25 Steps to Buying and Managing Rental Real Estate
Everywhere I turn there is someone snapping up a foreclosure. Turn on the television and HGTV is populated with renovation ideas for the abundance of below market real estate. Sandy at Yes I am Cheap just raided her 401(K) to purchase a two family property. Although we just traded our home for a condo, that was due to a cross country move.
My Real Estate Back Story
I was raised in the real estate world. My dad started a company the year I was born where he purchased cheap run down homes, renovated them, and resold the newly remodeled homes. As a child, our Sunday’s were spent driving around the city looking for property to buy. In elementary school, my mom got in the business and became an awesome agent. In today’s vernacular, dad was a real estate flipper. I saw him work his tail off, go to sheriff sales to buy foreclosures, and deal with oodles of bad tenants. When I got older I spent a few years in the business, delivering eviction notices, bidding on property at sheriff sales and buying and selling real estate for my own account and others. Today I am a portfolio manager for a real estate holding company. I learned about capital expenses and tax write offs shortly after I learned to read.
Owning Rental Real Estate Is Not a Get Rich Quick Scheme
With interest rates and real estate prices lower than they’ve been in years, now is a good time to invest in real estate if you are financially, temporally, and emotionally able to handle it. Buying and managing real estate is a lot of work. It is a way to boost your net worth, slowly.
Before calling an agent and signing a purchase agreement to buy a rental property, check out this real estate “to do” list.
Rental Real Estate Step by Step
- Search through many real estate listings and visit potential properties.
- Meticulously analyze the potential income and expenses of each property, making sure to allow plenty of cash for unexpected repairs and vacancies.
- Complete reams of paperwork when applying for a loan.
- Analyze records of current owner before purchase. Have the judgment and experience to recognize whether the owner’s records are accurate or not. Call utility companies and verify utility costs. Check with assessor for tax rates.
- Make an offer on a prospective property and negotiate until either you land and acceptance of rejection.
- If you can’t come to an agreement on price and terms, move on and start the process over.
- After initial offer is accepted, follow up on all property inspections to make sure the property is in expected condition.
- If all goes as planned, sit through an hour settlement, sign all the papers for mortgage and purchase and get the keys to your real estate.
- Clean, repair and remodel the property so it’s ready to be occupied.
- Obtain lease agreements, arrange for service to check credit ratings of potential tenants, and set up a bookkeeping system for the property.
- Advertise the property for rent.
- Vet potential tenants on the phone.
- Meet with the tenants to show the property.
- Review rental application, credit report, and phone references.
- Waste a lot of time with potential tenants who don’t show up or are not financially stable.
- Select a tenant for the rental.
- Meet with the tenant to sign the lease, receive the deposit and rent payment. Walk through the unit with the tenant and note the condition of the property. Make sure to record existing flaws in the home. This is important at move out so that you can appropriately decide whether the property is in proper condition to receive the deposit.
- Field phone calls at inopportune times when there is a problem, a clogged drain, a broken window, a broken stove, etc.
- Arrange with a repair person to make the needed fixes and pay the bill.
- Call the tenant when the rent is late.
- Evict the tenant when they fall months behind in the rent.
- Go to court to handle the eviction or hire an attorney.
- When the tenant moves out and leaves the property a mess, you need to go through the entire process again.
- Pay the monthly bills and maintain the financial records.
- If you hire a property manager it’s not always much better. Then you have to pay the property manager and oversee him/her to ensure they are doing a good job. You also have to comb over their records to verify the accuracy.
If you’re considering rental real estate ownership, go in with your eyes open. Make sure you have some cash for a down payment, spare time to invest in this project, and the endurance to oversee the ongoing management of the rental real estate.
Stop back for Part 2 of this series for Quick and Easy Ways to Invest in Real Estate.
Have you ever considered investing in real estate? What are your real estate thoughts and experiences?
image credit; google images-all apartment buildings dot com