10 Things You Should Know Before Investing in Rental Property

Many people dream of owning rental property—adding additional streams of income that catapult them to the next level of financial independence. But everything in life comes with its trade-offs—even dreams.

The reality of investing in rental property isn’t always as easy as popular television shows like HGTV’s Income Property, like to depict. As Benjamin Franklin once said, “An investment in knowledge pays the best interest." So before you make your first investment in rental property, it’s a good idea to spend some time on the front end researching what it’s really like.

The most important question you need to ask yourself is do you want to be a landlord?
The day-to-day management of owning a rental property is a big role. Being a landlord takes patience, flexibility, strong resolve when enforcing rules, and a long fuse. Disagreements between tenants, tenants that won’t pay, unexpected and costly repairs, long vacancies—these are some of the downsides of owning a rental property. Although it can be a dream come true for some—and if done right, it really can provide that additional avenue of income you’re looking for—it’s not for everyone.

Here are some things you should know to help you decide if it’s for you:

1. It’s not easy money. Investing in a rental property is often put in the easy money or get-rich-quick scheme category, but the truth is it’s no walk in the park. Although it technically qualifies as passive income, that doesn’t mean you’re not going to work hard. In fact, if you decide to manage the property yourself, it’s akin to taking on a second job. If you’re looking for something more hands-off, stick with stocks or mutual funds.

2. There are no guarantees. Not only is owning/managing a rental property not easy money, there’s no guarantee that you’ll even make money—it’s risky. With a fluctuating, and often unpredictable, market, as well as lots of hidden costs lurking around every corner, you really need to ask yourself is it worth the risk? As you’re considering each potential property, never forget that the reason you’re investing in rental property to begin with is to gain income. Weigh everything carefully and always ask yourself, “Will this property actually generate money or is there a chance it might be a money pit?”

3. You need more money to get started than just the cost of the property. When investing in a rental property, the initial purchase is just the beginning. Be sure to set aside funds for other start-up costs such as renovations, repairs, and a higher property tax bill that could be double what you were previously paying. You should already have a solid income before you get started.

4. Location matters. Just any old apartment building or rental house isn’t going to fit the bill. Before you get your heart too set on a particular place, take the property’s location into serious consideration. Ask questions like is the crime rate high in the area? Are there schools close by and how are they rated? How far from basic amenities such as parks, grocery stores, and restaurants is it? Are there a lot of other rental properties in the area and, if so, what do they typically rent for?

5. Have the property inspected by a professional before you buy. A professional inspector can put your mind at ease about a purchase you’re considering, or send you running for the door—either way you’ll be thankful. For about $250 an inspector can tell you if the property has termites, crawl underneath it to examine the foundation, and see if the roof will need replacing before the next winter, and much more.

6. Expect the unexpected. Owning and managing a rental property is kind of like being the captain of a ship—you’re constantly working to maintain it and keep it heading in the right direction, and then, just when you think everything is under control, a giant storm comes out of nowhere and ruins your best laid plans. Unexpected (and often costly) issues can and will arise with rentals—everything from clogged toilets, flooded basements, and burst water heaters, to disgruntled tenants refusing to pay before skipping town.

7. Renters can do a lot of damage. We all know the famous hell hath no fury like a woman scorned, but what landlords come to find out is that disgruntled tenants are next on that list. Until you’ve been victimized in this way, it’s hard to imagine the amount of havoc an unhappy renter can wreak upon a property. Damage can include graffiti on the walls, concrete in the toilets and sinks, ripped or stained rugs, broken windows, nails or hammer marks in the floors, missing doors, and any other damaging mischief your angry tenant can dream up.

8. A good renter is worth holding out for. Having one bad renter will make you appreciate the good ones. In the long run, it’s worth a little extra time and a more rigorous screening process to find these diamonds in the rough. Good renters pay on time, take pride in their home and yard by keeping everything clean and in good working order, treating the property like their own, and being respectful of neighbors. These types of tenants generally stay longer, too.

