Categories
Shortterm Rentals

How to Choose the Right Market for Short-Term Rentals

Short-term rentals (STRs) are currently one of the most thriving sub-industries in real estate. In fact, a 2019 survey found that 60% of American tourists prefer staying in an Airbnb over a hotel.

However, if you plan on investing in an STR, you need to do your due diligence to find the best market for your property. Diving straight into it without doing any research will likely your Airbnb is empty more often—resulting in less cash in your pocket if it’s just sitting there. Plus, you might end up in an area that’s either saturated with too many excellent STRs already, or an area with barely any guests to attract.

For instance, a property in Palm Springs, Florida, could potentially earn you upwards of $125,000 a year. This figure might sound like an enticing gain for a potential STR investor, but you have to account for all the costs and potential pitfalls that you’d have to expertly navigate in the particular market.

You have to ask yourself questions like: 

  • How popular is the area?
  • How many STRs are already in the area?
  • How easy will it be to fill with guests?
  • What kind of guests are staying there?
  • How much are the utilities and general maintenance?
  • Can you make enough in busy seasons to cover slow seasons?

Let’s take a look at how you can choose the right market for your STR investment venture.

The Four Markets of STRs

There are 4 main types of STR markets: 

  1. Traditional vacation markets
  2. Unique locations & experiences
  3. Business markets
  4. General convenience

Each of these markets comes with its share of risks and advantages that you need to navigate. For example, an STR located downtown might have stricter laws in place when compared to a traditional vacation rental. 

Let’s compare them all to help you decide what’s best for you.

1. Traditional Vacation Markets: 

The traditional vacation market exists both regionally and nationally, relying heavily on tourism. The main difference between the two is accessibility and affordability:

  • Accessibility: The regional vacation market is usually within close proximity to cities. Visitors can reach these destinations with a short drive out of town. An example of this type of market is Panama City Beach, Florida. This beach is within driving distance of major cities in both Alabama and Florida, where Montgomery and Birmingham are three hours away and Jacksonville is a four-hour drive from the coast. 
  • Affordability: Real estate prices will usually be more affordable than the national vacation market. Additionally, the regional vacation market will have the most accommodating regulations out of the three, as these are hotspots for vacations.

Panama City Beach, for example, allows for STRs in all areas designated as commercial zones, limited multi-family zones, unlimited multi-family zones, and townhouse zones.

Another benefit of the vacation market is its resistance to the effects of a recession. Unlike its national cousin, the regional vacation market is more accessible and affordable to visitors making it more resilient against the effects of an economic recession. 

Tourists wouldn’t need to make big vacation plans to visit a regional vacation rental, such as booking a plane ticket. These locations can be reached by car ride. Additionally, the more affordable lodgings will allow tourists to visit despite an economic recession.

While regional vacation markets rely on tourism, a major hit to the industry isn’t nearly as devastating to these markets. In fact, during the COVID pandemic, many city-slickers fled cities during the pandemic. Regional vacation markets can tap into these potential customers during occasions like the COVID outbreak.  

2. Unique Locations & Experiences 

Next up are STRs located in unique areas for experiences that you can’t find anywhere else. These might be activities out in nature or just places nearby popular attractions. Some different types of STRs that fall in this category are:

  • Properties near ski resorts
  • Properties beside amusements parks
  • Vacation homes on a lake
  • Beachside villas in tropical countries

These all offer a unique experience that you can get anywhere else. Typically, this kind of rental will have an off-season because tourists aren’t usually booking all year round. However, if you can make a ton of profits in the peak seasons, this could be worth it even if it’s unbooked during the slow times.

3. Business Markets

STRs in an urban location doesn’t rely solely on tourism to generate revenue. Of course, tourists will also visit your property, but the main source of income will be from business people. These are often professionals traveling due to a variety of reasons, such as a convention or business deal. 

The metro market is potentially the most lucrative market for an STR due to the frequent turnover of tenants. A busy city will have many occasions that will see an influx of visitors, such as during sporting events, conventions, concerts, etc. 

Despite being potentially the most profitable market, an urban rental also comes with the most risks:

  • Rules and Regulations: Different cities will have different regulations when dealing with STRs. In the case of Oakland, Michigan, the city prohibits STRs except in a few select locations, such as near the airport, along the freeway, or the waterfront. 
  • Market Saturation: Another risk is market saturation. Because an urban rental is one of the most profitable markets, it is a hotbed for STRs. A lot of competition could potentially limit your revenue, especially if you can’t compete with the existing rentals in the market.

Overall, the metro market is a great avenue to establish an STR. But you should educate yourself on the risks involved with entering the urban rental market—especially in your specific city. 

4. General Convenience

The traditional leisure vacation rental is the conventional STR we all think of when we hear the words “short-term rental.” But a lot of people use Airbnbs for general purposes where a hotel simply won’t satisfy all of their needs. 

Here are some of the most common reasons people use Airbnbs that aren’t for vacation or business purposes:

  • Hospital Visits: Individuals staying in a city for hospital visits. Major cities will have the best medical facilities, which means that a patient’s family could need a place to stay while their relative is receiving treatment
  • Weddings: Hotels are expensive, so for a wedding, a lot of guests will choose to go with Airbnb to cuts costs. It also gives them a space that they can make feel like home if they’re coming from far away and turning the wedding into a vacation afterward.
  • Reunions & Graduations: Another common reason to use Airbnb is family or school reunions where, again, your guests are likely saving on costs associated with a hotel and they want a palace where they feel like they’re at home. 

If your STR is located near a hospital, a popular wedding venue, or a large university you might see more guests staying for these purposes. And if you don’t know, try asking your guest why they are staying! That will give you a lot more insight and allow you to optimize your listing in the future. 

Set Your Goals and Expectations When Deciding a Market

To decide which market is the best for you, you have to be clear with your goals. Each market comes with its share of benefits and negatives, so you need to align your expectations while keeping these in mind. 

