Wednesday, October 15, 2014

3 “Insider Tips” When Buying Your First Rental Home




I got a call from a friend of mine from college, “Rich”, a few weeks ago.  After the prerequisite ribbing was completed (Do you have any hair left?  Is your Linked-In profile photo from your high school yearbook?  Are you still awful at basketball?), Rich got down to business:

“I’m thinking of buying my first rental home for investment.  Got any advice?”

Me:  “Ummm… have you looked at the blog I’ve been writing for the past 5 years entitled ‘Charlotte Property Management?’  It seems like all I do is spout out advice on this stuff.” 

Rich: “Sure… I read it all the time, sometimes to my kids at night.  I meant any other advice for the special people in your life.” (wink, wink)

Me: “Oh, the “insider tips”?  Of course!  It will cost you, though!

I suppose “insider tips” means the advice from people that have been burned (or are getting singed monthly) on investing errors.  They now know better.

My top 3 insider tips for first time investors:

1.  Don’t buy in low-priced areas (aka places where you are buying the house for under $75K in Charlotte).

Common retort: “But I can get the house for $15K.  There is a tenant paying $400/month.  And I could buy 10 of them just like this one.  The cash flow would be insane!”

My response: Can you stomach getting calls that say any of the following:
a.  I just saw someone get shot in my driveway!
b.  The air conditioning unit got stolen again.  Should we order you another?
c.  I think my flooring is caving in.

Sadly, I’ve gotten these calls.  I (and my checkbook) didn’t enjoy taking them. 

2.  Hire a great property manager.  I know I’m biased, so I won’t expound on this.  Suffice to say, you don’t know what you don’t know.  And you may enjoy cost savings from not paying a property manager for years; then you make one mistake that wipes out all of the savings and you wonder why you were taking tenant clogged toilet calls at midnight for no long term financial benefit. 

And my top tip…

3.  Don’t get a mortgage; wait until you have the funds and then pay for the house with cash.  Or at least pay more than 50% with cash.

It’s a drain on cash flow when you need everything to go right to make money every month (or to break even).  Because things break (sometimes major things), tenants don’t always pay (but you better pay your bank!), and you will find yourself losing money.  Yes, your accountant will tell you that it’s great for your taxes, but it stinks in real life.  The purpose of investments is to make money.  Locking into an investment that consistently saps your cash flow is no fun.

Example: $1,000 rent - $850 mortgage payment – $100 property management fees – $250 HVAC repair = $200 loss (bad feeling)

Or

$1,000 rent - $0 mortgage payment (you paid with cash!) – $100 property management fees – $250 HVAC repair = $650 gain (good feeling!)

So, Rich, my insider advice in a nutshell is… Set yourself up in a wise, peaceful manner so you can enjoy and make money on your real estate investments!  Be disciplined now so your assets don’t become financial and emotional liabilities…  And don’t crack on my hoops game!


Brett Furniss is the President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for Charlotte landlords & Home of $100 Flat Fee Property Management.   BDF Realty utilizes their innovative Pod System for exceptional customer service in residential property management, home repairs, and home sales for single-family homes, condos, and town homes in the Charlotte-Metro Area.  Contact Us Today!

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