9. There are pros and cons to hiring an outside manager. Okay, so you’ve figured it out. You’ll just hire someone else to manage the day-to-day minutiae of the property. While this can save you a lot of the hands-on work and the headaches that go with it, you’ll also be losing about 10 percent of the rents to pay for this service—nothing to scoff at. Furthermore, you’d be putting yourself in a situation where you have less knowledge of what’s actually going on with the property—a decision that could come back to haunt you further down the road. If you do intend to hire someone, you should at least plan on being there in the beginning, to make sure the tenants are good ones and that the building is in top-notch shape.

10. It’s better to be hard and fast with the rules. Being a landlord is not for the faint-hearted. Although you may feel good about providing a place for people to live, if your renters don’t pay on time, or they’re causing trouble, you can’t be wishy-washy about enforcing the rules, or show any sign of weakness. It’s much better to assert yourself right away—otherwise you may find your tenants taking advantage of you.

With a little forethought and some careful planning you can make your rental property investment the success of your dreams.

How can AssetAvenue help?

AssetAvenue is dedicated to providing flexible financial solutions for residential real estate investors. We offer rental property purchase and refinance loans that range from $125k to $1M. Our online lending platform was designed with the borrower in mind: lending is simple, quick, and reliable. We offer rental property financing at low rates and have nationwide coverage on all asset types. Click Here to get an instant online quote.

Why Having the Right Rehab Insurance is Key

For the seasoned residential real estate investor, the “fix-and-flip” or rehab market is the most resilient sector of the real estate game. It’s also a great place for the not-so-seasoned investor to start, as it comes with some of the lowest barriers to entry.

But for the uninitiated, with Chip and Joanna Gaines’ style Fixer Upper dreams, only getting their facts from shows like these can come with a price tag that could leave them making the biggest mistake in the rehab real estate industry – not having the right insurance coverage.

Why Insurance is Key?

Every dollar an investor spends fixing up a house they’ll soon be flipping cuts into their profit margin. Which is why every renovation they make should both add value and be as cost efficient as possible, protecting their end investment. In fact, one of the most important parts of rehabbing a property is protecting their very valuable asset from further damage.

Savvy real estate investors know that it’s best to employ a multi-pronged strategy to protect their profit including, everything from accurate sales comparables, to vetting and hiring trustworthy contractors, to making sure they’ve got the proper insurance and even that they have a solid exit strategy, should one become necessary.

Reminding your investment real estate clients about being properly insured during a rehab can be one of the easiest ways to ingratiate yourself to your client long-term, showing them that care about helping them preserve their investment. Having the right insurance in place on a rehab allows your investor to protect their assets in case of natural disasters like fires, storms, and floods in addition to other unforeseen damages like those caused by theft or vandalism.

What Type of insurance Do Rehab Investors Need?

If you’ve got an investor renovating a property for resale, it’s a pretty sure bet they won’t be living there. Vacant homes present many opportunities for investment loss. Which is why it’s so important for investors to look into the right policy for their circumstances BEFORE they complete their purchase.

Things to consider include:

  • Will insurance need to be in effect prior to closing?
  • Will the property be completely vacant or will there be furnishings or other staging equipment or property stored on the premises? Is the property located in a high-risk area?

Types of Insurance available for real estate investors and landlords:

  • Hazard and Fire Insurance
  • Liability Insurance
  • Sewer Backup Insurance
  • Flood Insurance (Only necessary if the property is in a designated flood zone or an area that has a propensity to flood.)
  • Builder’s Risk Insurance (the most likely for a real estate rehab investor needed for vacant or mostly vacant properties that are being renovated the property.)
  • Loss of Income Insurance (Necessary for landlord/investment property owners that you are renting to tenants.)
  • General Contractor Insurance (Applicable if your investor is also a licensed contractor.)
  • Umbrella Insurance Policy (Good extra liability coverage for a variety of situations.)

Refer Clients to Qualified Insurance Agent

While the list above presents a wide array of potential insurance types for real estate investors, depending on your clients’ circumstances, additional policies may be needed. This is why it’s important to direct your real estate investment clientele to a knowledgeable and trustworthy agent who specializes in working with landlords or fix-and-flip investors.

