Categories
DIY

6 Fixes Novice Flippers Should Avoid DIY-ing

When it comes to DIY, “Why pay someone to do it when you can do it yourself?” is what most new flippers would say… at least until they realize how underprepared and underskilled they are for extensive repairs!

Some renovation projects are tough to do as well as a professional would, even with the best of YouTube tutorials. If you’re not qualified to replace roofs, repair electrical systems, fix the plumbing situation, or install new gutters, doing them yourself could lead to costly and dangerous consequences. 

Faulty work leads to spending more time and money trying to fix your mistakes, if you don’t know what you’re doing. Lots of seasoned flippers can do nearly any project themselves, but many more newcomers to the industry try their hand at things above their pay grade and end up regretting it later on.

So if you’re new to the world of DIY, here are six fixes that should be left to the professionals—even if you think you can do it yourself.

Roof Replacement

The fact that we refer to homes as a “roof over our heads” shows how important good roofing is for a home. Nobody wants to buy or live in a house with a damaged roof!

The roof is such a vital part of the infrastructure—you will want to make sure that it’s installed right to not cause any problems in the future. And while many people may think replacing a roof is easy, it really isn’t.

Here are just a few of the complexities you can encounter:

  • The height & pitch of the roof can require special safety equipment.
  • The underlayment is critical, but often done incorrectly.
  • Do you know what drip edge is for?
  • How do you prevent ice dams from causing roof leaks?
  • Unless installed by a licensed professional, most shingle warranties are voided.

Instead, you should hire a professional whose whole job is to replace roofing. Not only will they assess the roof before replacement, but they will also have all the suitable materials and tools for the job, as well as the much-needed experience in construction-related safety issues. A professional roofing company would also have warranties that can save you money in case something goes wrong.

Electrical Repairs

Repairing the electrical system of a home is another dangerous task to DIY.

In your house flipping journey, you might run into older homes with outdated or broken electrical systems. When that happens, you’ll want to spend extra on hiring a professional who has the training and experience to work with electrical currents—especially because they can be deadly when mishandled.

Feel free to install new light bulbs in the home, or to change light fixtures, plugs and switches if you’re a handy person, but anything more complicated than that should be handled by a licensed electrician. Here are the common issues often found in older homes that signal it’s time to call an electrician:

  • Replace electrical panels
  • Replace an exterior riser or the main feed from meter to panel
  • Messing with meters
  • Run underground electrical lines
  • Install a new circuit to an electrical panel

Plumbing Fixes

While improperly installed plumbing fixes aren’t as dangerous as electrical systems, they can seriously set your budget back and eat into your flipping profit. DIY-ing a simple leak might save you a couple of bucks, but if it escalates into a flood, that’s thousands of dollars instantly added to your expenditures. 

Beyond fixing a slightly clogged drain or replacing a new faucet, extensive plumbing repairs and maintenance are best left to the professionals. Here are some plumbing fixes that a professional plumber should do:

  • Replacing underground sewer or water lines
  • Replacing corroded stack or main supply lines
  • Replacing or repairing water heaters, sump pumps, and worn down or burst pipes
  • Running new drain lines, unless you know the exact pitch required by code

Drywall Mudding 

Drywall mudding is more artistic than people think, so it’s tough for non-professionals to do well. You can hang drywall yourself, because unless you totally butcher it it’s fairly uncomplicated to hang, but doing the taping and mudding takes an artistic touch.

Plus, even if you do manage to do your own mudding, it definitely will not be as seamless or aesthetically pleasing as work by a professional company. Ugly drywall is a serious eyesore which could turn buyers off from an otherwise beautiful house, so leave it to the pros.

Structural Repairs

We’ve all seen that part on the DIY home improvement show when the clueless flipper bashes through a load-bearing wall and almost caves the whole house in. 

Don’t be that guy. Structural repairs are one of those things which even pro flippers hire contractors for, because the cost of making a mistake is so high. Stay away from all structural work as a new flipper, including:

  • Bowing walls
  • Cracked floor joists
  • Bowed roof or ceiling
  • Removing walls for an open floor plan (are they load-bearing?)

Fixing or Replacing Heating Systems

Installing the wrong efficiency furnace or replacing with one that’s mismatched with the exhaust system could be fatal, literally.  For an 80% efficiency furnace, you use a particular exhaust, but if it’s 90%+, it’s a totally different exhaust system, which is not compatible with 80%-efficient systems. If someone gets poisoned with carbon monoxide in a home where you worked on the furnace, you’re liable.

The same applies with duct work. There are equations which experts use to calculate the type of ducting required, based on the size of the house, furnace type, distance from furnace, etc. Get it wrong and this could lead to a house that’s not heated well and puts more strain on the furnace, so it wears out faster.

Conclusion

Know your limitations, and you will save thousands of dollars – not to mention headaches! Even if you’re a crafty person who loves to learn new things, there are certain cost-cutting measures you want to avoid when it comes to flipping a home.

So, the next time you want to replace the roof, repair the electric system, fix the plumbing, or install new gutters in the home you’re flipping—grab your phone instead to protect your flipping profit as much as possible.

Image Courtesy of Pixabay

Categories
Shortterm Rentals

Cleaning Checklist for Every Short-Term Rental Landlord

Image Courtesy of Tirachard Kumtanom

End of stay cleaning can be frustrating for short term rental owners, especially those who manage their properties themselves. It turns out that “clean” is very subjective—what’s clean for one guest is a pigsty for another. And if they’re unhappy with the cleanliness of your property, chances are they’ll be vocal about it in the review they leave you on Airbnb.

To avoid wondering whether the property is clean enough to satisfy even the most particular guests, it’s crucial for landlords to have a cleaning checklist. A cleaning checklist doesn’t only help make sure your property is well-maintained and sparkling clean for the next guest – it also helps you stay on top of any issues or damages that outgoing guests may have caused.

Plus, if you’re hiring professional cleaners, the checklist can serve as a guideline for them to use when cleaning your properties, making sure they’re cleaned to the same high standard for every turnover.

Not sure how to start your checklist?

We’ve put together a general cleaning step-by-step guide that you can alter to fit your needs.

