The Debt Dance

REAL ESTATE

Yup, even in these crazy times I highly recommend investing in real estate.

Maybe more so in these crazy times.

You know the old saying, land…they’re not making any more of it. It holds true today UNLESS, it’s in the middle of a gang battle ground, or it has a meth lab next door, or it has toxic chemicals in the dirt from the plant in town, or it’s sinking, or it’s in the way of frequent flooding or fires or hurricanes…. you get the picture.

My husband and I bought a small house four years ago even though we barely had two nickels to rub together. And we had two horrible tenants (although they didn’t trash the place for which we were grateful) but it still has been very lucrative.

The investment property gives us a lot of nice tax deductions so it has paid off well in that regard.

But the neatest thing about buying property and renting it is that SOMEONE ELSE IS BUYING THE PROPERTY FOR YOU. Can you think of another investment where you can put very little money into it and someone else pays the mortgage so that in fifteen or twenty years the property is all yours? It provides retirement income. Or money for that trip around the world. Virtually free.

BUT, there are a lot of pitfalls. So here are a list of my very best advice on buying and leasing property.

Educate yourself. Take classes at the community college. Read books (and not the get-rich crap that’s out there.)   Successful Real Estate Investing: How to Avoid the 75 Most Costly Mistakes Every Investor Makes by Robert Shemin,  Start Small and Profit Big by JayDeCima and After the Fall by Steve Bergaman are all good resources. Don’t go to free seminars that are just luring you in for the big kill. Danger, danger Will Robinson!

Consider buying from rehabbers or “we buy ugly houses” type companies, or foreclosure sales. These sources can also often help you find investor-friendly financing. ONLY buy from these sources  if you can get an inspection ahead of time. Unless you’re buying a $200,000 house for a hundred dollars I would pass on it if you can’t get an inspector into it.

Buy a property within five to ten minutes from your house.

Buy a property you would feel comfortable living in. Visit the property different times of the day and on weekends and weekdays.

Buy a property that has good “bones” and a logical design. Don’t have to walk through a bedroom to get to the kitchen.

Start small and easy.

Get a professional inspection from a company of inspectors with degrees in engineering! Not just your uncle’s bowling buddy, Ralph, who’s been in construction for twenty years. Pay for the pro’s. You’ll be so glad you did. Get your municipality to come in as quickly as possible, too (you can require this as a contingency of your offer) so that you know the extent of code violations.

Don’t take on big renovation projects on your first property. You truly don’t know what you’re doing. Take on projects you can complete in a week. Any project takes two to three times as long as you project and costs double or trouble what you expect!

Again, start small in terms of size of property and mortgage payment!! Examine your budget. Could you pay the mortgage for a year without the tenant? If not you are not ready to buy.

Renovate knowing the tenant may destroy it. Put functional but inexpensive fixtures and carpeting in.

Put the minimum down payment down. You will probably need your cash for other issues later. A half point interest rate differential is not going to be that significant for you.

Obtain a standard lease from the internet and then meet with a real estate lawyer to go over it. This saves having to create a lease from scratch but also gives you the peace of  mind you need. Remember, in business it is what you don’t know that you don’t know that will sink your ship! Also this give you someone you can turn to quickly if the need arises. Consider joining a real estate rental support organization such as The American Apartment Owners Association. They can be a great information source.

Searching for tenants can be a nightmare. Make sure there are two of you at the house when you are showing it. (I had a near-rape experience…be cautious!)  Run ads in papers in the locale of the property. Do professional credit and background checks by requiring an application fee from the tenant.  Be tough on screening who you will consider. You have to be a bit like old Scrooge in this endeavor. Don’t listen to sad tales. Save that for down the road when you have more flexibility. With your first property you need someone reliable.

At the first sign of trouble read the lease to them. You are not being the bad guy if you start eviction, they read and agreed to the lease and know the consequences. (We were really  stupid in this area and it cost us a fortune!) Go in and inspect frequently (you have to notify them you’re coming.) If anything illegal is going on you could be held responsible.

When you get a great tenant treat her like a queen. We now have a hard-working woman in our little house, with her adult daughter. She has told me that she loves the house and never wants to leave. Give a Christmas gift, maybe a grocery gift certificate at Thanksgiving. One thing we have done with our “I want to stay here ’til I die” tenant was lowering her rent in exchange for a longer term lease. Worth every penny.

When you get money coming in on a regular basis keep the extra money you make on the property earmarked for repairs and maintenance. Don’t just let it flow into your monthly general revenue.

After you get your feet wet and you’re feeling good about the process consider adding another property. Management companies are always an option once you hit your overload level. They are cheap and can save you lots of headaches! Check them out with the BBB, get refernces.

As with any money issue do what you understand. Go slowly. Don’t jump into the first deal you come across. Take Your Time!

Good luck and let me know how you’re doing.

Best Wishes

NOW HERE’S ONE OF MY FAVORITE QUOTES:

Once you make a decision, the universe conspires to make it happen.
- Ralph Waldo Emerson

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