants with someone available at all times, especially if you happen to be busy or out of town. This is very convenient for addressing problems like noise complaints, parking issues, etc. It also is beneficial when tenants need to make maintenance requests for things such as replacing fire alarms or lights. Allowing someone else to handle many day-to-day responsibilities saves you valuable time. 3. Property management companies will handle tenant issues. One of the biggest benefits of property management is that the property manager will handle tenant screening. Having experience with hundreds of applications, property managers tend to be able to spot the red flags that a potential tenant may possess. This could include not being able to pay rent, or having a history of causing damage to the property over time. Property managers can also save you the trouble of having to evict people who can't pay rent on time, and ensure that the process of paying rent is simple. Additionally, a PMC can handle any lawyer fees that may be associated with evictions, and damages made to the property. 4. A PMC can market your rental for you. Another upside to hiring a property management company is that they can take over all of the marketing responsibilities. A PMC will typically develop a marketing strategy for each property that is dedicated to targeting your market segment to get the best results possible, from messaging to the platforms your audience is active on. These professionals have a deep understanding of needing to fill your property with great tenants so that you can turn over the property quickly. A valuable tenant could mean the difference between having to replace carpets or simply having them cleaned. 5. Working with a property management company saves you money on maintenance & repairs. A property management team saves you time. You won’t have to go to the property to fix every problem that may come up such as clogged toilets, broken appliances, and dealing with locked out tenants. The team will handle problems as soon as possible, which will keep tenants happy. It is also a great way to save money because an experienced management team is better equipped to find a cost-effective solution to a common problem.Hiring a PMC is a simple way to save time managing your property. With a PMC, experienced professionals deal with time-consuming tasks, at a relatively low cost, allowing you to scale your rental properties and increase your cash flow.
Nov 13, 2017
Are You Adding Too Many Finishing Touches To Your Rental Property?
One of the biggest questions real estate investors have (or at least should have), is how many finishing touches and add ons they should give a remodel. There are many factors which play into this. Some standard finishes will differ based on your particular market. Others should be different based on what the tradition and market history is locally, and the price point of your property and surrounding properties. All of these factors can be make or break when you are trying to turn a profit on your properties. The Danger of Over-Improving PropertyOne of the biggest dangers of investing in real estate is over-improving your investment properties. It is the number one pitfall for first time investors. First timers often sink way too much money to over improve a rental property, and often times, they never get any return on the investment. Unfortunately, many investors just don’t know what really adds tangible value to their properties. Being smart and sensible with your value adds can be major when it comes to turning a profit. When it comes to buy and hold rental properties, it should be attractive to your level of prospective renters. Keep in mind the type of perspective tenant you are looking to attract, and what kind of amenities they need and do not need. Listen to what the market is telling you. But many times landlords must remember that tenants are going to put some wear and tear on the property, and chances are a lot of updates are going to have to be done every time you turn tenants. It could be in 6 months, or 24 months. You just don’t know. So, instead of going all out, especially on items which are easily dirtied or worn, go for slightly more affordable options, and more durable finishes. For example; carpet which can be cleaned, instead of tile which may need to be completely replaced if it is cracked. Or stainless steel sinks, versus custom materials which can stain.This approach applies to flips as well. You’ve got to know what really adds value, and not do any more than that. You’ve also got to know your buyers. Will they be renting the place out? Then stick to the above principles. In most cases, end buyers are going to have different tastes to you. That means no matter how nice you make it, they are likely to redo a lot of your work. Why put in unique, over the top finishes, if they are going to be pulled out and thrown on the curb a week after closing? They also aren’t going to pay you more, just because you think the design is nicer. Many tenants have a set range for the rent they are wiling to pay, and special add ons do not always help move that needle. Just because you spent a few dollars more per square foot on counter tops and flooring, doesn’t mean you’ll get an extra dollar on the sales price.What’s Your MVP?What investors need to know is what their MVP is. That is the Minimum Viable Product. That doesn’t mean be cheap. Do it right, make it look nice, but don’t throw away money. Otherwise you may have to sell at a loss, may not be able to sell at all, or are going to be making a lot less than you thought. You need floors, a roof, countertops, cabinets, bathroom fixtures, and freshly painted walls, but you don’t have to try and win any design awards. Basic countertops will work in most rentals. If you are doing a luxury renovation, you might get away with poured concrete or granite, instead of quartz. You can let the next buyer or renter get their own fridge, or stage it with a basic model, versus spending thousands on a smart fridge which may not be the right model your buyer wants.Know what the minimum standard expected by local buyers and renters is. You can go a little bit above that if you want to move it faster, if you can get a good deal on the materials. But don’t overdo it.There is a lot of confusion around what standard rentals and house flips should be finished too. It is also an area which can make or break investors fast. Know your values, and consult an actual appraiser, not just a Realtor to find out. Then set your own standard minimums based on your area, while looking out for deals on slightly higher quality, but neutral materials.
Oct 18, 2017
Rental Property Investing: What’s The Best Option For You?