Bathrooms

  1. Clean:
    • Mirrors 
    • Windows
    • Floors and tile walls
    • Wastebaskets (don’t forget to put extra trash bags inside)
  2. Clean and sanitize:
    • Toilet
  3. Clean, sanitize, and scrub:
    • Showers
    • Bathtubs
    • Vanity sinks
    • Backsplashes 
  4. Refill toiletries:
    • Handsoap
    • 2 rolls of toilet paper
    • Makeup wipes or tissue wipes
  5. Replace with clean items:
    • 1 hand towel
    • 1 washcloth
    • 1 bath towel per guest
    • 1 shower mat per bathroom
    • Shower curtain liners (optional)
  6. Check if sinks, tubs, toilets, and faucets are running properly.

Pro tip: We recommend that you tackle one room at a time so you won’t miss out on any of these tasks.

Bedrooms

  1. Change sheets, blankets, and pillowcases.
  2. Vacuum floors, including under the beds.
  3. Check drawers, tables, and closets for personal belongings.
  4. Clean the mirror and windows and dust the furniture.
  5. Check for stains and wear and tear on the sheets and pillowcases.

Pro tip: One cleaning trick is to close the door of the room that you’ve just finished cleaning–this way, you’ll know which rooms still need cleaning and which you’ve already done. Plus, it will stop any wandering pets or people from going inside and messing up the beautiful work you’ve just finished.

Living Room

  1. Clean, dust, and vacuum the entire area.
  2. Dust:
    1. Furniture
    2. Picture frames
    3. Decorations on display
    4. Lamps
  3. Vacuum carpets or wash the floors with specialty cleaners.
  4. Place 2 standard pillows and 1 clean blanket for the sofa bed.
  5. Place the remotes, welcome packet, and other welcome items for the new guest in an easy-to-locate spot (like the center of the coffee table).

Pro tip: When wiping and dusting, the dirt will naturally fall to the lower furniture and the floor. Thus, it’s best to start cleaning from the top and work your way down to the floor.

Kitchen

  1. Clean:
    1. Counters and countertops
    2. Chairs and tables
    3. Sinks and backsplashes
    4. Glass doors and windows (if any)
    5. Appliance exteriors, including the coffee maker and toaster crumb tray (also check if they still work or are malfunctioning in any way)
    6. Inside and outside the refrigerator (and throw away any leftover food)
  2. Empty:
    1. Dishwasher and replace items in the cupboard
    2. Ice tray
  3. Sweep and mop the floor.
  4. Supply:
    1. 2 clean dish towels
    2. New dishrag, sponge, and soap
    3. 2 trash bags
    4. 1 roll of paper towels
    5. 2 dishwashing pods

Pro tip: Start cleaning at the area furthest from the door, and then work your way towards the doorway—this way, you avoid stepping on wet floors and dirtying them again on your way out of the kitchen.

Before Locking Up

  1. Turn off all lights and unplug appliances (except for the refrigerator, aircon, and TV).
  2. Set the thermostat to a temperature that doesn’t keep the unit running.
  3. Place patio sets and other outdoor items inside or in a covered storage area.
  4. Place trash bins by the road.
  5. Ensure that all doors are locked to prevent break-ins.
  6. Make sure cleaning supplies are well stocked.

Deep cleaning

  1. Clean:
    1. Exterior and interior of cabinets
    2. Lamp, lampshades, chrome fixtures, and display items
    3. Stovetop and range hood (and replace filters if necessary)
    4. Dishwasher
    5. Behind and under appliances and furniture
    6. Walls, baseboards, moldings, and tiles (and remove markings, if any)
    7. Door frames, switchplates, and other woodwork (remove any fingerprints or other marks)
    8. Windowsills, ledges, blinds, ceiling and electric fans
  2. Vacuum cushions and upholstered furniture.
  3. Deep sanitize sinks, countertops, and appliances (including oven and microwave).
  4. Wash windows and glass doors.
  5. Change air filters.
  6. Descale faucets and showerheads.
  7. Disinfect all surfaces and contact points.

Pro tip: Aside from the regular cleaning you do on your property between guests, you will also need to do deep cleaning once in a while. Deep cleaning ensures that your entire home is free from dust and dirt, which helps maintain your appliances at maximum efficiency (e.g. air conditioning units).

Conclusion

End of stay cleaning may be complicated and frustrating. But with a checklist that’s customized to your property and needs, it doesn’t have to be!

Checklists instruct professional cleaners how to make your property perfectly presentable for your next guest, and they can also help you make sure you haven’t missed a spot when doing DIY maintenance for your short-term rental. 

Going through after each turnover to make sure every box has been ticked on this list is your best bet at ensuring a 5-star cleanliness rating from every guest you host – and that’s a highly valuable thing to have when it comes to attracting new customers to your STR business.

How do you clean your property between guests? Are there other items that we should include in the checklist?

Categories
Landlords

7 Ways to Attract Newly WFH Tenants

Now that work-from-home is normal, many Americans are planning to move!

The pandemic has shown both employers and employees that remote working is possible, profitable, and preferable. Employers enjoy lower overhead costs, while employees can relocate to areas with a lower cost of living and larger homes.

Don’t believe that work-from-home is really here to stay?

Just check out these statistics from Upwork reports:

  • 1 in 4 Americans said they’ll be working remotely in 2021.
  • The U.S. predicts an influx of 14-23 million remote workers soon.
  • 14-23 million Americans intend to relocate as a result of remote work.
  • 36.2 million Americans (22% of the workforce) will be working remotely by 2025—an 87% increase from the number of remote workers prior to COVID-19.

With so many people planning to relocate, your tenant base can expand beyond the traditional type of applicants you received in the past – like those who work at nearby companies. Tenants can now come from anywhere, work anywhere, and will have priorities that are different from tenants who commute to a job nearby.

As a landlord, you need to know what these remote-working tenants are looking for, so you can tailor your marketing efforts and investment strategy to capture this huge new market.

Let’s look at 7 different ways you can attract them:

1. Offer a Work-Conducive Space

Whether your rental property is a stand-alone house or apartment units in a building, remote workers now prioritize a space for working almost as much as a space for sleeping! They will look for a home that’s well-lit and has a dedicated office space, ideally – perfect for long hours of work.

