Investor’s Basics Series: Things you need to ask yourself before buying a property
In this series aimed to help investors navigate the tricky seas of Real Estate, we will try to give tips and insight into the most important and often overlooked parts of the home buying process.
Buying a property is a huge undertaking, so you need to be sure you have thought it through and have examined every option to make the decision that is right for you. Here are some things you need to ask yourself before you make an investment decision.
What type of property do I want?
You need to have a clear idea of why you want to buy the property. Are you looking for an investment to hold long-term or are you more interested in the quick-flip model of investing? Having an answer to this question will help you know for sure what type of property you are looking for.
Have I truly researched the area?
One of the sacred rules of real estate is: location, location, location! Make sure you look into things like the school district, crime rates, weather conditions, etc before you make a decision.
You want to ensure that the property you are buying will appreciate in value and doing an in-depth research of the area will help you understand the market you are getting into and will be very beneficial when you are looking to get tenants in, if that’s your goal.
A great way to do this is to not just search the internet, but to try and walk around the neighborhood, see the local stores and soak in the surroundings to get a general feel of the place.
Do I want a turnkey property or am I willing to work on renovations?
This question is a big one when you are trying to become a successful real estate investor as it requires a lot of thought and number-crunching.
You need to know if you are ready to dive deep and invest in a property that needs you to be hands-on and save some money (which could possibly go into the renovations needed) or if you want to buy a property that may cost more upfront but is ready to be lived in as soon as you sign the contract.
Am I ready for this investment?
It is not uncommon for real estate investors to get excited about new properties and get in a bit over their heads.
Remember to do the math thoroughly over and over, until you can be sure that you can acquire a new property without getting more debt that you can handle.
Thinking about all of this while figuring out what the best way to go is can be overwhelming, but we’ve got you! Keep a lookout for the next articles in the series to sharpen your investor abilities.
Do you have a property you need help with? Contact us today!
How appraisers determine how much a property is worth
Whether you want to buy or sell a property, the appraisal process can determine what decision you make.
In Texas, each County Appraisal district is required to do an appraisal of the properties within their district every 3 years.
It is also important to remember that the value of your property determines the amount of property taxes you will pay each year, so you really want to make sure that you get a fair appraisal, and being aware of how the process works and what techniques appraisers use can be really helpful.
You can find more information on how appraisal works and appraisal experts in your county in this link.
There are three main ways appraisers calculate the value of your property.
This approach evaluates the market in the area where the property is located and makes tweaks taking into account the differences between the properties. This means, they look at properties recently sold and based on a Comparative Market Analysis (CMA), they make their appraisal after making adjustments depending on determining factors.
In this method, appraisers look at income and expense data to calculate the present worth of future benefits. Doing this, they try to determine how much a future investor would pay today for the possible revenue the property will generate in the future.
This last method calculates how much it would cost to replace the building on the property with another building of equal utility with certain improvements. Depreciation, which is the process used to deduct the costs of buying and improving a rental property, is factored in and it is added to the value of the land.
Some other factors
Appraisers do take other things into account. This includes:
- The condition of the property both of the exterior and interior.
- The size of the property.
- The home improvements made.
If you feel overwhelmed and need guidance through the process, you can reach out to our experienced realtors and property managers that will happily help you through every step of the way!
Need help managing a property? Contact us today!
May – Improve your ROI strategy ￼
After you have created the perfect strategy to find properties, now you will need to find ways to get the best out of them.
If you are not sure how, don’t worry! See below our tips for getting the most out of your properties by maximizing the Return of Investment on them:
Boost the value
One of the best ways to make sure you increase the value of your property, is to make improvements to it. Making home renovations or adding technological features can make the occupancy rate higher and more attractive to high-paying tenants which will help you get more money, faster.
You can check out our newsletter on home improvements that give the best ROI here.
If you have more than one rental property, you can automate the process of renovating them. Use the same paint color, the same fixtures, the same flooring and even the same design if possible. This will help you not only perfect the way you do the home improvements, but will also help you know the price of the renovations beforehand and can even help you save money if there is an option to buy the products needed in bulk.
Trust the experts
Get a dream team that can advise you. Getting a good agent and a good property manager can save you a lot of headaches and a lot of money. These experts in your area have done the work and understand the dynamics of the market, so you can be sure that they will know the best way to make the best out of your investment and will make it easier on you when it comes to things like picking out the right tenant for your property or what the best way to move forward is.
When it comes to choosing the right one for you, make sure you look at someone who you are comfortable with and with whom you have the right chemistry.
Crunch the numbers
Always be aware of the market trends, inflation and the overall real estate market before making any decisions, this will save you from wasting money unnecessarily and making any mistakes that could impact your investment negatively. Be aware of how much rental rates are in the area of your property to improve the tenant retention rate.
You need to keep in mind that the real estate market always has its ups and downs, so don’t get frustrated and remember it may take a little to get the ROI you were hoping for, but slow and steady wins the race!
Don't know how to improve your ROI? We can help!