Here’s our list of recommendations: 

  • Business Market: These are good for a steady stream of income year-round if you’re located near conference centers and in a downtown area that professionals are staying in.
  • Unique Experiences: These kinds of rentals may have more downtime, but you can often charge higher rates as they are quite specific in what they offer guests.
  • Vacation Market: These can be resilient if you’re attracting people interested in regional vacations However, for areas that have on seasons and off seasons, you need to be careful. Make sure you can stay profitable on the season alone. 
  • General Purposes: These can be quite resilient depending on where you are and if you optimize your STR listing well. Make sure you ask your guests to understand why they’re booking your rental property. 

Pick the Right Market to Reach Your Investment Goals

Deciding on where to put up your STR is one of the biggest challenges facing real estate investors. With how competitive and unpredictable the STR industry is, identifying the right market and location for your rental could make or break your investment.

But the solution is always to return to your investment goals. As long as you align your objectives to what type of income a market provides, you’ll be well on your way to gaining the highest and most consistent cash flow from your STR investment.

What STR market are you targeting? Feel free to leave us a comment below!

Categories
Landlords

Key Tenant Screening Laws in Michigan

A landlord signing paperwork with a tenant
Photo by Alex Green

There is one thing that will have every landlord quaking in their boots: Professional Tenants. 

If you ever had rude renters you might know what this feels like. They throw parties frequently, leave trash all-around your property, and sometimes even damage the home. So, how can you tell if a renter will be a handful?

Tenant screening is the answer. 

Asking the right questions helps you know if the person you’re interviewing will be respectful, reliable, and take care of the property. But you can’t do it in any way you please. There are some important Michigan screening laws you need to know. To make sure you’re acting fairly, keep these in mind.

That way you won’t step on any toes or face any serious consequences.

In this article, we discuss what Michigan law permits during the tenant screening process, as well as some tips for screening potential tenants. 

Your Rights and Responsibilities as a Michigan Landlord 

The first thing you need to keep in mind as a Michigan landlord is that you are subject to the Fair Credit Reporting Act (FCRA). The law was put in place to protect people’s privacy. This affects a landlord’s access to an applicant’s information. You need to know the following—to abide by the Fair Credit Reporting Act—when screening potential tenant applicants: 

  • Access to an applicant’s credit history is limited – Credit bureaus will not give access to a person’s credit history without having a written consent form from the applicant. 
  • Provide where you got the credit history when rejecting an applicant – If you reject an applicant due to their credit history, you need to provide accurate information about how you accessed their history. You need to elaborate these details the agency that provided their information: 
    • Name of the agency
    • Address of the agency
    • Phone number of the agency
  • You cannot share an applicant’s credit information – you are responsible for securing any information you collect and could be penalized or sued for any potential FCRA violations and identity theft issues. So, you should be very careful with the information you collect. Credit bureaus also do not allow you to share their reports – this means property managers can’t share this information with the property owner.
  • You will be liable for damages if you violate the act – An applicant can seek legal action against you if you don’t adhere to the FCRA, such as in the case of not getting their consent before performing a credit check. 

Additionally, when screening for applicants, you can charge an application fee to cover the costs of background checks and your time & effort. Michigan Law doesn’t have a cap for the amount a landlord can charge for an application fee. You can find more details on tenant screening laws by visiting the Michigan Legislature website.

You should also be aware that the Fair Housing Act doesn’t just fall under Michigan law. It is a nationwide law that prohibits landlords from discriminating against tenant applicants. 

In particular, the law stipulates that landlords cannot deny an application against a “protected class.” Specifically, a protected class refers to a person being treated differently for the following characteristics or attributes:

  • Race
  • Color
  • Religion 
  • Sex
  • Physical or mental disabilities 
  • Familial status 

Now that you know some of the basic laws and acts that apply to you as a landlord, let’s go over the actual process of screening a tenant.

Follow Michigan Screening Laws Right

Michigan tenant screening laws are quite straightforward once you’re familiar with it. Especially since the laws in the state are the same regardless of which city you are in at the time of this article. At the end of the day, these laws exist to make the world fair to both landlords and tenants. If you do it right, it won’t interfere with your business. 

Remember: Following the law is the best way you can protect your real estate business.

And if you’re unsure about your local laws, you can reach out to a property management company for help. We’ve been helping our clients manage their properties in Metro Detroit for decades, so you can be confident that your properties are handled properly and efficiently. 

What else do you want to know about tenant screening? Leave a comment below and our team is happy to answer!

Categories
Flipping

Listen and Learn: Top 5 House Flipping Podcasts to Follow

Photo by Wes Hicks

House flipping is a highly competitive business that is only growing more cut-throat. With how much competition flippers have to deal with, how do you stand out and become successful?

The best way to gain a competitive edge is to educate yourself. You need to be constantly updated on the best house flipping practices and techniques to one-up your rivals. 

Reading a book is a great way to learn the tools of the trade from professional real estate brokers. But, in this day and age, instead of learning from books or blogs, listening to a podcast is a better use of your time. You can listen to a podcast and learn the latest trends of the real estate market while working on your portfolio, cooking dinner, or driving to your next showing!

Here are some of the 5 best podcasts for some house flipping tips. 

The 5 Best House Flipping Podcasts to Listen to

So, you’ve decided to look up some podcasts to expand your house flipping know-how, but do you find the best podcasts that can teach you the best practices of house flipping? To get you the latest developments in the real estate business, we made a list of the top 5 real estate podcasts that can help you become a successful house flipper. 

1. 7 Figure Flipping with Bill Allen 

In this podcast, Bill Allen shares how he and his team make 200 flips and wholesale deals per year. With 7 Figure Flipping, you’ll learn the tools of the trade from house flipping professionals, as the podcast regularly deals with the current trends of the real estate market. 

Take, for example, in his recent episodes, “How Jesse Trujillo Flipped 60 Houses during COVID,” where Jesse divulges his experiences during the pandemic. In the episode, Jesse talked about how he had to adjust his business strategies to fit with the times and how the market is reacting to the changes in buyer spending habits. 

What makes this show especially unique and appealing is its openness to bringing on beginners. For example, one recent interview was with a guest who recently completed their first successful house flip, and what they learned from the experience—perfect for beginner investors to get some valuable tips. 

With the variety of topics this podcast discusses, you can expand your knowledge base of the real estate industry and can help you become a top house flipper. 

Listen to 7 Figure Flipping with Bill Allen now.