This could be as simple as a secluded corner where an office table would fit perfectly, or a spare bedroom that’s easily convertible to a home office. Both areas should be ready for additional electrical wiring (e.g., outlets or light sockets) and additional shelves or cabinets. Remember, remote workers will be spending at least 8 hours of their day in whatever working space your home can provide—if you want to attract them, you need to cater to their working needs and make this area as ideal as possible.

2. Advertise Where They Are – Online

With the coronavirus solidifying our dependency on technology, many landlords have already adapted to digital means of advertising. Now, with most applicants finding and even viewing properties online, digital listings have become more important than ever.

In other words, you need to create a killer ad on real estate sites and renting platforms, or else nobody will find you!

Aside from standard details, such as the rental rate and location, you should also highlight parts of your property that will be attractive to remote worker renters. This will vary from property to property.

For apartment units, this may mean laundry services or swimming pools, but the most important thing is to make sure there are stable, fast internet speeds available from providers in your area. It may also mean plenty of nearby businesses, shopping centers and other local amenities, like services to support remote working (print shops, etc.). With proximity to the office becoming a lower priority, having amenities and services near their residence might appeal to tenants more than commuting times in the current environment.

In special cases, you might advertise a home specifically because it gives the off-the-grid appeal. Remote workers finally being able to move away from the city might be on the lookout for a quiet retreat from the hustle and bustle of metropolitan life, so rural and remote rentals might be more in-demand now with WFH tenants.

3. Emphasize Value for Money

One of the biggest reasons why remote workers move is because they want to pay lower rent, and they’re now no longer limited to renting in expensive areas, just to be closer to their office.

Think about this when marketing your rental properties.

For example, if your home is a 3-bed, spacious property in a Class A neighborhood that rents for the same cost as a 1-bedroom apartment in your closest major city, you could say: “2000 sq ft house on ½ an acre (in an award-winning school system), for less than the price of a Chicago apartment!”

Speaking directly to the pain points currently experienced by your tenant base will help make your listing more appealing to them, and could help you stand out from the crowd when marketing to WFH applicants.

4. Provide 3D or Virtual Tours

Because of social distancing rules, travel restrictions, and the risk of infection, many people now avoid visiting properties in-person. Providing virtual tours for prospective tenants will allow them to “visit” your property freely at any time of the day – from anywhere in the country! This makes it easy for remote workers who are planning to relocate to view your property, even if they’re stuck in the middle of a city at the moment.

There are plenty of softwares available on the market that specialize in creating virtual tours for your property. Consider getting a professional to come film and create your virtual or 3D tour, because in some cases, it will be the only point of reference your tenants have before deciding whether or not to rent your property. It’s important to make a great impression with your tour, so spending a little cash on having it done by an expert is well worth it – especially since you’ll be able to re-use the same 3D tour in future years (as long as you don’t do any major renovations).

5. Assure a Contactless Process

Now that remote work is becoming the norm, you (as the landlord) should also consider having a contactless process for managing your rental properties. Not only will this make things easier for you to manage, but it also makes the system safer for your tenants.

Nearly everything in real estate can be done remotely, such as:

  • Self-guided virtual tours
  • Thorough tenant screening
  • Document preparations
  • Securing digital signatures
  • Collecting rent via online portals
  • Delegating, coordinating, and monitoring tasks to contractors

As a bonus, remote worker tenants will most probably have no problems adapting to a digital process – in fact, it’s what they’re used to, at this point! Mention in your listing that you offer these contactless solutions, and it can help attract these tech-savvy tenants.

6. Highlight Health & Safety Measures

Moving during a pandemic can be a scary undertaking, especially if tenants are worried about coming into contact with the virus when they move into their new home.

To give them peace of mind, make sure you thoroughly disinfect the property before move-in day by deep-cleaning the carpets and furniture, mopping floors, wiping down surfaces, and clearing the ventilation systems.

You can hire a professional disinfection service to sterilize the property with UV light, smoke, or cleaning solutions, and even provide a certificate stating when the disinfection took place. Again, highlighting these safety measures in your ads will help reassure applicants who are concerned about transmission.

7. Allow their Pet Companions

According to The Humane Society of the United States, 72% of renters have pets. Now that many people are transitioning to WFH, this number might even increase.

Some tenants who never were able to care for a pet before due to long hours spent out of the house might now decide to get that puppy they’ve always dreamed of, since they’re working from home. Others may be feeling isolated during the lockdown and have only their furry friend to keep them company – so if your rental means giving up their pet companion, it might be a deal-breaker! Allowing pets right now therefore could be an additional way to attract remote workers as tenants.

However, if you don’t want to consider having pets in your rental properties, just be aware that more tenants could be trying to sneak in unauthorized pets now than in previous years – so that’s something to keep an extra-close eye on when inspecting properties.

Conclusion

The best landlords are always on the lookout for the next real estate trends. Remote working is just one of the huge trends that emerged in 2020, but experts are predicting that it’s a trend that will remain in 2021 and beyond.

Because of this, landlords need to make sure their rental properties are primed to attract the huge influx of remote workers who are on the hunt for a new home.

Take advantage of this new opportunity to meet the demands of our ever-changing society—and grow your rental business in the process!

Are you renting out to remote-working tenants? What are the things they tend to look for, in your experience?

Image courtesy of Teryn Elliott

Categories
Landlords

How to Calculate Rental Return: How Much are You Making from Your Rental Property?

How much can you actually expect to make from rental property investments?

This is a great question, and one without a straightforward answer. 

That’s because the amount of rental income you receive from a particular property depends on the financial viability of the deal, as well as how well you manage it. 

In this article, we’ll give you some tips for identifying profitable rental investments, and some rough rules-of-thumb for calculating the potential profitability of a rental property. If you want a better idea of how property management can impact these figures, check out this article. 

Financial Viability

Here are some formulas you can use to help you determine the financial viability of a real estate investment.

Return on Investment (ROI)

ROI is used to measure the performance of an investment by evaluating the expected return relative to a property’s cost.

