Real Estate Matters
If you are looking for ways to diversify your investments, build additional streams of income, or put your home’s equity to work for the long-term, you may be considering a real estate investment. While you may think that this is a simple process of identifying a likely property and posting an ad for a renter, there is actually much more to the process. Here are nine questions you should ask yourself as you begin developing your real estate investment portfolio.
1) What type of real estate investment model will you pursue?
There are a variety of ways to invest in real estate. You may choose to purchase a “handyman special” or find an undervalued property, fix it up, then offer it for resale. This short-term investment is called a fix-and-flip. Alternatively, if you identify a property that you may want to keep long-term, especially now in a strong rental market like ours, you may want to pursue a buy-and-hold strategy. A long-term military housing, single family home, yearly rental, island community summer vacation rental property, or a short-term Airbnb investment may be for you.
2) What types of updates are needed for a flip?
Generally, you will want to add value to a flip while keeping a close eye on profitability. You will need to complete any repairs and updates quickly in order to minimize the carrying costs of the property, including mortgage payments, insurance and taxes.
Often, flippers will favor low-cost, high-impact cosmetic improvements to enhance the marketability of the property and increase its appeal to potential buyers, such as kitchen, bath, flooring and other attractive updates. Remember, you are not choosing fixtures and finishes based on your own personal preferences. Let cost, availability and market impact guide your choices.
3) What types of updates are needed for a buy-and-hold investment?
Often, buy-and-hold investors put less time and effort into cosmetic upgrades in favor of getting the property market-ready and occupied as quickly as possible. A buy-and-hold property may be ready to go on the rental market with only a deep cleaning and a lawn cleanup. Rentals in our area are in strong demand and rent for top dollar. If some of the home’s systems are significantly out-of-date, you may want to make needed repairs or updates before bringing in tenants in order to save time and money down the road.
4) What should you consider when investing in a short-term rental?
Short-term rental owners focus more on the location of the property along with the number of beds it will hold and the number of value-added amenities they can include. Part of the expense is furnishing it comfortably and adding dishes, kitchen utensils and other accessories. Upgraded fixtures and finishes are often included in order to make the property show better on internet reservation sites and to ensure more favorable guest reviews.
5) How will you manage and maintain the property?
For long-term and short-term rentals, you will need to consider whether you want to live the landlord lifestyle or turn the responsibility over to a property management company. If you are handy and looking for something to do with your time, you may feel comfortable coming out for late-night repairs or onboarding renters. Many times when purchasing in a condominium community an on-site rental manager and/or repairman to assist you will be most beneficial. Otherwise, a property manager can provide needed expertise and round-the-clock assistance, resulting in greater tenant satisfaction and retention.
For short-term rentals, you will also need to decide whether you will be taking on the task of cleaning and prepping the property yourself between guests, or hiring a cleaning service. For weekly summertime rentals, typically you have a “window-of-time” on Saturdays between the hours of 10 a.m. to 2 p.m., “the change-over time” to get ready for the next tenant. The peak summer rental time period is 13 consecutive rental weeks from Memorial Day week to Labor Day week. Ask around for a good cleaning service that specializes in working with this type of rental to assist.
6) How will you find renters for your property?
You may be considering placing your property on the internet or putting the word out to your Facebook friends when you are ready to rent your property. However, it is often a better idea to work with a professional Realtor, leasing agent, or through a property management company to find well-qualified tenants who have been thoroughly screened and vetted before they move into your property. Remember, it is far cheaper to properly market a property and check out a tenant ahead of time than it is to evict someone for non-payment or repair damage from a bad renter.
7) What limitations and requirements will you put on your renters?
Will you allow pets? If so, will there be restrictions on the size or number? If the property is a condominium, what are the pet policies for tenants occupying the property? Will you require the tenant to maintain the lawn? Will you charge a co-pay for repairs? There are many things to consider before you rent out your property and you will need to ensure that they are adequately spelled out both in your initial marketing materials and spelled out in your rental lease agreement. Talk with your leasing agent or property manager about the policies, procedures and restrictions and make sure that you thoroughly read the New Jersey Truth in Renting Act Booklet, and that a full copy of it is provided to your tenant.
8) What will you provide as part of your rental property?
Will you pay some or all of the utilities? Will you pay the HOA or condo fee? Will you pay for pool maintenance, lawn care and pest control? Weigh the impact of paying some of the costs associated with property upkeep, against the liabilities that you will incur if the tenant does not properly maintain the home and grounds. You may find that it is more cost-effective in both the short and long-term to charge a slightly higher rent and do more of the dirty work yourself.
9) What is your long-term real estate investment goal?
Do you want to consider adding to your property portfolio? Do you want to eventually consolidate your holdings into a multifamily, duplex, triplex, quad, commercial property, or perhaps a multi-unit motel? Do you want to own properties exclusively in our local market or branch out into hot markets in other parts of the country? Consult with a trusted real estate professional for the advice and expertise you will need to make better decisions, both now and down the road. As we approach the last few weeks of summer, be sure to get out and enjoy everything that our area has to offer.
For More Real Estate Questions, Information and Advice Contact Elisa Jo Eagan “The Real Estate Godmother” (609)703-0432 and Remember… “There’s No Place Like Owning Your Own Home!”