2. The Real Estate Guys

Started as a conventional radio program in 1997, it’s currently one of the most downloaded podcasts on iTunes. Robert Helms and Russel Gray, cover topics like strategies to increase equity, lower property taxes and increase your cash flow. 

Listeners can learn the latest and greatest real estate tips from experts who have already done it. With years of experience in their pockets, both Helms and Gray have the know-how that every flipper can learn from. 

Take for instance their “COVID-19 Investing Opportunities series,” where they invite guests to discuss the current trends of the real estate market during the pandemic. With the wide variety of topics covered by The Real Estate Guys, every flipper will have something to learn from this podcast. 

Listen to The Real Estate Guys now.

3. Investing in Real Estate with Lex Levinrad

For people just getting into the house flipping business, this podcast is an ideal study partner. 

The podcast delves into topics like how to acquire foreclosed properties and how to buy bank-owned properties. You’ll learn all the secrets to getting the best real estate deals. In interviews, you’ll get first hand stories from successful real estate investors who share their strategies for becoming a thriving real estate investor.

Lex also talks about the important topics that every real estate investor needs to know, like understanding rental property returns. The podcast also goes into more eclectic topics like why some of his real estate students succeed and why others fail.

All in all, by listening to the Investing in Real Estate podcast, you can learn some of the tricks of the trade that can assist in making you a successful house flipper. 

Listen to Real Estate with Lex Levinrad now.

4. Flipping Houses for Rookies

Just getting into the house flipping business? Well, this podcast can help. Flipping Houses for Rookies will teach you some of the basics to get you started on your flipping journey. 

By tuning in to Flipping Houses for Rookies, you’ll learn valuable topics like:

  • How to buy real estate without a loan
  • The necessary paperwork for flipping a property
  • How to find deals over the internet 

Listen to this podcast for all you need to know before you get into house flipping. As the name says, Flipping Houses for Rookies is a great learning tool to get the ball rolling on your house flipping endeavors.

Listen to Flipping Houses for Rookies now.. 

5. Flip Talk

For those who already have some experience, Flip Talk is a great podcast seeking to help flippers grow their real estate business. The host, Don Costa, is a successful flipper who wants to impart his knowledge and teach you how to become the next real estate success story.

He interviews successful house flippers and other real estate investors about their tricks to making it in the business. For example, they recently invited 18-year-old Jacob Black, who is now the CEO of a seven-figure real estate company, to share his tips for growing his business. 

If you want to hear from some of the biggest names in real estate—this show will help you level up and keep you coming back for more. Get an inside look at some of the strategies these big names used before they got where they are today. 

Listen to Flip Talk now.

Follow Success to Become a Success

To become a successful flipper, you need to have your thumb on the pulse of the market. That means you have to have in-depth know-how to avoid making your next flip a flop. And real estate podcasts are a great way to stay up to date and informed. 

Even if you already have experience as a house flipper, you can always benefit from gaining more knowledge. With these podcasts, you can expand your grasp on the real estate industry and become a better house flipper. 

Did we miss your favorite podcast? Feel free to leave a comment below! 

Categories
Shortterm Rentals

Why Security Deposits Are Necessary and How to Enforce Them in Short Term Rentals

A person counting hundreds of dollars
Image from: Alexander Mils

So, how do guests and tenants really feel about security deposits? 

A computer software company that deals with security deposits, called Obligo, ran a survey on this issue, and found that over 70% of people prefer rentals without security deposits

This could be because guests don’t want to shell out extra money or find the whole process of a security deposit to be an inconvenience. But, even though guests dislike having to pay a security deposit, it’s necessary to protect your property from damages, and more importantly, undesired expenses.

So, what can you do as a short-term rental (STR) owner that benefits both you and your guests? Keep on reading to find out how to find the right balance.

Why are Security Deposits Necessary?

Security deposits are necessary in the event that guests damage the property or steal things during their stay. The deposit serves as a backup fund in case there are necessary expenses after the guest leaves. In addition to having a financial safety net, enforcing a security deposit is a way to filter your guests so that you only attract respectful and high-quality applicants.

can also prevent guests from damaging the property in the first place, since they want to get their deposit back!

What can I charge for Security Deposits?

There are two things to consider when it comes to determining the costs of your secret deposits: your local laws and the rules on that platform. 

When it comes to the laws and regulations for STRs, most states don’t yet differentiate between long-term and short-term rentals. So, for example, in Michigan, you need to abide by the standard laws surrounding security deposits. 

As for platform rules, you need to read the fine print before to make sure you are allowed to collect a security deposit. In the case of Airbnb, the platform does allow owners to add a security deposit to their listings. However, they are optional and not always expected by the guests.

How Do I Justify Security Deposits?

As important as it is to look out for your finances and property, it’s important to look out for your guests, too. Since a lot of them would rather not pay a security deposit, you have to find a way to get them comfortable with it. 

Losing a good potential guest just because of a security deposit is the last thing you want to do—especially in a competitive market like STRs! So, how can you justify security deposits in a way that shows your guests that they can trust you? 

Here are some tips that can help do the trick.

1. Assure your guests that they will get it back.

It’s possible that some tenants and guests had bad experiences with security deposits in the past, so you’ll want to do everything you can to change their perspective. The most important thing you need to address is how to convince them that they’ll actually get it back. And the best way to do this? 

Tell them WHY you have a deposit. Because at the end of the day, the deposit isn’t just to get more money from them, it’s there to protect your property from damage. Another way to improve that trust is to share your own tenant horror story, so they understand why you’re not willing to accept someone who refused a deposit. 

To combat the negative association they have towards deposits, you should also always be prompt in returning security deposits. Short-term rental platforms, such as Vrbo, require that you return security deposits within 2 weeks maximum. If you’re prompt with returning security deposits, it also shows you care about your guest and are a trustworthy host. Then, they’ll leave glowing reviews that future guests can read so they know what to expect from you.

All of this will help your guests see why it’s necessary. And if they still can’t understand your perspective, you probably dodged a bullet anyway.

2. Show guests how you’ll keep a detailed record for fair deductions.

Before you let guests stay in your rental, take note of the property’s state and its items. Keeping detailed records and photos along with a check-in date can help you keep track of everything. 