Add up the cost of acquisition, closing fees, repair costs, and annual expenses. Then, divide your total annual income (from rent) by the sum of your expenses to arrive at your yearly projected ROI. There is no sweeping standard for a “good” ROI, but if we were to aim for a benchmark, you’d want to look for a yearly ROI that’s above 15%. 

Cash-on-Cash Return (CoC)

CoC calculates the yearly returns based on cash income and cash invested. In other words, it measures how much you’ve made on the property in relation to how much you’ve paid for the mortgage.

Get your annual pre-tax cash flow, divide that by the total cash you’ve invested, and you’ll get your CoC return. Expert investors advise to aim for a CoC return that yields around 8% to 12%.

Capitalization Rate (Cap Rate)

Cap rate is the ratio of net income to the property’s acquisition price. There’s no “good” or “bad” cap rate, but it’s great for comparing your return across multiple properties. Here’s a quick guide on how to calculate it:

Get your net operating income (NOI) by taking your gross rental income and deducting every expense you have (excluding financing), like taxes, insurance, water, HOA fees, etc. 

Then, divide your NOI by the current market value, and you’ll get your cap rate. In riskier neighborhoods, 6% probably won’t be worthwhile. But in high-demand, high-quality neighborhoods, 6% could give you an amazing return.

The 1% Rule

Lastly, the 1% Rule is a quick calculation to determine if the monthly rent earned will generate positive cashflow for a property or not. The rule is that the amount grossed through monthly rent should be at least 1% of the final property purchase price (including the cost of any repairs). 

Calculating Profit

Now that you can identify money-making opportunities, the next step is to answer the following questions to calculate the profit you’ll get to keep.

How much rent will I realistically charge?

Start by surveying other rentals in the vicinity to get an estimated rental amount. You can ask a local realtor or property management company for an accurate number, or visit sites like Rentometer.com for a rough estimate.

If you end up with a range, stick to the lower number for a more conservative approach when assessing a deal and making your other calculations.

How do I know what the expenses will be?

When calculating your profit, you must add up all the expenses, including property tax, insurance, property management, and possible vacancies. Assume that these expenses will cost roughly 40% of your rental income. 

While it may sound like a lot, this figure is actually a conservative estimate, and doesn’t cover any serious renovations or overhauls that a property might need.

What about the other 60%? 

If you took out a mortgage on the property, the mortgage payments will be covered by the other 60% of your rent income. This means you should only secure loans with monthly payments which total less than 60% of your estimated revenue from rent.

What happens to the remaining money?

Whatever is left over will be your profit. However, this is also what the government will charge taxes on. The taxes you pay on this income are not included in the property tax you pay annually. 

There are ways to lower your taxes as a real estate investor, but for this article, just remember to budget for paying both income and property taxes when calculating your potential profits.

Conclusion

How much can you earn from rental properties? How do you know if a rental investment is worth it? 

Just answer these two questions:

  • Is the investment you’re eyeing a profitable opportunity?
  • How much can you earn from renting out the property?

If the property passes all these common metrics with flying colors, and earns you the rent income you’re looking for—you’ve just found a profitable rental property to invest in.

Image courtesy of David McBee

Categories
Flipping

5 Signs You Better Walk Away from a Flip

Finding houses that are suitable for flipping is difficult – but that doesn’t mean you should jump on every opportunity that comes around.

Every good flipper knows how to choose properties—and when to walk away from an inevitable flop.

You don’t want to be a rookie who overlooks the basics and ends up with a smaller margin than your time and effort is worth.

So here are five signs to know when a distressed house is better left alone:

1. The location isn’t good.

The most important factor that decides the value of your flip is the location of the house.

  • What kind of city and neighborhood is it in?
  • What kind of residents are in the area? What do they want in a home?
  • How much do similar houses sell for in the immediate area? What features do they have?
  • What are its positive factors (e.g., good schools, shopping centers, etc.)?
  • What are its negative factors (e.g., highways, airports, factories, etc.)?

You need to understand the property in the context of where it’s located to estimate its value, and how fast it’s likely to sell (based on the level of buyer demand in the area). 

Do the same research that your buyers would do, and you’ll see if the location is going to appeal to them.

2. The house is too unique.

While every property will be somewhat different from another, you want to flip a house that’s fundamentally conforming to or better than the standard of the local competition. In other words, they have to be similar to the houses around them, but better somehow.

For example, if the neighborhood is full of single-family homes with 3 bedrooms and 2 bathrooms, you might have a hard time selling a house with 2 bedrooms and 1 bathroom. You will, however, easily sell a 3-bedroom, 2-bathroom home with an attic that can convert to an office area.

Generally, people like lots that are higher than the average size in the neighborhood, so a large lawn is always a good distinguishing feature. Likewise, you might have to be prepared for price adjustments if your lot is smaller than the average locally.

The biggest thing to look out for is a strange floorplan. Awkward layouts will seriously turn off buyers, even if you finish a home to a high standard throughout, and some layouts can’t be changed easily (if at all). Honestly, if you end up with a seriously out-of-date floorplan, you could be better off completely rebuilding a house from scratch in some cases, so this is a definite sign you should walk away if you’re a new flipper.

3. You don’t have enough skills or knowledge.

Unlike professional builders and professionals who’ve been honing their skills for years, you might not have the necessary knowledge to DIY fixes for a higher profit.

  • Do you know your way around basic construction tools?
  • Can you lay carpet, hang drywall, roof a house, and other common but important fixes?

There is money in sweat equity. If you lack knowledge and have to constantly outsource professionals to do the renovations, you’ll deplete the profit you could’ve gotten from your investment. If you lack the skills and still try to fix everything yourself, you might end up making rookie mistakes that’ll be expensive to salvage.

Furthermore, if you don’t have enough knowledge, you could run the risk of hiring a contractor and getting ripped off.

Instead, be realistic and account for your lack of skills when budgeting your flip. If the costs are properly accounted for, you’ll increase your chances of exiting with a good flipping profit.

4. You don’t have enough money.

All real estate investments are expensive.

You need to research your financing options to find which mortgage type will work best for you, and if there’s a lender that can offer you lower interest rates. Cash is possible, however there’s still property holding costs and opportunity costs that you need to consider.