Rental Property Investing: Vacation Rentals vs. Long-Term Rentals Short term, Airbnb-style rentals have been gaining a lot of attention lately, especially in major metropolitan cities. The question is, how do they stack up as an investment strategy for long-term income property investors? Are they more profitable? Or are long-term annual rentals still the best way to go? Vacation Rental Property Investing Many real estate investors and entrepreneurs have discovered that there are very juicy rental rates to be found by leasing their units to short-term renters for a day, week, or month. A whole new crowd has jumped into this industry to capitalize on this. It is a trend we are seeing more and more each day. When rented as a hotel, property owners can often get far higher average rates than as annual rentals. What may rent for $1,000 a month to a regular long-term tenant, may rent for the equivalent $3,000 per month on Airbnb. There is clearly a lot of value in this short-term rental strategy, but there can be some drawbacks. These rough figures can be very misleading. They don’t account for higher vacancy rates, taxes, wear and tear, and property management costs. All of which can take a big bite out of those anticipated rents.More importantly; experienced investors know that short-term and vacation rentals can be highly volatile. Short-term rental rates can fall just as fast as they rise, due to demand. There are many causes including the economy, new lists of top vacation spots, storms, gas prices, and other factors. All of which can catch short-term rental property owners by surprise. Those who have paid high prices for these assets, assuming they’ll be able to rent at these high rates, can be caught short, and find themselves in tough financial situations if they are not careful.If the numbers won’t work on a deal as an annual rental, be very, very wary. Research around popular message boards and forums frequented by users of Airbnb, VRBO, and more. Long-Term Rental Property Investing In contrast, long-term rentals offer real estate investors more consistency, stability, and reliability for their investment portfolios. Good long-term tenants can also save a lot on property management, maintenance, and marketing. That can even out the spreads a lot. Even more so when investors are purchasing homes at far lower prices. It doesn’t take a genius to figure out that the yields on an $80,000 home that rents for $1,000 a month in the Midwest, may produce better yields than a condo on the coast that rents for $3,000 a month, but costs $500,000 or more. It is important to run these numbers before deciding on a short term or long term strategy Both vacation rentals and long-term annual rentals can produce income and attractive returns for investors. It’s all about the numbers. Unfortunately, many are not doing the full math, or are looking far enough forward when trying to jump on the Airbnb bandwagon. Do your math well. Get a second opinion from an expert. Make sure your choice matches your personal financial goals and timeline.
Sep 20, 2017
Renting to Own: The Pros & Cons For Landlords
Rent to own deals appear to be becoming more popular again. What are the real pros and cons for investment property owners?As home prices keep growing, and rent remain high, but mortgage lenders keep underwriting tight, renting to own, lease options, and seller held mortgages all appear to be getting more common again. They are highly desired by tenant-buyers, and can be highly profitable for real estate investors. What should you consider before making the leap?The Pros of Offering Rent to Own DealsThere are a variety of benefits of this strategy, including the following.Easy Exit in Tough MarketsOffering a rent to own option can provide landlords an easy exit, even in tough or declining housing markets. Just make sure it is priced in a way that is appealing and the right prospects can afford.Higher Sales PricesRent to own tenants are mostly concerned about move-in costs and monthly payments. They care little about the actual sales price. This can help you get far more for your property.Passive IncomeCreating a seller financed mortgage note can deliver passive income with a lot less headaches. You no longer need to worry about tenants, maintenance, and all the time and risk involved. You just get monthly payments. The note created is also a new asset which can be sold and cashed in on whenever you like.Providing a Valuable ServiceThere is a huge need for this service. Millennials and families are having a tough time in the rental market. They will find many benefits in homeownership. They may have good credit and incomes, but just fail to qualify for a conventional bank loan due to paperwork quirks. Give them a chance.The Cons of Offering Rent to Own DealsThere are some potential downsides to these arrangements to. Make sure you know them.DefaultsIt may be a little more expensive and time consuming to fix a default situation under these deals than with just a straight tenant.Locked InYou’ll be bound by your agreement for a while. This could be 6 to 24 months or more. You will have to stick it out, even if the market changes.Less Cash NowYou’ll be getting less cash now than in a traditional sale. However, you’ll probably get a lot more over time.LegalitySeller financing is still a bit of a cloudy space due to Dodd-Frank and other regulations. It is legal. Just consult an attorney so that you structure it right, with the right paperwork, and stay protected.There are both pros and cons to providing rent to own deals as a property owner. Do the math. Remember your big goals. Is it worth it to you?
Sep 13, 2017
How To Prepare For The Slow Holiday Rental Season
Experienced landlords know that the housing market goes through different phases and cycles each year. Spring and summer can be hot months for leasing units fast and for top dollar. This can change quite a bit once kids are back in school in fall. Most people have locked down in a new lease for the year. People get busy focusing on the holidays, and the weather may put a damper on showings. How can rental property owners ace it, and still keep their units full at this time of year?Move-In SpecialsConsider offering move-in specials. Take a look at your competition and see what you need to do to stay competitive. Can you offer a free month of rent, lower security deposits, or a discount on monthly rent? Test some out. Track the performance of these deals and tenants over time and reevaluate if they are worth doing again.Make Open Houses More AttractiveReal estate in general slows down in fall and winter due to the weather. It is just generally less appealing to go out and view properties. Change that dynamic. Give potential tenants more motivation to come out, and come in to your open houses. How about hosting Santa, or giving away hot chocolate and other freebies?Themed MarketingBuild up your inbound marketing and keep in front of potential movers with themed content. Use hashtags, relevant keyword phrases, and seasonal titles to get noticed and build SEO. This includes blogs, social media posts, and email newsletters. There are tons to choose from starting with Halloween through New Year’s Eve.Pump Up Your TeamYou can’t have your leasing team getting down or considering a new career. Keep them pumped and loyal with holiday dinners, seasonal gifts, bonus plans, and a little extra time to spend with family or holiday shopping.Get Financially PreparedThousands of new real estate investors and landlords get crushed during this season each year. They just don’t see it coming. Maybe they got into the game in the buzz of summer, and made plans based on that market. Those who aren’t prepared can go broke, get discouraged, and quit fast. Anticipate the need for reserves. Be financially prepared with cash flow to get through the months tenants are most likely to be late on their rent. Late August through December can be a little more challenging for landlords. Especially for those who aren’t prepared. Get ahead of the game and make this the season you stand out and excel.
Sep 7, 2017
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