Even if a Builder’s Risk policy is most likely a fit for your rehab investor, it’s a good idea to have them check with their agent before purchasing or starting renovations on a rehab property to make sure that the property is insurable. Some high-risk areas, those subject to repeated flooding, natural disasters, rough areas, etc. may be difficult to find someone to insure. It’s a good idea for your investor to know what they’re up against before buying a property.

What’s a Builder’s Risk Policy?

A Builder’s Risk policy is specifically designed to meet the unique challenges and exposures posed by an unoccupied structure undergoing renovation. It takes into consideration the continuous change in property value, as it undergoes its transformation, and it’s completed value.

Builder’s risk policies can include:

  • Property purchase price
  • Improvement costs and can include such things as materials, supplies and fixtures including those in transit and stored at a temporary locations.
  • Multiple insurable interests including the owner, contractor and lender

How to Market Your Fix and Flip to Sell

Once you have done the hard work of fixing up an investment property, the next phase is marketing it to sell. The key to any plan is to find the right mix of tactics that will bring qualified buyers to your door step and move the property fast. In a world where technology has become omnipresent, the Internet is a valuable marketing resource. The National Association of Realtors found that 82 percent of recent home buyers found online websites to be a very useful source of information. That said, offline marketing techniques should not be completely dismissed. The path to success is through a mixed media marketing strategy that allows you to reach potential buyers through a variety of means. Here are some tried-and-true methods to help you sell your next fix and flip.

Use your words. How you describe a property in a listing can have a big impact on how a prospective buyer sees your property. An overview of the property should be fact based while also painting a picture that helps the reader envision themselves living there. To start, your listing should include key information around the size of the home and number of bedrooms and bathrooms. Add color to the listing by using sensory words to describe the architectural style of the home and its layout. Details around amenities and upgrades like "updated kitchen with stainless steel appliances" can add tangible value to your listing. But be cautious of words that can detract from a home’s value. Experts have noted that listings that used the word "unique" sold for 30 to 50 percent less than comparable properties since it can connote that the home will have narrow appeal. They also concluded that longer descriptions, up to 250 words, translated to a higher sale price.

Create powerful photographs. One of the most important assets for marketing your fix and flip are photographs, with 87 percent of buyers using online sources saying they found them to be very helpful. The images make a listing come to life and can be a deciding factor when it comes to getting an in-person visit. And quality matters when it comes to pictures. While camera phones have become ubiquitous, they are not sufficient when it comes to photographing your property. Invest in a digital camera that can accommodate various lenses, so that you capture the full scope of a room. To stand out among the competition, make sure that you have tidied and staged the house before you snap the first picture. If you lack photography chops, it might be worthwhile to hire a professional who can capture the best angles of a room and show it in the best light.

Provide a virtual tours​. Video can be a very powerful medium when it comes to marketing a home. Realtor.com found that listings with a virtual tour received 87 percent more views than listings without a tour, and more than half of buyers will not look at properties that don’t include a virtual tour. A video tour makes viewers feel like they are in the home, so they can get a better idea of the layout and flow, which can be challenging to capture in a still photo. To create an immersive tour, include 360-degree panoramic ​views ​of the various rooms and use compelling narrative ​to help describe what they are experiencing. ​ As with taking photographs, quality reigns supreme, so high definition video will have an edge, particularly in a competitive environment.

Get social. The sheer size of the audience on social media presents a tremendous marketing opportunity. Today, 72 percent of all online adults are active on Facebook, which make it an obvious first choice when looking at the various networks. An easy way to get started on Facebook is to share your listing(s) with your friends on the network and encourage them to share it too. Instagram, another Facebook property, is an image-driven network that is particularly popular with Millennials, so it can be a good channel for distributing attractive images of your property. Social media does not require a lot of marketing dollars to get started, and with a little testing it can be a cost-effective way to reach a broader audience.

Put a stake in the ground. Many marketing techniques of today have technology at their core. But one low-tech tactic can be surprisingly effective when it comes to building visibility for your property. A joint study by the National Association of Realtors and Google found that 52 percent of home buyers relied on yard signs frequently or occasionally during their home search. So, to round out your overall strategy, make sure to incorporate some offline-marketing as well.