More importantly, there’s the renovation costs. How much will you get after acquiring, holding, and fixing up the house? Novice flippers often underestimate the costs, resulting in net loss instead of gross profit.

To see if your budget is enough to flip-and-sell a house, you need to:

  • Identify how much you need to acquire the property
  • Scan the competition and see how much you can realistically sell and still make a profit
  • Determine how long the renovations will take and budget accordingly
  • Remember to take into account the loan you’ve taken out, taxes, utilities, insurance, and more
  • Be aware of the seasonality that can sometimes affect home prices and the number of days on market (e.g., higher sale prices in late spring compared to winter)

5. You don’t have enough time.

Flipping and selling a house takes a lot of time and dedication—often requiring you to give up a large chunk of your time for a couple of months. 

Not sure if the hours dedicated to flipping will be worth it? Answer these questions:

  • Are you maintaining a separate full-time job? Are you willing to give up weekends and evenings?
  • Do you have the budget to pay someone else to do the work?
  • Will you be available to oversee demolitions, constructions, inspections, and other procedures?
  • How much time will you spend marketing your property? Can you show it to prospective buyers yourself, or do you have the budget to pay for a real estate agent’s commission?

For most people, the time all of this takes isn’t worth it. They’d rather stick to their day job to have a guaranteed income, without the headache of flipping houses, so think carefully about whether or not this commitment is right for you before buying your own investment property. 

Summary

To be a successful flipper, you need to understand the risks involved and how to mitigate them.

Evaluate your house flipping opportunities by doing the following:

  • Check the location of the house in relation to the neighborhood.
  • Determine if the house is competitive enough versus other properties in the area.
  • Budget property and never underestimate the possibility of expensive, underlying problems.
  • Calculate the time it’ll take for you to enter and exit the flip profitably.
  • Be realistic with what you can repair and what you’ll need to outsource.

Making profit from flipping houses isn’t as easy as some other real estate investment methods, but it’s definitely possible with the right knowledge, planning, and courage to walk away from bad opportunities. Keep looking and doing your due diligence, and the right one will eventually come along. 

Trust us, it’s worth the wait.

Categories
Landlords

How to Calculate Rental Return: How Much are You Making from Your Rental Property?

How much can you actually expect to make from rental property investments?

This is a great question, and one without a straightforward answer. 

That’s because the amount of rental income you receive from a particular property depends on the financial viability of the deal, as well as how well you manage it. 

In this article, we’ll give you some tips for identifying profitable rental investments, and some rough rules-of-thumb for calculating the potential profitability of a rental property. If you want a better idea of how property management can impact these figures, check out this article. 

Financial Viability

Here are some formulas you can use to help you determine the financial viability of a real estate investment.

Return on Investment (ROI)

ROI is used to measure the performance of an investment by evaluating the expected return relative to a property’s cost.

Add up the cost of acquisition, closing fees, repair costs, and annual expenses. Then, divide your total annual income (from rent) by the sum of your expenses to arrive at your yearly projected ROI. There is no sweeping standard for a “good” ROI, but if we were to aim for a benchmark, you’d want to look for a yearly ROI that’s above 15%. 

Cash-on-Cash Return (CoC)

CoC calculates the yearly returns based on cash income and cash invested. In other words, it measures how much you’ve made on the property in relation to how much you’ve paid for the mortgage.

Get your annual pre-tax cash flow, divide that by the total cash you’ve invested, and you’ll get your CoC return. Expert investors advise to aim for a CoC return that yields around 8% to 12%.

Capitalization Rate (Cap Rate)

Cap rate is the ratio of net income to the property’s acquisition price. There’s no “good” or “bad” cap rate, but it’s great for comparing your return across multiple properties. Here’s a quick guide on how to calculate it:

Get your net operating income (NOI) by taking your gross rental income and deducting every expense you have (excluding financing), like taxes, insurance, water, HOA fees, etc. 

Then, divide your NOI by the current market value, and you’ll get your cap rate. In riskier neighborhoods, 6% probably won’t be worthwhile. But in high-demand, high-quality neighborhoods, 6% could give you an amazing return.

The 1% Rule

Lastly, the 1% Rule is a quick calculation to determine if the monthly rent earned will generate positive cashflow for a property or not. The rule is that the amount grossed through monthly rent should be at least 1% of the final property purchase price (including the cost of any repairs). 

Calculating Profit

Now that you can identify money-making opportunities, the next step is to answer the following questions to calculate the profit you’ll get to keep.

How much rent will I realistically charge?

Start by surveying other rentals in the vicinity to get an estimated rental amount. You can ask a local realtor or property management company for an accurate number, or visit sites like Rentometer.com for a rough estimate.

If you end up with a range, stick to the lower number for a more conservative approach when assessing a deal and making your other calculations.

How do I know what the expenses will be?

When calculating your profit, you must add up all the expenses, including property tax, insurance, property management, and possible vacancies. Assume that these expenses will cost roughly 40% of your rental income. 

While it may sound like a lot, this figure is actually a conservative estimate, and doesn’t cover any serious renovations or overhauls that a property might need.

What about the other 60%? 

If you took out a mortgage on the property, the mortgage payments will be covered by the other 60% of your rent income. This means you should only secure loans with monthly payments which total less than 60% of your estimated revenue from rent.

What happens to the remaining money?

Whatever is left over will be your profit. However, this is also what the government will charge taxes on. The taxes you pay on this income are not included in the property tax you pay annually. 

There are ways to lower your taxes as a real estate investor, but for this article, just remember to budget for paying both income and property taxes when calculating your potential profits.

Conclusion

How much can you earn from rental properties? How do you know if a rental investment is worth it? 

Just answer these two questions:

  • Is the investment you’re eyeing a profitable opportunity?
  • How much can you earn from renting out the property?

If the property passes all these common metrics with flying colors, and earns you the rent income you’re looking for—you’ve just found a profitable rental property to invest in.

Image courtesy of Karolina Grabowska

Categories
Wholesaling

Top 5 Insights for Successfully Wholesaling Real Estate After a Year of COVID-19

Now that the global pandemic has been with us for a year, which trends started in 2020 that will continue to affect the real estate market in 2021? Particularly for wholesalers, what insights should you take away from the situation? How can you adjust and take advantage of new opportunities brought about by the lockdown? 

