Top Tips to Level Up Your Real Estate Investment Game
Source: WallpaperFlare
These days, you need more than one source of income if you ever hope to retire and enjoy your golden years. The stock market is caught up in another volatile market period, and businesses are struggling to pick up in the wake of the pandemic. And yet one investment market maintains its place at the top of the 2023 trends: real estate. From homes to vacation spots to commercial real estate options, property never goes out of style. And you can use that information to your advantage.
The Benefits of Investing
Most investments generate passive income and are a great way to boost your financial plan. Real estate can be passive if you join a crowdfunding effort or hire a property management firm, but many property owners take on the role of a landlord when renting out their spaces. Investing in real estate supplies many benefits, including:
- Steady cashflow
- Tax advantages
- Inflation hedge
- Diversification
- Great returns
- Capital building
In addition to being less volatile than stocks, real estate sees higher gains than bonds and CDs. It’s a good balance of safe and profitable. Some of the larger risks with real estate are extended vacancies, as you still have to pay for the property and its upkeep, even if it’s empty. But by making use of competitive rent prices and proper budgeting, you can keep tenants happy and leases signed.
Financing Future Investments
Few rental property owners stop at one investment property. As you gather experience as a property manager, you are also accruing what is called a debt-service ratio (DSCR). This number looks at your net operating income (NOI) divided by your expenses to simply the concept of profitable properties.
- <1, you’re losing money
- =1, you make the same amount you spend
- >1, you are making money
Gaining a DSCR of 1.25 and keeping your credit score at 660 or higher opens up the possibility of DSCR loans. When calculating DSCR loans, lenders are more interested in your success as a property manager and renter than your personal income. Your DSCR indicates how well your properties perform and inform lenders on their risk analysis.
DSCR loans have better, more flexible terms than conventional loans and can help you snowball your investments. You can improve your NOI of one property and refinance with a DSCR to lower your expenses. Then you take the profit and invest it in your next property. Lather, rinse, and repeat until you are satisfied with your real estate portfolio.
Tips for Keeping Tenants
One of the most important factors in your investment that you cannot control is your tenants. They provide the rent payments you use to fund your financial plan and future investments. Your tenants have a great place to live, and you don’t have to deal with the hassle of listing, showings, and screening tenants. To ensure you can grow your real estate potential, it’s important to be a good landlord so that tenants want to continue renting from you. Here are some great ways to do just that:
- Be Proactive with Leases; if you want your tenants to renew their lease, consider reaching out 90 days before the lease expires to see if they plan to renew. This encourages them to think about renewal and let you know in advance if they plan to stay; it also shows that you’re interested in renewing with them.
- Enforce Rules but Be Fair; everything from pet deposits to maintenance responsibilities should be laid down in the lease, and you should abide by the agreement. When it comes to larger financial matters, such as deposits or down payments, it’s crucial to be clear about the terms. For example, understanding the difference between an earnest money deposit and a down payment can help clarify expectations in real estate transactions. But don’t immediately resort to consequences and laying down the law; if something isn’t working, talk it out with your tenant. They may just need more time, and they’ll appreciate your understanding.
- Be a Good Landlord; the better you are to your tenants, the better they will likely be to you. Renters love friendly, cooperative landlords who hold up their end of the lease agreement and maintain open communication. Always give notice if you need access to the property, such as for repairs, and work with your tenants’ schedule to be as unobtrusive as possible. Speaking of repairs…
- Act Quickly on Repairs, Maintenance, and Complaints; no one likes sitting in a house with no heat in the middle of winter or not being able to use their fridge since the outlet blew. If your tenants have a problem that falls under your responsibility to fix, do so as soon as possible. Be transparent on timelines and where you are in the repair process, such as if you are getting multiple consultations for the best price. Offer temporary solutions, like compromising on any space heater or portable AC rules until repairs are complete.
- Stay On Top of Upkeep; unless stated differently in your leasing agreement, maintenance and safety are your responsibility. Stay on top of regular inspections and maintenance in an effort to avoid future issues and save your tenants some stress.
You might have noticed a lot of these tips balance duty and kindness. Above all, be kind. Remember that your tenants are humans dealing with their own stresses; a little extra grace can go a long way. And if you befriend your tenants, they are less likely to cause you any issues in return. And finally, always remember: screening for great tenants leads to retaining great tenants.
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