In the event that you need to use the security deposit, you can accurately pinpoint the reasons that led to the deduction. This way, you conduct yourself professionally and show the guests that using their deposit is warranted and completely fair.

Explain your process to prospective guests so they feel comfortable in putting down a security deposit.

3. Lay down house rules and damage policies. 

Communicating these things beforehand can save you and your guests from an argument in case the full security deposit won’t be returned. By letting them know ahead of time what the house rules and damage policies are, your guests will know how to treat the property.

More so, in case they do break rules and damage things, you can say that you made things clear from the start. Similar to keeping a detailed record, in the event that you have to use the deposit, the guests will know that it’s being deducted in an honest and transparent way.

Get the Best Guests From the Start

Security deposits not only take care of possible damages committed by guests but also act as a filter to ensure you’re only attracting quality guests to your rental property. Because at the end of the day–you don’t want to rent to anyone you don’t trust. 

Although security deposits can put off some guests, being professional and honest about it can make security deposits easier for them. With a security deposit in place, you can worry less about your property, while your guests can enjoy your place responsibly. 

Is there anything else you want to know about security deposits for STRs? Feel free to leave a comment below!

Categories
Wholesaling

Whole-Tailing vs. Wholesaling: Which One Should You Do?

Signing a contract for a wholesale deal
Photo by Romain Dancre

To get the most profits from the real estate business, you need to decide what kind of transaction and type of property best fits your resources and goals. After all, the most successful real estate investors don’t limit themselves to just one strategy. 

Now, wholesaling is a great way to get your feet wet in the real estate market. But, after dipping your toes in with wholesaling, you might also be curious to try other adjacent methods to the investment strategy—whole-tailing being one of them.

While wholesaling involves buying a contract from a house owner and finding an interested third party to purchase the home, whole-tailing is a hybrid of wholesaling and house-flipping. In a nutshell, a whole-tailer will purchase a distressed property, make quick and easy renovations to improve the value, then put it up on the market themselves. 

While a house flipper makes the finishing touches to an entire property, a whole-tailer only addresses the issues that are the most obvious, have a high impact on the price, and are easy to address. Then, they try to sell the property to a buyer willing to fix up the rest of the house themselves. 

Whole-tailing isn’t all that different from wholesaling. 

So, which type of real estate investment strategy should you focus on? 

Here, we’ll discuss the advantages and disadvantages of the two strategies for you to decide which type of method is more appropriate for your means. 

What is Wholesaling, exactly? 

Let’s start by refreshing our minds with how real estate wholesaling works. Wholesaling is a short-term real estate transaction where the investor looks to make a profit with very little capital investment. Here’s how that typically goes: 

  1. The first step of a wholesale deal is to find a good deal on a property with a motivated seller. You’ll then execute a purchase and sell agreement with the seller, who is usually the homeowner.
  2. During the execution of the contract, both parties will agree on an earnest money clause. This clause allows you to deposit a sum that serves as your collateral for finding a buyer. If you can’t find a buyer within the allotted time, you will lose your earnest money. 
  3. The next step is for you to find a willing buyer for the property. Once you’ve found a willing buyer, the both of you will enter an assignment where the buyer will take over your role in the purchase and sell contract. 
  4. Lastly, the buyer will pay the agreed-upon value for the property and your assignment fee—also known as your wholesale fee or wholesale profit.

Here’s an example to illustrate what a wholesale deal looks like. 

You find a homeowner willing to sell his property for $55 thousand, so you enter into a purchase and sell agreement with him. You then find a buyer willing to purchase the house for slightly higher at $65 thousand. Once you find a willing buyer, you’ll enter a signed agreement with them and they’ll assume your position on the purchase. 

Finally, you’ll close the deal with the buyer and homeowner, where the buyer will pay $55 thousand to the seller and $10 thousand to you for your assignment fee.

Advantages of Wholesaling 

Now that we know what the process of wholesaling entails, let’s discuss some of the advantages that wholesaling provides. This will help you see the most important benefits that you’ll get with this method: 

  • It’s the most pain-free way to get into real estate investment. You can learn the basics of the real estate market without much risk. 
  • You’ll earn profits in a short amount of time. The wholesale process is relatively quick in comparison to other real estate transactions such as house-flipping or whole-tailing, taking between a week to a month before you can pocket your profits.
  • You’ll have high rewards with low risks. You don’t need a large amount of capital. In fact, you sometimes don’t spend anything when conducting a wholesale transaction. That said, most experts agree that you can see profits of around 5-10% of a property’s value.   

Disadvantages of Wholesaling

Wholesaling comes with a lot of advantages, but that doesn’t mean it’s a guaranteed prospect. Let’s take a look at some of the disadvantages inherent to wholesaling.

  • Wholesaling tends to have a negative stigma. Because wholesaling is the gateway to becoming a part of the real estate business, it often attracts inexperienced people looking for quick and easy profits. Inexperienced wholesalers can commit mistakes such as overestimating a property’s ARV or underestimating the estimated repair costs (ERC).  
  • Wholesalers face trouble if they can’t find a buyer. If you can’t find a buyer within the allotted time you and the seller agreed on, you will lose your earnest money deposit. 

What is Whole-tailing, Then?

As mentioned before, whole-tailing is an in-between of wholesaling and house flipping. 

In a whole-tail deal, you’ll still buy a distressed property from a motivated seller. Unlike wholesaling though, you won’t be finding another buyer to purchase the property. Instead, like a flip, you will be renovating the property then will try to sell it yourself. Unlike flipping a house though, whole-tailing involves making minimal repairs to get the house sold as soon as possible. 

Those minimal repairs are done to address the most visible and unattractive problems that negatively impact the value. Once you’ve made the repairs to make the property mortgage eligible, you can start searching for the perfect buyer. 

Your dream buyers are usually homeowners willing to fix it up themselves. However, you can also sell it to a new house flipper as well for them to finish the project. 

Now, right off the bat, it’s clear whole-tailing requires more time and effort to generate good profits. You need to do a thorough examination of the property to determine which issues need to be addressed. Remember: You aren’t fixing everything, just the most important things. 

This is not a skill that many people have—which is why wholesaling is more common.