Being in a dynamic industry, where the only thing constant is change, the key to wholesaling success is to spot market trends early, extract relevant insights, and adjust the way you conduct your business.

In this article, you’ll find five important real estate trends for you to keep an eye on if you want to pivot with the landscape and remain successful in wholesaling real estate in 2021 and beyond.

5 Real Estate Trends and How it Affects Wholesalers

While the list below is by no means comprehensive, we see five important changes that happened in response to the global pandemic. Let’s discuss what they mean for wholesalers and the real estate industry as a whole.

1. Work-from-home is now mainstream.

With stay-at-home orders and social distancing rules, many office workers have been working remotely for nearly a year now, and most have settled into this new normal. What does this mean for wholesalers?

  • Many office leases are not being renewed.
  • People living in expensive homes close to offices are excited to relocate to the more affordable suburbs.
  • Vacation towns are now becoming an option for permanent residency. People are tired of big, populated cities and are seeking new places with more freedom and space on offer. 

Wholesaler Action: you may want  to pay more attention to rural areas, where there is an increased demand from buyers—these are the areas that most office workers couldn’t consider prior to the pandemic, but now can. 

Don’t wait until competition becomes fierce! Take the lead and meet the high demand before other investors swoop in.

2. People want an upgrade from their current home.

Working from home and having less social interaction with the outside world also means that people are investing more in their homes now. They want larger houses and backyards, more rooms and privacy, and bigger patios and storage spaces—especially if they have children. 

Families (and people of all ages) are now willing to invest serious money into creating a comfortable home, more than they ever were prior to COVID.

Wholesaler Action: This means that wholesalers need to pay heightened attention to the features of a home and think about whether or not they will be attractive to remote workers, homeschooled children, and folks who want plenty of leisure space when stuck on the property.

Think of the homeowner’s needs and preferences, many of which have evolved with the times. 

3. More people want to purchase homes.

After the record-breaking low interest rates in 2020, the forecast for this year is still a relatively stable and low interest rate. It doesn’t take a genius to see that we still have a long way to go before the economy improves, which means that interest rates are unlikely to move much higher within the year. Additionally, the Federal Reserve has declared that rates won’t be raised through 2023 to support economic recovery efforts.

For the real estate industry, lower rates mean lower payments, which means buyers can afford higher purchase prices. So, it’s an attractive time for people to buy a house (or two). Think about it this way: a $300k loan at 3% is almost the same mortgage payment as a $200k loan at 6%.

Wholesaler Action: For wholesalers, this means it’ll be harder to find and secure properties that are below market value. However, this also means that the properties you do acquire will sell quickly and for a higher price.

4. Housing inventory is low.

Due to COVID being easily transmitted, many people have put off selling their houses simply because they don’t want to have strangers in their homes. This increased competition within the housing market, with people snatching up the few available houses at lightning speed—even if they’re priced at top dollar.

Wholesaler Action: This makes it harder for wholesalers to secure deals at a discount, but it makes it easier to exit deals with a much higher profit due to larger spreads. In other words, it’s a good time to put in the extra time and energy in securing good deals and making up for it multiple times more at exit.

5. The housing market likely won’t crash.

Contrary to what others might predict, due to the housing shortage and skyrocketing home prices, the possibility of a market crash is quite low for the moment. 

Unlike the infamous 2008 crash, this time around lenders did not allow homeowners to extract their equity via home equity loans or other methods. At the same time, appreciation and lenders doing smart loans have created incredible equity for homeowners. This means that, even with a struggling economy and high unemployment, it’s highly unlikely that we’ll see a wave of foreclosures.

For example, let’s say someone loses their job and can’t afford to pay their current mortgage payment anymore. However, they do have $200k in equity in their home. Will they walk away from their property and let it go to foreclosure? Or will they sell it and try to get as much of the equity out as they can? The obvious answer is to sell, of course!

Conclusion

When a door closes, a window opens—and early adopters will reap the most rewards.

As long as there are people who want to buy their own homes, there will always be wholesaling opportunities to assist the buying and selling process.

Choosing to not capitalize on the current situation out of fear is a losing strategy. As the famous saying by hockey Hall of Famer Wayne Gretzky goes, “You miss 100% of the shots you don’t take!”

So, keep searching for the right opportunities, and you’ll continue to be successful in any circumstances. Besides, real estate constantly fluctuates, even without a pandemic – so think of this as just another one of the industry’s lovely challenges. 

Any important wholesaling opportunities we missed?

Image courtesy of Marcello Chagas

Categories
Flipping

How to Market your Rentals Online: Screen Appeal and Listing on Digital Platform

From digital walk-throughs to Zoom tenant interviews, real estate marketing has officially transitioned to digital in light of the COVID-19 pandemic.

Virtual showing techniques aren’t new, but COVID-19 has certainly pushed the industry to adapt as a necessity. Landlords that didn’t have videos of their properties pre-COVID are now rushing to create virtual tours and trying virtual staging methods.

At this pace, digital marketing will fast become an integral and permanent part of real estate marketing before we realize it!

What does this mean for landlords? 

Prospective renters are now viewing and shortlisting properties from their screens, making “screen appeal” a crucial factor to promote your rental property. You want your offer to stand out where the prospective tenants are: online.

In this article, we’ll go through the ways to increase your property’s screen appeal, write an effective ad online, and list your properties where tenants are most likely to find them.

Increase screen appeal with noticeable features

First, you need to make your rental look impressive in photos. To do this, invest in features that will stand out in photos—even if the prospect browses on their tiny phone screens. 

These are the things that will make a huge difference in digital listings:

  1. Sparkling kitchens with shiny appliances, glossy countertops, and newly-painted walls and cupboards
  2. Spotless bathrooms with new showerheads, clean mirrors, and re-grouted tiles
  3. Fresh blinds and curtains without any mold or grime that are updated to fit the aesthetic of the property
  4. Blemish-free walls freshly painted with a color that makes the room look bigger, brighter, and homier
  5. Brand-new fixtures everywhere—from light switches to faucets to doorknobs and fly screens
  6. Clean carpets that even look like they smell great
  7. Bright lights in every room to make the rental property feel new, and more importantly, show that you’re confident enough to put everything in the spotlight

Make sure that you use a camera that does your rental justice! None of the spectacular features you updated and cleaned will be seen if you use the front camera of your beat-up phone. If you need to hire a photographer for decent equipment, it’s worth the one-time payment to get a lifetime of great photos for your listing. 