Property Management Accounting: Creating Your Chart of Accounts
Once you have decided which method of accounting you’re going to use,your next step is to set up your Chart of Accounts. At its simplest, your Chart of Accounts is a list (chart) of the different financial categories (accounts) you use for your property. This can take the form of anything from a written document or an excel spreadsheet to property management accounting software – which we highly recommend!
Your Chart of Accounts is a way to keep track of where your money is going and why. It is the foundation of your financial record keeping and lists every account that your transactions can be sorted into and whether that account is an expense (money going out) or an income (money coming in). The more accounts you have, the more complex your Chart of Accounts will be, but the more insight you will have into your cash flow.
For example, in a simple Chart of Accounts you can have an account that is “Utilities” that is labeled an “expense”. You could also then break down Utilities into sub-accounts: Water, Electricity, Trash, et al. Therefore, you can see every expense for exactly what it is when it leaves your bank account. Every account has a ledger, or a record of the transactions. The General Ledger maintains the balances of an account (such as “Utilities” from the previous example) and sub-account Ledgers, should you choose to use them, are line-item transactions within that account (specific Utility bills invoiced and paid). Your Chart of Accounts is the organizational tool for your ledger, and is not the ledger itself.
A more detailed Chart of Accounts also manages assets, equity, and liabilities and employs block numbering to do so. Block numbering allows you to organize your accounts by type with the sub-accounts that allows for line-item accounting. Block numbering also makes room to easily add in accounts as you grow your portfolio. This way, you can see how your properties are doing individually and how your business is doing on the whole.
Think of your Chart of Accounts as the easiest way to communicate your business with your accountant or banker, and the best guide to making financial decisions for your future! This is an example of how a detailed Chart of Accounts logs its financial transactions.
Are you too busy to manage a complex Chart of Accounts?
Let Frontline Property Management, Inc handle it for you! We give you the detailed reporting you need to stay on top of your passive income by crunching all of the numbers ourselves. Consider us your property management accounting team!
Find out more about how we can help you manage and grow your property portfolio!
What You Need to Know About Fair Housing
Fair Housing isn’t just an attitude; it’s the law. The Fair Housing Act (FHA) (42 U.S. Code § § 3601-3619 and 3631) applies in all 50 states and every US territory. These regulations exist to protect tenants, potential tenants and prospective homebuyers of all walks of life from predatory, discriminatory, and exclusionary housing practices.
As a landlord, you’ll be doing everything to attract new tenants from posting advertising and showing your property, to finally entering into a lease agreement with your tenant. How you complete every step along the way is the deciding factor between ending up with a new tenant – or ending up with a lawsuit for Fair Housing violations.
The question you have to ask yourself is: What do you know about Fair Housing?
First and foremost, know whether these regulations apply to you. Not all types of housing are included in the FHA. The following are exclusions:
- Owner-occupied buildings with four or fewer units. The FHA generally isn’t applicable when a building has two to four units, and the owner lives in one of them.
- Single-family homes rented without a broker. The FHA doesn’t apply when a single-family house is sold or rented without a broker, so long as the owner doesn’t own more than three houses.
- Religious organizations. If you’re a religious organization leasing apartments at a property that you’re not operating for a commercial purpose, you may legally limit occupancy or give preferences to people of your organization’s religion. However, the FHA points out that this exception is strictly limited to religion and cautions that a religious organization still can’t discriminate based on race, color, or national origin (42 U.S. Code § 3607(a)).
- Private clubs. If you’re leasing apartments on behalf of a private club and not for a commercial purpose, the FHA lets you limit occupancy to your club’s members.
- Senior housing. Although the FHA bans discrimination against families with children, you may be exempt from this ban if your property qualifies as senior housing. Exempt properties include those that fit the rules of 55 and older or 62 and older communities, or those that participate in a federal, state or local senior housing program.
However, it’s important to keep in mind that there are state and local fair housing laws that can be more restrictive than described above. Be sure to study up! Not knowing the law is not an excuse for breaking it. You may think that posting an apartment as “perfect for a young couple with no kids” is harmless – but by excluding every other kind of person outside of that narrow description, it’s a classic case of discrimination under the FHA.
Most likely, your property will not be exempt from the FHA. It is essential that you are familiar with the illegality of discrimination based on these seven protected classes:
Of course, there is great benefit to not being discriminatory, both personal and professional. You are looking to find a quality tenant, which has nothing to do with familial status, age, gender or disability. By using a standardized and inclusive application process, you will better your chances of finding that tenant while at the same time bolstering the reputation of yourself and your business. It is wise to stay up to date with your local anti-discrimination laws, and to delve deeply into the Fair Housing Act.
How Can You Protect Yourself as a Landlord?
A perfect way to make sure that your housing practices are legal, standardized and up to date is to hire a property management company. Frontline Property Management, Inc has a full staff of members who have completed the NARPM (National Association of Residential Property Management) Fair Housing certification. From the front desk to the CEO, Frontline is prepared to help you avoid the liabilities and ensure that your business is always handled in accordance with the ever-changing laws. Our team of tenant coordinators conduct FHA-approved screening of your applicants, and our qualified Property Managers ensure that your listings are available to all applicants. Every step is protected, down to the bottom line.
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