All that aside, if you have the expertise, whole-tailing a property can be a more profitable option than wholesaling. Instead of just earning an assignment fee, you’ll be earning the entire amount of the property. If you’re confident that you can:

  1. Afford to buy the distressed property
  2. Perform quick repairs on the house
  3. Put it up for sale and entice potential buyers

Then, whole-tailing can potentially be a lucrative venture for you.

Depending on the state of the property and the amount of money you’re willing to invest in a property, whole-tailing might be a more profitable option. 

Advantages of Whole-Tailing

Whole-tailing is considered a riskier investment than wholesaling. You’re risking more than earnest money when dealing with a whole-tail. But, that doesn’t mean that whole-tailing is a worse option than wholesaling. In fact, it comes with some benefits like:

  • Wider buyer pool than wholesaling. When conducting a whole-tail, both regular buyers and investors are both be interested in your property. This is in contrast to wholesales, where investors are your primary market. 
  • Higher potential profits over wholesale. When whole-tailing, you have higher profit margins than a wholesaler. In a wholesale, you’re looking at around 5-10% of a property’s value in profit. If you can whole-tail a property, you can see far more than that. For example, a property is up for sale for $50,000. If you wholesale the property, you’re looking at a profit of around $2500-$5000. But in a whole-tail you can potentially make more than that. Here’s a simple breakdown:
    • Property bought at $50,000
    • Repair costs of wiring and plumbing: $8000
    • ARV: $80,000
    • Estimated holding costs: $1000
    • Estimated resale fee: $4800
    • Total costs: $63,800
    • Gross profit for a whole-tail: $16,200       

Disadvantages of Whole-Tailing

Now, let’s take a look at some of the disadvantages of whole-tailing. You might earn more from whole-tailing than wholesaling, but it isn’t all sunshine and rainbows:

  • Riskier than wholesaling. In a whole-tail transaction, if you’re unsuccessful in selling the property, you’re looking to lose all the money you invested in the project. 
  • Whole-tailing requires more capital than wholesale. You also need to consider the purchase price and the repair costs when conducting a whole-tail investment, compared to a wholesale deal where you can make profits without any capital. 
  • Holding costs. You will have to deal with property holding costs if you plan to make it a whole-tail investment. When whole-tailing a property you’ll need to deal with the expenses that come with having a property. This means dealing with any utility fees or homeowner association fees. 

Wholesale or Whole-tail? Both Sound the Same But Are Very Different

If you are new to the real estate business, wholesaling can be a good introduction. It is a low-risk, high-reward deal that can get your toes wet in the real estate market. You can learn the ins and outs of the business in a relatively low-risk situation. 

But if you have the adequate know-how to conduct a whole-tail transaction, it might be the better option for you. You can earn greater profits in a whole-tail deal, making it a more attractive choice if you have the knowledge and the means.

At the end of the day, the best option depends on how well-versed you are in real estate—and how much money you’re willing to invest to earn a profit. Be clear on that before you get started, and you’ll have the highest chance of succeeding in your real estate investment venture.

If you have any questions or suggestions, feel free to leave them in the comments section below! 

Categories
DIY Landlords

Investing in Real Estate from a Property Manager’s Perspective

Executive Summary

Many real estate investors self-manage their properties and I did too learning from my experience as I went. However, professional property managers have a lot of experience to help both new and seasoned real estate investors make the best investment and property management decisions. I asked my property manager, Jill Powell, of 1st Choice Real Estate, PLLC to share some of her insights into what investors should be considering.

Property Management Considerations Before Purchasing

Interestingly, all of the suggestions from my property manager come before purchasing the property. Thus, education and preparation are key to success in real estate investing. However, from my own experience, there are things that you just cannot anticipate and only experience teaches you.

15 Things to Consider Before Making that Next Purchase (in no particular order)

  1. New property investors should not buy older homes that have been turned into multi-units with all utilities included. These properties are often efficiencies or one bedroom units with transient tenants. You will have sky high turnover and sky high utility bills. Plus, you can’t hold anyone responsible for leaving the junk sofa on the curb that you now have to pay to have disposed.
  1. If you buy in a college town, have the parents co-sign.
  1. Always run prospective tenants’ credit and have a good way to score the rest of the application findings. Make sure the application is complete and all steps followed—no cutting corners or exceptions.
  1. If you don’t have a lot of spare time or don’t enjoy tenant calls at 3 a.m., when their heat goes out in Michigan in the winter, think about hiring a property manager. After self managing at first, I now buy my properties with the intent of having a professional property manager help me run my rental business.
  1. Use a cashflow or deal analysis spreadsheet prior to writing your offer. My property manager has seen many out of area investors pay for inspections only to walk on the deal once they find out what the local taxes will be after buying, local cost of the rental licensing and the true cost of rehabbing the property. It pays to have a professional on your side. I always have my property manager weigh in and be involved prior to making any offers. They are a valuable part of my team.
  1. Use a local Realtor who specializes in rental properties. They can tell you not only what is happening with property values and market rents in the area but also things like is there a moratorium prohibiting rentals in that subdivision, a limit on the number of unrelated persons in a property or a limit on the number of pets a tenant/owner can have in a property in that area. 
  1. Get the details from your lender before making the offer so you have the exact downpayment number as this will affect your rate of return.
  1. Start slow and learn from each property.
  1. Investing in real estate is not a way to earn “passive income.” It is a very time consuming business unless you use a property manager.
  1. Be cautious purchasing rental properties with tenants in place. Ask for a tenant ledger. Ask for current photos or, better yet, inspect all units personally. Look up rental/tenant violations for the property historically. Drive by the property at multiple times of the day to see how the tenants maintain the property.
  1. Research rental rates for the area. Just because the listing says they can get a certain rent doesn’t mean they actually are—verify it against market rents.
  1. Know the local laws regarding “discrimination based on income source” for things like section 8 vouchers.
  1. Decide if student housing is right for you. You will have high turnover, higher costs to get the property ready to re-rent and potential issues locally if the tenants like to party.
  1. Have a good CPA. They can help save you a lot of money and understand the tax implications of the investment.
  1.  Make sure you understand the local rental laws where you purchase property.

Conclusion

A professional property manager is a valuable part of any real estate investor’s team. Even if you self-manage your properties, you can learn from their experience to make the best investment and property management decisions before you buy your next property.