There is no silver bullet when it comes to marketing a home, but by using multiple channels you expand your audience and greatly increase your chances for quick flip.

Get the capital you need now with AssetAvenue’s rehab loan program. Click Here to get loan details and an instant online quote.

8 Traits of Great Real Estate Investors

Think you have what it takes to be a great real estate investor? Of course you’re a hard worker—that’s a given. You’ve put in countless hours building a firm knowledge of the foundational principles of real estate, and you’re up on the market trends. You manage money well, and you even know how to be flexible as the market ebbs and flows. But these are just the basics.

Cultivating long-term success as a real estate investor doesn’t happen overnight. If you want to play in the big leagues in this industry, it’s going to take more than zeal and a tailored suit. Successful real estate investors—those who’ve played the game for a while—all have certain traits in common. It’s these attributes that set them apart from the rest, giving them the advantage over their competitors.  

If you’ve read this far, you must be wondering by now if you fit the profile? The following eight characteristics are key indicators for success in this field—it’s what separates the best from the merely good.   

Eight traits of great real estate investors

  1. Passion
    Above all else, successful real estate investors are passionate about what they do. With the staggering outlay in time and money that investing demands, it’s passion that carries an investor through the late nights when the market is ripe, as well as through the everyday grind when business is slow. Although many can enjoy a taste of short-term success, only the few who passionately love what they do will persevere in the long run.  

  2. Tenacity
    A great real estate investor doesn’t give up—they’re tenacious. A combination of drive and optimism allows these successful investors to keep trying, showing up every day, even when the chips are down. Taking no for an answer, is a concept they don’t understand. If one door won’t open, they look for another way in. You’ll never find a successful real estate investor crying in his, or her, beer.

  3. Discipline
    Because the workload is substantial—with an extensive variety of tasks to juggle—it’s vital to an investor’s success to be disciplined, not only with regard to their profession, but all aspects of their life. Many successful real estate investors simplify their lives to the basics. They follow a routine. They wake early, eager to dive in. They are methodical in their approach to business and know how to prioritize.

  4. Vision
    To be a successful real estate investor, you must use your imagination. What looks like a dilapidated shack to the average person, may look like the groundwork for a three-story apartment building to an investor—if they have vision. They don’t see what is; they see what could be. To have vision means to see a project’s potential for the future.

  5. Confidence (without ego)
    Although a great real estate investor will temper their optimism with a touch of realism, there’s no room for doubt when it comes to decision-making. If you want to be successful in this arena, you’ve got to be confident. If you don’t trust your own judgment, than you can’t expect those around you to place their trust in you either. On the other hand, a successful entrepreneur knows that ego can be their ruin. Therefore, a savvy investor knows they must walk a tightrope of confidence without ego—showing what they’re capable of through action rather than by talking a big game.

  6. A sense of timing
    The real estate market is fickle and fraught with unexpected twists, turns, ups and downs. Knowing when to strike—like a cobra—requires patience, poise, and an impeccable sense of timing. The successful ones trust their gut. This ties in with having discipline—knowing when to hold back, lie in wait, and then intuitively knowing when to say, now is the time to act.

  7. Knowledge of people
    There are very few things in this world that you can do entirely on your own, and investing in real estate is certainly not one of them. From buyers to developers to builders to bankers, a successful real estate investor knows who they’re dealing with, what their best interests are, and how to communicate with them straightforwardly and authentically. The greats surround themselves with other greats—like-minded individuals that value the same things as they all work together toward a common goal.

  8. Grit
    Investment comes with its share of uncertainty, and with uncertainty comes risk. A great real estate investor takes this in stride and doesn’t allow fear to overtake them—their spirit is indomitable. They know they must act boldly, but this doesn’t mean saying yes to anything and everything that comes down the pike. Those who are successful in the field know when to step out on the ledge, and they possess the firmness of character not to get blown away. Their risks are calculated, not foolhardy. If you have grit, you can make a bold, risky move, knowing you’ll be okay regardless of the outcome.