Write an effective ad that highlights relevant details

Once you’ve updated your rentals with photogenic features, you need to post them on digital platforms. But what do you say? How do you write an effective ad that attracts your tenant pool? 

Here are the important factors to focus on:

  1. Write a great headline. Rentalutions’ formula suggests including the key information tenants look for (e.g., number of rooms or location) plus one feature that makes your rental unique.
  2. Use professional word choices that add value to your listing, as long as they’re an accurate description of your property. You want to avoid generic words such as “great” and “nice”, instead, choose words like: upgraded, spacious, tasteful, landscaped, modern, luxurious, and charming.
  3. Add more information on the key features. Knowing what tenants want (as you should), make sure to highlight these features in your ad. Are you expecting to attract tenants who put importance on parking spaces, walkability, nearby supermarkets, or proximity to a great school? Your copy should indicate that.
  4. Add detailed property descriptions. Similarly, also indicate what the tenants will want from the property itself. How many rooms, floors, and bathrooms? Will they be attracted to a lush backyard or extra storage areas? Flesh out all of the important details to attract tenants.

Lastly, prove what you said with great photos! When you use great photos to compliment everything that you verbally promoted on your listing, your screen appeal will skyrocket. This is where the prospective tenants should go “Wow! They weren’t kidding!”

List your rental on industry-popular websites

Armed with your impressive photos and well-written ad content, it’s time to post your listing where it matters. Most people are baffled by how many options there are to list online, especially since there isn’t a one-stop-shop solution that posts to all the rental listing sites. 

Zillow—the favorite of most landlords—allows you to create detailed listings that they’ll syndicate out to 26 partner sites (including Trulia, Hotpads, and MSN Real Estate), but it still doesn’t cover all of the sites available.

To get started, check these sites that are known to be effective and user-friendly:

  1. Zillow
  2. Trulia
  3. Hotpads
  4. Craigslist
  5. Facebook

Apart from those, you can also consider these lesser-known platforms:

  1. Apartments.com
  2. Apartment Finder
  3. Apartment Guide
  4. Apartment Home Living
  5. Apartment List
  6. Backpage
  7. Byowner.com
  8. Cozy
  9. Doorsteps
  10. Move
  11. My New Place
  12. Nextdoor.com
  13. Oodle
  14. Realrentals.com
  15. Realtor.com
  16. Rent.com
  17. Rentals.com
  18. Rentdigs.com
  19. Rentlinx
  20. Saletraderent.com
  21. Sublet.com
  22. Walk Score
  23. Zumper

All of these websites allow you to post for free. You just need to do some research and decide which platform enables you to attract the tenants that you want. For more details on the sites we mentioned above, check Smart Move and Landlordology.

Conclusion

Technological development waits for no one. In order to keep up and remain competitive in the rental property business, it’s time to level up with online marketing!

The steps are easy enough—simply increase your property’s screen appeal, write an effective ad describing the best parts of your property, and list them on websites where tenants are likely to browse for new homes.

Any other tips on how to market rentals online? Where are your rentals listed so far?

Image courtesy of Rene Asmussen

Categories
Flipping

How to Get a Loan for Flipping Houses

Flipping houses can be a lucrative business. However, it takes a large amount of money to acquire, fix up, and sell properties quickly!

In fact, flipping houses takes more money than you’d think. On top of the acquisition cost, you still have to pay for the renovations, taxes, utilities, and homeowner’s insurance from the time you acquire it until the time you sell.

If you’ve realized that, and are looking for a way to finance a flip—you’ve come to the right place.

Off the bat, you should know that the process for securing loans for flipping is different versus getting a loan for a home to live in or rent out. You can’t go to traditional mortgage lenders, because many don’t loan money for fix-and-flip projects.

Instead, you’ll go typically through a hard money lender (HML) or private real estate lender. These money lenders loan money with the intent of getting repaid quickly (and charge much higher interest rates), so they are often used for flipping houses.

Up for the challenge? Read on to know how to secure the loan you need to finance your flip.

How loans for flipping houses work

Most loans for flipping houses come in 6-18-month terms, with 12-month fix-and-flip loans being the most common.

Some loans have an initial term with an option to extend. These are generally interest-only balloon payment loans with a fixed interest rate. So, if you get a 12-month loan, you’ll make monthly interest payments for a year before paying the entire principal balance at the end.

In some cases, lenders offer investors the option of not making any payments initially, then just repaying the principal with accumulated interest at the end of the term.

Loans for house flipping cover the entire project—property acquisition and renovation included. The maximum loan amount is calculated in two ways:

  • Loan-to-Cost (LTC): A percentage of the project’s anticipated cost, where the estimated loan amount is divided by the total acquisition, construction, and renovation costs
  • Loan-to-Value (LTV): A percentage of the property’s expected market value after project completion

The decision isn’t up to you, as lenders will default to whatever the smaller loan amount between the two.

How you can qualify for a house-flipping loan

While applying for a traditional mortgage mainly relies on your own ability to repay the loan, applying for fix-and-flip loans is more focused on the property itself and your business plan for it.

You need to justify the loan with a satisfying after-repair value (ARV) and show a realistic renovation budget and timeline. In other words, for house-flipping loans, the lender puts more importance to the LTC and LTV than your income and personal assets.

Where to look for lenders

Ready to take the plunge? Here are some of the places you can find funding for your house flip.

Websites

There are plenty of places to find HMLs online, like Lima One Capital and LendingHome (NOTE: we are not endorsing any of these lenders!).

Lima One Capital works with flippers and will lend up to 90% of LTC or up to 75% of LTV, with the fees and interest rates decreasing with a borrower’s flipping experience.