About the Author

Categories
Flipping

Top 5 Real Estate Flippers to Learn From (Part 3)

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To quote the founding father of the United States of America, Benjamin Franklin, “An investment in knowledge pays the best interest.” 

When people learn more about the things they venture into, they can do it better. However, it’s also important to consider who you learn from. The better the source, the better your improvement. You want to learn from teachers with plenty of experience and successes in their careers. 

But who are the “good teachers” of house flipping?

In this article, we’ll be talking about some successful flippers, their stories, and their valuable insights. With the right mix of information and inspiration, you too can follow in their footsteps. Read through the list below and find out who you should be following to step up your flipping game.

Mike Cantu

Based in Southern California, Mike Cantu runs a buy and sell operations, deals in wholesaling, and manages his own portfolio of rentals. As a successful figure in the industry, he aims to teach others through books he’s written: Don’t Get Voted Off Real Estate Island and Rental Management and Properties. Apart from books, Mike Cantu teaches through talks in Southern California’s investment clubs.

Being an established figure in the industry, Mike Cantu has reached a point in his career where he wants to help others find success. Although he’s made it now, he took over 30 years to reach where he’s at today. He has two bits of advice for people trying to find success in the business: First, always be eager and dedicated to learning. And second, believe that it’s possible.

According to Mike Cantu, by constantly showing up to learn and believing in yourself, you can find success in real estate. If you’re interested to learn more about Mike Cantu or his courses, find out more here: 

Nick Manfredi

A household name in the real estate community of Southern California, Nick Manfredi is the CEO of the Manfredi Group. He’s also an expert when it comes to buying and flipping, as well as a speaker teaching others about real estate. 

Due to his accomplishments as an entrepreneur, he has even earned features in Fortune Magazine and Los Angeles Times. He’s well-established now, but he overcame many hurdles and challenges over the years to get there—all of which made him the experienced expert that he is today. 

His advice for those starting in the business is to do business with experienced people. By doing so, you can learn the ropes as you work alongside the professionals. That said, this is your chance to “work alongside” and learn from one of the bests—check out Nick Manfredi’s pages online:

Danny Johnson

Apart from being a top house flipper, Danny Johnson is also a best-selling author. In fact, his book Flipping Houses Exposed was the number 1 best-seller on Amazon. And for those of you interested in reading it, it’s free! He also has a blog, FlippingJunkie.com, where he shares his stories and teaches people about the flipping business. 

He started flipping houses in Texas and has now been doing it for over a decade. If there’s anything he wishes he could change early on in his career, it would be that he chose to flip houses he liked rather than flip the ones that investors would buy. His advice is to always consider the investor—not your personal preference. 

To learn more and learn from Danny Johnson, you can click on the following links:

Glenn and Amber Schworm

Husband and wife, Glen and Amber Schworm, started their flipping business in 2008. Fast forward to 2021, and they have bought, flipped, and sold over five hundred houses. On average, they flip about 38 properties a year! To teach and help others find success, they also host a podcast. On it, they talk about all the flipping business alongside other real estate investment tips.

Their top tip for those who want to make it big in the industry is resilience.  As they tell all their followers, “Your mindset needs to be all about getting things done no matter what obstacle is thrown in front of you.”

If you want to keep up with Glen and Amber Schworm, you can head over here:

Doug and Andrea Van Soest

The last entry on this list is another unit, husband and wife Doug and Andrea Van Soest. Their story starts when they first read the book, Rich Dad, Poor Dad by Robert Kiyosaki. After being inspired, they started pursuing their passions. In 2008, they started flipping houses in Southern California, and eventually they went on to invest in rental properties as well.

Today, they have bought and flipped over 140 properties and have over 40 rental units. When they were getting started, they only had one thing in mind: Keep going. They believed that to become successful, you have to actively chase it and make it your reality.

For more about them and their podcast features, you can refer to the links below:

Learn From The Best, Reach Your Best

Before any of these people were successful, they all had to work their way up. But it’s not work alone that got them there—it’s the right mindset, perseverance, and resilience. Once you’ve mastered those key things, it’ll get easier. 

By learning about some accomplished flippers and their insights, you’re already on the right path to finding your own success. You never know, one day we might be sharing your stories to inspire others as well.

Do you have another inspiring flipper in mind that you want to share? Let us know in the comments below!

Categories
Flipping

House Flipper Tips: Steps to Avoid Over-Improving Properties & Keep Profits High

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As someone who flips houses, one of your objectives is to appeal to buyers so you can close a deal. To make this happen, you make improvements on the property. But, more often than not, novice flippers overdo the renovations and subsequently end up with lower profits. 

They invest a lot of time and money only to have it backfire on them when they realize that they can’t sell it at a price that offsets their investment. In other words, they quickly notice that they’ve spent way too much. on something that the market isn’t remotely interested in.

In these cases, more isn’t always better.

Nevertheless, there is a solution to this problem. Read on to find out how you can improve your properties without falling into the common trap of over-investing in a fix-and-flip project.

5 Steps for Planning a Satisfactory Flip Project

Have you ever heard of the Goldilocks principle? The principle is based on the children’s fairy tale, The Three Bears, where Goldilocks is always looking for something that’s  “just right.” 

The moral of the story is to hit that sweet spot that’s not too much or too little. You can apply the same principle in a flipping project. Make just the right amount of improvements on a property so it appeals to more buyers, without spending too many unnecessary hours on it—or far more money than you should.

Here are 5 steps you can take to do this and increase your chances of success:

1. Assess the Property

Once you have a property in mind, you have to assess if it’s worth an investment. Here is a quick list you can use to get started:

  • Determine the After Repaired Value (ARV) based on the neighborhood
  • Determine the features of properties that sell quickly in that neighborhood
  • The property should have these main features that local buyers want
  • The number of repairs should be manageable, within your skill set or knowledge
  • Your quick evaluation budget should have at least a 10% margin of error
  • The ARV less repairs, less purchase price, should meet your profit criteria

If your prospective property meets the above criteria, the property you want is probably a good option for a fix-and-flip project. And it goes without saying that a comprehensive assessment of a property will help you determine the necessary improvements you’ll have to make.