As the American entrepreneur, Robert Arnott, once said, "In investing, what is comfortable is rarely profitable." In one sense, the business of a real estate investor is slow, broad, and long, and in another it is life on the edge. Investing can be cold, hard, and frustrating at times. It requires a special kind of personality to hack it. To wake each day and be your best self— in business and in life—is the true key to long-term success.

Bridge Loans: Be the Hero Your Investment Real Estate Clients Need

In the ever-changing, cutthroat world of real estate entrepreneurship, investors need to act quickly when the right opportunity presents itself. As a mortgage broker, your clients rely on you to navigate the ins and outs of financing, ensuring their next big move isn’t impeded by outdated systems and legacy technology.

During those times when a borrower is not in a position to qualify for a loan through a traditional lender, or when the sale of one property is holding back the purchase of another, an alternative option may be needed. Under such circumstances, a bridge loan is not only the perfect solution, it’s one that will leave you feeling like a bit of hero, helping to save your client’s goal from the gutter.

Who needs a bridge loan?

A bridge loan, also called a swing loan, gap financing, or interim financing is that non-standard, short-term loan that allows your borrower to “bridge” the gap between the sale of their current project and the purchase of their next one. Typically lasting from 6-12 months, a bridge loan provides, or extends, finances until more traditional, permanent funds are secured. Recommend a bridge loan to your clients when:

Time = Lost opportunity. Your client has just signed a contract and has a bank loan all lined up. Problem is, the seller wants them to close soon or else they’ll lose the property to the next guy on the list. Banks are known for a lot of things but speed isn’t one of them and now your borrower’s pulling his hair out, worried that the deal of a lifetime is about to slip right off the hook. Here’s where you come in, with a timely solution that buys your borrower all the time he needs, while giving the bank time to complete its process, with no extra hassle or pressure.

Multiple Purchases. Have a borrower who needs their money to go further? With an aggressive investor, sometimes multiple properties can come together at the same time. You can help your borrower bridge the gap (pun intended) allowing them to purchase both properties at the same time using a bridge loan for each purchase.

Pro-Cash Flow. Got a client who’s property rich but cash poor? Show them how a bridge loan can give them greater flexibility, allowing them to meet their current expenses, while quickly closing the deal on new properties, or even freeing up short-term capital to pay off their existing mortgage.

The benefits of bridge loans

No Waiting. The saying, “time is money,” is never truer than when it comes to real estate. Waiting for one project to wrap up entirely before being able to begin a new one is not only lost income and potential opportunity, it’s also just plain boring for fast-moving investors who thrive on the thrill of the next big project.

No Missed Opportunities. No professional baseball player wants to watch the game from the dugout. Likewise, real estate entrepreneurs who are passionate about their projects don’t want to sit one out, watching their competition snatch up timely investments from right under their noses. Bridge loans allow borrowers to stay in the game.

Over and Done. For borrowers, the short-term nature of bridge loans means brevity and ease. The process for obtaining one is faster and less of a hassle than for a long-term loan, and bridge loans are designed for a relatively quick payoff as well. Short and sweet, bridge loans are a mortgage brokers best ally when clients find themselves in a pinch.

Credit Boost. Clients can payoff their bridge loan ahead of the game, before permanent financing is in place, which means they may be rewarded with a significant boost in their credit score. Every building block counts for a real estate entrepreneur seeking to finance increasingly ambitious projects. In their eyes, gaining access to more sizeable long-term loans than they could previously qualify for is paramount—a bridge loan can be another stone along that path.

Bridge loans: Why AssetAvenue is a notch above the rest

Our online lending platform is unlike anything else out there. With standardized loan documents, a simplified and expedited closing process, and innovative and leading technology designed to facilitate the loan process by leveraging big data, AssetAvenue saves the friction for the sandpaper, making your path to a bridge loan obstacle-free.

Don’t let an opportunity slip through your fingers—or your client’s. Come to the rescue with a bridge loan through AssetAvenue. AssetAvenue’s bridge loan program offers low rates with complete transparency, covering between $75K to $2M with no prepayment penalty – some in as little as 10 days after complete documentation is submitted. Click Here for an instant quote.