On the other hand, LendingHome offers house flipping loans for up to 90% of the purchase price and 100% of renovation costs, with just a couple of fees and requirements. Their interest rates range from 7.5% to 12%, and the company holds back repayments until after the renovations are complete.

Private lenders

Compared to HMLs, private lenders may be more open to negotiating payment terms or even become a partner on the deal—taking a share of the profits instead of charging interest. They often charge 8-12%, plus 0-2 points, compared to a HML’s 12-15% with 2-5 points.

You can seek out private lenders in real estate networking events— just be confident in approaching and negotiating. You can also find them online, just like HMLs. You can try direct mailing those you find in data broker websites or posting about your project in websites such as BiggerPockets, LendingClub, or LendPost.

Crowdfunding

You can crowdfund, but there are many legal conditions. Just be aware of state and federal rules. For example, you can’t advertise. They are also strict with reporting—you have to report the right information and structure your dealings properly.

Despite these roadblocks, it’s completely possible to crowdfund a flip. Plus, crowdfunding has been a strategy for decades, although in a different form. Before online crowdfunding websites became popular, people simply combined investor money into an entity (such as an LLC).

Conclusion

If you want to flip houses but don’t have enough money—or if you want to protect your savings—there are plenty of ways for you to get a fix-and-flip loan. These funding options can give you the financial boost you need to achieve your house-flipping dreams!

Remember that fix-and-flip loans are often more expensive than traditional mortgage financing, as there are higher risks involved for the lender. However, outsourcing your funding allows you to get started in the flipping business with little capital and gives you the ability to flip more properties simultaneously to increase your overall profits.

Imagew courtesy of Anastasia Shuraeva

Categories
Shortterm Rentals

Short vs. Medium vs. Long-term Rentals: Which is Best?

The kind of rental model you choose directly relates to your overall real estate investment goals – like how much time and energy you want to put into managing your properties. Generally, short-term rentals (like Airbnbs and VRBOs) offer high-profit margins with sporadic high-maintenance costs, while medium- and long-term rentals offer a more stable revenue stream, while also requiring more regular maintenance works.

Between short, medium, and long-term rental models, are you wondering which you should focus on? We’ve laid out the pros and cons of each, so you can make an informed business decision that fits with your goals for rental investing.

What’s the difference between short vs. medium vs. long-term rentals?

Each rental model – short, medium, and long-term rentals – has its own benefits and risks. You should know what those points are before deciding which to go for, so you can choose the one that best compliments your investment purpose and strategy.

Short-term rentals (STRs) 

Short-term rentals have guests that usually stay for around 3-7 days. These rentals are often called “vacation rentals” because they often cater to travelers. Compared to hotels, STRs are often cheaper, more spacious, and provide a homey atmosphere—making them much more attractive to many business travelers and tourists. 

STRs fit investors who prioritize business flexibility over stability. Cash flow is fast and substantial, but it’s also inconsistent and requires a lot of leg work. Nevertheless, STRs can be lucrative with the right marketing, location, and season.

Pros:

  • STRs tend to charge a higher rent amount at $184/night.
  • There is flexibility in having guests only stay for a couple of days at a time. There is also the flexibility to charge different rent prices, depending on the season or demand.

Cons:

  • There’s a lower occupancy rate at 87%.
  • STRs require around 30-40 hours of work/month (PER PROPERTY). You need to reply to messages, give and receive keys from guests, clean up the units, deal with demanding guests, and more.
  • There are stricter rental laws in some cities. Some have banned short-term rentals (like Airbnbs) altogether, or limited the number allowed to operate within a given area.
  • Vacation rentals are hit harder by economic downturns. For example, in the state of Michigan, STRs were banned during the height of the pandemic. Nowadays, STRs are allowed to operate again, but potential government restrictions are something to keep in mind for the future. 
  • Both income and business tax are required for STRs.

Medium-term rentals (MTRs) 

Medium-term rentals have tenants that typically rent on a weekly or monthly basis, and often they take the form of a boarding house or mid-term rental apartment complex. This model is also called the “month-to-month” rental model and is the least popular among the three.

MTRs may seem to have the best of both STRs and LTRs, but it also comes with some challenges:

Pros:

  • The occupancy rate is closer to 87%, which is almost the same as STRs, but with longer-term tenants.
  • The number of hours required to manage MTRs monthly is significantly lower than with STRs. 
  • MTRs are subject to standard landlord-tenant laws. 
  • Only income tax is required (business tax is not needed). 

Cons:

  • MTRs charge an average rent of $952 per week (or $136/night)—which is 28% higher than long-term rentals, but still 35% lower than STRs.
  • The turnover rate for MTRs is better than STRs, but still higher than long-term rentals. You’ll still need to do a lot of marketing for these, as your tenants only stay for roughly a month at a time.
  • Marketing is more difficult, as there aren’t many channels that focus on MTRs compared to the other two models.

Long-term rentals (LTRs) 

Long-term rentals have tenants that live in the property for 1+ years. Most rental properties in the real estate market are long-term rentals.

LTRs are a commitment both for landlords and tenants. Despite that, this rental model is favored by most in the real estate industry, as it offers landlords and investors a stable, steady rental income with minimal turnovers. Main responsibilities include property maintenance and dealing with tenants—both of which can be done by property management companies. 

Pros:

  • The occupancy rate of LTRs is very high at 95%. 
  • The work needed to manage and maintain LTRs can be as little as an hour/month. However, it should be said that the work hours required depends on how big your portfolio is—many landlords have more than a couple of LTRs. As their portfolio expands, most will consider hiring a property management company.
  • The turnover rate for LTRs is significantly lower than STRs and MTRs.
  • LTRs are subject to standard landlord-tenant laws.
  • Only income tax is required (business tax is not needed). 

Cons:

  • This may vary greatly from location to location, but LTRs generally earn less than STRs and MTRs. LTRs charge an average rent of $98/night or $3k/month. 
  • You can’t increase your rent amount seasonally, as you can with STRs.

Conclusion

We hope this guide helps you figure out which rental model to choose. Each of them has its pros and cons—the decision wholly depends on what you want to prioritize in rental property investing.

Which model have you applied to your portfolio? Any tips you’d like to give for those who are starting out?

Image courtesy of Andrea Piacquadio