2.. Study Properties in the Area

Do you have your eyes on a property already? Perhaps you’ve already purchased a property and are wondering how to make the most out of it? 

Well, the next step is to conduct in-depth research to evaluate similar properties in the local area. We are referring to the properties that have similar features and price points to your home, so you’ll have a baseline to decide on what to improve in your flip project. 

Scouting local properties is an opportunity to learn what buyers value. For example, here are some questions to answer as you assess properties competing for buyers:

  • Which rooms do they prioritize—kitchens, bathrooms, or living spaces?
  • What characteristics will make your property stand out from the others?
  • What features will make your property more valuable?
  • Are there building codes you need to follow?


By evaluating what’s already selling fast in the market, you won’t waste time and money on unnecessary improvements and your property will get the interest of a large pool of buyers.

3. Consult with a Professional

If you’re investing in an area that’s new to you, we suggest that you seek the help of real estate agents that have sold the most properties in that area. As local experts, they’ll be far more knowledgeable about what sells, at what price, and what to avoid. 

In other words, they are your right-hand-men for insights on planning your flip project better. They’ll know what buyers are looking for and the exact things to improve to sell quickly—enabling you to make the right improvements that will make your property a hot item on the market. 

Understand though, that you shouldn’t expect them to work for free – unless you want to ruin your reputation. So, you should either pay them for their time or agree to let them list the property for sale once ready.

4. Plan Your Budget

Based upon your research and feedback from area experts, you should have a renovation scope of work and now you’ll need to get bids for the corresponding pricing. 

Be prepared for some unpleasant surprises! It happens. When it does, you may need to figure out where you can cut back in other areas.

Once you’ve finalized your budget, you’ll also need to stick to it. This is probably the biggest challenge! You can easily get caught up in “budget creep”, where you spend a few extra dollars here and a few more there, and don’t track these extras until completion. Then you get a nasty surprise that those dollars add up to thousands and ruin your projected profit.

Have a budget in mind of how much you can invest in your flipping project, including the acquisition cost and estimated repair costs (ERC). Only when you have these, can you find properties that fit within your budget and will give you the expected returns.

For example, you can use the industry-standard 70% rule in your budget planning. The 70% rule states that you shouldn’t spend no more than 70% of the after repair value (ARV) minus the costs of repairs on a property. 

Let’s say your total budget is $100,000. You should then be on the lookout for properties that come out at around $100,000 after applying the 70% rule, which means the purchase cost shouldn’t go above $75,000 and the renovations shouldn’t cost more than $25,000.

Using the 70% rule helps you estimate the price range and renovation costs you can afford. That way, you only work within your budget for guaranteed flipping returns.

5. Do Only What’s Necessary

When you’re renovating a property to get it “just right,” you need to focus on the essentials. Keep in mind that you don’t have to go out of your way and make drastic improvements. As long as you cover what’s necessary, the property will be good to go. 

These are what you to focus on when flipping a house:

  • Ensure that electrical wiring and plumbing systems are functional
  • Confirm that foundational factors such as walls, floors, and ceilings are in good condition
  • Make the house look presentable by conducting a deep cleaning and adding a fresh coat of paint

Also, take note to invest in good quality items that are reasonably priced. Splurging and overdoing these things is extra work you don’t need to do, but you do still have to show potential buyers that the house has durable, functional items inside of it.

Moreover, doing too many improvements can elevate the price of the property beyond the buyers’ budget. For example, having a glorious fountain with a group of goldfish in the backyard will only jack up the cost without adding any value for the buyer.

So, just like Goldilocks, you need to make sure the property is just right.

Conclusion

Going above and beyond won’t pay off in the flipping industry. Instead, focus on making the right level of improvements to increase your chances of a successful project that will give you the highest profits. As a  real estate investor, financial viability will always be top priority. 

Bonus

We recommend developing the knowledge to have a rough idea of renovation costs before offering on a property. You should find some example properties and develop a budget to renovate 2-3 sizes/styles of kitchens and baths. You should know about how much it costs to replace a window, exterior and interior doors, the cost of painting per floor plan square foot, what roofing costs per “square”. If you don’t know what something will cost, you should either have a contractor you can quickly contact for pricing or pass on houses that need that type of work until you can develop estimated pricing for that issue.

Did we miss anything? Let us know in the comments below! 

Categories
Shortterm Rentals

Post-Pandemic Challenges and Opportunities

If you have a short-term rental, COVID-19’s travel restrictions likely had a negative impact on your short-term rental investment.

The pandemic challenged everyone’s travel plans all across the globe last year. In turn, travel-related businesses, such as short-term rentals, initially took a major hit and saw business declined. Many markets rebounded relatively quickly, but COVID challenges haven’t fully disappeared yet.. 

Although we are finally regaining our freedom to travel, the World Health Organization (WHO) still advises that individuals and business owners engage in their COVID-19 safety measures. This includes avoiding crowds, spreading high traffic areas out, and cleaning surfaces which many people touch. 

With all this in mind, there are new challenges for short-term rental investments in the post-pandemic world. But, there may just be some new opportunities as well. 

Challenges for Short-Term Rentals

COVID-19 has brought an increased focus on hygiene, cleanliness, and even crowd density. These days, people are still advised to avoid public places, where cleanliness and social distancing can be compromised. 

This means that if your short-term rental property does not meet the current standards for cleanliness and safety, you may find it challenging to rent out your property. You’ll need to make your rental property a desirable option for people and that it keeps their health and safety in mind.

We suggest you prioritize the following aspects:

  • Cleanliness: Now more than ever, having a clean rental property is a key factor in getting booked in the post-pandemic world. Since the spread of COVID-19 can occur due to unsanitized surfaces, people want hosts who go the extra mile to make sure it’s well cleaned. 

Make sure to highlight your cleaning policies in your posting, and in great detail. You want to show them you care about their needs and will go above and beyond to make their stay with you safe.

  • Pandemic Measures: Another consideration is how your property provides safety measures for the pandemic. Onlookers feel safer when they know that rental property owners promote practices to mitigate COVID-19. Leaving extra bottles of hand sanitizers in different rooms, Lysol wipes, bottles of surface disinfectants, and even complimentary masks, can help your property stand out in the sea of online options.

