Real Estate Investment 101
Real Estate investing in multi-family properties is a great gateway because you already know this business. You’ve likely lived in a home, or an apartment, all of your life. You maybe have rented at one point, and maybe you’ve been an owner as well. In any case – taking care of the people and the building – is all it really comes down to.
The best way to do this well is to start with the end in mind.
You want a property that will pay you $$$ – so that means something that won’t gobble up all the income with repairs (a.k.a. Don’t run a slum). You also want tenants that won’t devour your time with their issues – (so once again: don’t run a slum!).
Ok, that seems obvious enough. But what about buying the best property in town (Class A)? Well… maybe not, in college they used to say, “D’s get degrees,” and I like to say, “Class B’s get the G’s.” You want something nice enough to get good tenants and good rents, and also get some good appreciation in value. And most often Class A properties do not produce the positive cash flow you need to grow your investment portfolio.
Ok – buy something good, for a good price. Check. (I’d like to help you with that).
Next up – financing.
We can do a whole section on financing – but in short –> Buying a duplex, triplex, or fourplex is the same general process as buying a single family home or condo. You can get very low down payment financing if you will occupy one of the units. If you have a consistent job and decent credit you can use:
- VA benefits, you can do 0% down (VA loan)
- Alaska Native or Native American, you can do 2.25% down (HUD-184)
- Neither of the above, you can still do as little as 3.5% down (FHA)
I recommend lenders that are well aware of the investor’s goals and priorities. (Out of state or under-educated lenders will not help you get where you want to go!)
Managing the Asset
Property management is everything from responding to repair requests to advertising a vacant apartment and leasing up a new tenant. There are many great resources on the web for all of these things. The best free resource online is the web forum: biggerpockets.com. They have also published a yellow book that you can pick up (or I can get for you) called The Book on Managing Rental Property.
I have some great helps for new landlords to get their apartments leased up that I share with my clients. None of it is rocket science, but I do like to save some of my tricks 🙂 – as well as consults on leases etc. Trust me, this is all easier enough, but learning from someone who has done what you want to do will help tremendously.
There are so many great tools available now. But in short – you should be using a cloud based tenant software for rent collection, income and expense tracking (check out cozy.co and tenantcloud.com). You may also consider forming an LLC and a separate bank account for your business. I am not a legal professional, so consider consulting a lawyer and CPA – but I know that for me, this didn’t become necessary for my first property.
I recommend keeping separate accounts so you can deposit income and pay expenses from a dedicated checking account. You have to hold your tenants security deposits separate from your personal funds as well. By keeping your investment income in a separate account, it should also help you to be able to save that money for your next investments. When you co-mingle your investment income with your general income – it is all too easy to spend it on the needs and wants of your day to day. Remember, you have your eyes on the price! Financial Independence, enough monthly income to retire and own your schedule.
Rounding out your network of local contractors.
In Alaska – really you want a good plumber for any heating or water issues. With properties the only real emergencies I’ve seen are around fires (call 911), downed heating systems (call your plumber!), and clogged or burst pipes (call your plumber!). You will want a handyman, perhaps an electrician for certain projects, and a Realtor that specializes in investment properties. You may grow in short order to the place of wanting a REI friendly tax person, or a REI knowledgeable lawyer – but in my experience – you can get pretty far along with just a good Realtor, a good lender, and a good plumber!
Class B’s get the G’sJamie Rose 2020
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