For the general safety of your guests and yourself, there must be a strict adherence to these standards of cleanliness and safety. More so, even if you do your part, your guest might not. So another set of challenges are the ones presented by guests themselves.

  • Unsafe Guests. To keep yourself and your rental unit safe from COVID-19, you have to examine your guests thoroughly and pick them wisely. For example, Airbnb’s COVID-19 guidelines align with the current advice provided by authorities. Guest bookings for a stay after exposure or after testing positive are not allowed. 

Always keep yourself updated with the guidelines and advice regarding COVID-19 and apply these measures when booking guests. 

Opportunities for Short-Term Rentals

While there are some new difficulties for STRs, there are also some opportunities for short-term rental property owners. Here are some things you can promote about your rental property to make it a hot pick for people’s vacation or business plans in a post-pandemic world:

  • Preferred Lodging. As you already know, the way people travel has changed immensely due to the pandemic. Locations that involve high-traffic areas where the virus can easily spread are still advised against by the WHO. As such, places like hotels, restaurants, and public markets are categorized as higher risk.

Luckily, when weighing the pros and cons of hotels versus STRs, an STR is considered safer and more preferable. Due to an STRs exclusive nature, it minimizes the risk of contracting COVID-19 from strangers staying at the same location. 

In addition, guests don’t share facilities and spaces with other guests, so both airborne and surface contamination is far less of a concern. As long as you do your part and keep your rental unit clean and safe, your rental unit will be the preferred choice for bookings.

  • Local Attractions: Most short-term rental properties cater to people looking for lodging while they’re on vacation. And when rental properties are designed to cater to these people, the surrounding area usually provides options for all sorts of activities for guests to enjoy. 

Some may look to retreat in nature, while others want to explore a new city. Whatever options and activities your short-term rental property provides, you can advertise. 

Since short-term rental properties are a safer option to stay in for holiday, more people are shifting to this option. Pair that with the resurgence of traveling, and you can expect that your short-term rental property will be fully booked!

Want to keep doing business? Keep up with the changes!

COVID-19 has brought many unexpected changes in the way people travel—including what kind of short-term place they want to stay in during vacations and trips out-of-state. But these changes aren’t all bad, as the safety measures that go along with COVID-19 can actually heighten the attractiveness of your short-term rental properties if you can make them stand out from the crowd.

The pandemic may have negatively impacted your short-term rental investment, but that’s all about to change. If you deal with the challenges and seize the opportunities given the travel changes, your investments can make a comeback. 

Did we miss anything? Let us know in the comments below!

Categories
Uncategorized

Wholesaling Real Estate With Minimized Risk: Reverse Wholesaling Strategy for Surefire Deals

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Are you looking for different opportunities to generate more income? Taking on similar real estate projects that use a skill set you already have is an advantageous way to create more avenues of income. So, if you’re a seasoned wholesaler, you might want to consider reverse-wholesaling.


What is reverse-wholesaling?


Reverse-wholesaling is when you focus on finding out what a flipper or landlord wants and then start prospecting for motivated sellers with properties that match. Just like in wholesaling, the motivated buyer will purchase the property as is, without any repairs or touch-ups. And just the same, reverse-wholesalers earn through the margins they make from linking a buyer to a seller.


How is reverse-wholesaling different from wholesaling?


You might not even know it, but you could have already done a reverse-wholesale deal! The difference between reverse-wholesaling and wholesaling is that the order in which you look for deals reverses—instead of first looking for a motivated seller, then a motivated buyer, you first look for buyers/investors, then find a motivated seller that has what they want.


Are there benefits to reverse-wholesaling compared to traditional wholesaling?


Here are 3 benefits that you should know if you’re considering reverse-wholesaling.

No Mortgage Concerns. In traditional wholesaling, buyers sometimes try to purchase the distressed seller’s property through a mortgage loan. But here’s the thing: It’s not always approved. You got everything lined up and ready to go, only to disappoint yourself and the seller if the buyer can’t go through with the plan. It’s stressful for everybody in the process.

Reverse-wholesaling eliminates this problem, since the strategy requires you to build a list of serious buyers with the cash to purchase before bringing a seller into the deal. With one less factor for a deal to fail on, reverse-wholesaling provides more assurance that the deal will push through.

Faster Closings. With buyers ready to pay in cash and the motivation for a distressed seller to quickly get a full cash payment, reverse-wholesale deals close much faster than traditional wholesaling.

More so, since deals faster, you have more time to focus on other projects and investments. As the saying goes—”time is money.”


Less Concern Over ARV and Repair Estimates. Inspecting a property, noting down what needs repair, and calculating for the repair estimates and after repair value (ARV) can be a tedious process. Apart from that, what needs repair and how much you will budget for them depends on your subjective assessment.


In reverse-wholesaling, buyers are more involved. When inspecting the prospective property, they may even send their own contractor to take note of the properties’ state. Buyers also decide on the extent of repairs they want, which might not align with your personal assessment. If you come by an investor that works this way, it takes the burden of inspecting, assessing, and calculating off your shoulders.


In addition, you can also learn from contractors and how they inspect to improve your inspection and assessment skills.


Skip the Listings. If you didn’t already know, it’s illegal to advertise a property that isn’t yours unless you’re a licensed broker or a real estate agent. Sometimes when looking for buyers, you may resort to putting the property up online to attract buyers instead. With reverse-wholesaling, the deal starts with the buyer, so that eliminates the need for postings and listings.


Challenges. Really the only challenge is making sure you’re dealing with serious buyers that have the cash to buy once you bring them a deal. No one has an endless supply of funds, so you should expect a buyer to occasionally pass on a deal you bring them. But that’s why you should try to find 2-3 buyers for each category of property you end up looking for.


Conclusion.

Traditional wholesaling is a quick and lucrative business, but it’s not perfect. Reverse wholesaling, on the other hand, has the same characteristics, except deals close faster, there’s less tedious work, and more assurance of a deal pushing through.


It may sound simple, but it’s a very smart way to minimize the common risks that come with the usual wholesaling process. Who knew that doing things in reverse can have such a great impact on your profitability? Well, now you know!


Did we miss anything? Let us know in the comments below!

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