The Pros And Cons of Landlording

There are numerous ways to invest in real estate. A common investing trend is landlording. Landlords are investors who purchase real estate and instead of selling it for a profit, retain the property and lease it to a tenant.

Landlording for profit makes economic sense. To begin, there will always be a high demand for homes and land. As supply and demand goes, it is reasonable to venture that a landlord could make a lot of money off individuals who, for whatever reason, don’t have a place of their own to call home. Even better, renting is a growing trend. As that trend grows, so does the potential of successfully leasing a home.

When done correctly, leasing property can pay big dividends for the investor. The lessee essentially pays for the property while the landlord retains the equity. Landlords who charge more then the property’s mortgage can either gain a profit off the excess rent or put it on the mortgage for a faster payoff. Eventually the investment will be paid off and can serve as a residual income for years to come.

As an added bonus, landlords qualify for some big tax advantages. Investors who rent their property can receive liberal tax breaks. Landlords can deduct real estate taxes and mortgage interest on their rental properties. Investors can also write off their operating expenses such as yard care, maintenance, utilities, HOA fees and insurance. Finally, residential buildings can be depreciated during a 27.5 year span, even if the property increases in value.

There are some downfalls to being a landlord. If you decide to manage your investment properties on your own, it can be very time consuming and stressful. When renters have issues with the home or property, they come to the landlord for assistance. When something breaks, the landlord is usually responsible for fixing it. For a fee, the would-be landlord can pay a management company to oversee the proprietor duties and handle troubles when they occur. Along those same lines, landlords sometimes face tough situations when their tenants don’t pay on time. This can put the investor in a bad cash flow position.

Landlords are also responsible for their tenant’s safety. There are laws regulating these responsibilities and it is important for the investor to know and understand them.

Because rental real estate usually has a mortgage attached to it, the property can tie up the investor’s personal wealth. Investment property of this nature pays off more so in the long run, after it has been paid for and continues to generate a monthly payment. Depending on the investor, landlording may not be an ideal way to pursue capital gain.

Whether or not becoming a property-owner is right for you as an investor depends on your goals. In the long run, landlording can pay off. Like all things in life, however, there are pros and cons to being a landlord. It may be that you don’t want to bother with rental properties. Either way, it is definitely something to consider.

Omar Johnson is a real estate investor and author of the home study course “The Real Estate Investors Guide To Finding Motivated Sellers” For more info visit http://www.findingthemotivatedsellers.com

Article Source: ArticleSpan

Understanding Rental Property Security Deposits

A security deposit is money a smart landlord collects from a tenant before use and occupancy of a rental unit to insure that the tenant will pay rent on time and keep the rental unit in good condition. A security deposit is not rent and cannot be used for rent during the course of occupancy; conversely, rent collected in advance of the first month is not considered part of the security deposit agreement.

The idea behind the deposit is that a tenant with money tied up in the property will more likely be responsible and in turn keep the surroundings in reasonably good condition. In other words, the security deposits help the landlord to create some interest in the property for a tenant.

How much of a security deposit a landlord can collect and how the security deposits are to be returned to the tenant are typically regulated by state law, which do vary.

In this case, you would be wise to check with your state authorities to determine if they have a set amount that you can collect and a set time in which you must return either the entire amount or an itemized statement explaining why you might be taking deductions from the security—most states typically will allow you to keep some amount of the deposit for damage (other than normal wear and tear) caused to the rental unit by the tenant, a family member, or a guest, unpaid rent, the replacement of any property taken by a tenant, and any necessary cleaning required to restore the unit to the condition in which the tenant took occupancy.

Typically, deposits are accessed by the landlord after a tenant vacates the premises. There are, however, also cases when you (the landlord) do not have to wait for the tenant to evacuate the premises before using part or all of a tenant’s security deposit. For example, if a tenant breaks a window and doesn’t pay to have it fixed.

Should a tenant ask you to apply a portion of the security deposit toward the last month’s rent you can elect to do so though it’s not a good idea. You would not want to discover later that the tenant left your rental unit a mess or removes items he or she has no right to take without sufficient funds to cover the expenses for repairs or replacement.

Here’s the bottom line.

The purpose of collecting security deposits (for you the landlord) is to protect your investment from unruly tenants by keeping the tenant responsible. You do not want to raucous tenants ruining your property. So consult your state authorities and determine what you can do legally to enforce your rights with security deposits, and then take advantage of every opportunity you are given to protect yourself with a rock-solid security deposit agreement.

Are You a Real Estate Agent that Wants to Sell Income Property?

In this article, I want to share with you why residential real estate agents should sell rental property to supplement their real estate business, some truths and myths about selling income properties, and how a good real estate agent software solution can help you prepare.

Benefits of Selling Income Property

Money, of course, is the primary benefit of working with rental properties. When I started selling real estate, the average commission for selling a house was about $1,500 after the broker split. When I made my first income-property sale as a residential agent, I made $15,000 after the broker split. That sale took place in 1978 and having gotten a taste, I choose to make rental properties my business as a result, have been selling income-producing properties exclusively for the past thirty years.

But I digress.

This article is not about getting you to forsake your current residential business to become a multifamily specialist, it’s about getting you to become a real estate agent who can (and will desire to) sell investment property in addition to single-family homes because the money is good.

Let me give you one example of a residential agent here in Salem, Oregon that merely called a FSBO regarding a small vacant lot that ultimately connected her with an apartment builder who subsequently allowed her to list about sixty apartment units. She never stopped selling houses, but because she thought outside the box and also made an effort to expand her residential business, she unwittingly fell into investment real estate and made a sizable commission as a result.

Another benefit of being able to work with rental property, especially for those of you who have been successful at selling houses and have a sizable customer list, is that you have at your disposal a ton of potential investors. Given this economy and the fact that banks are only paying about 2% to use our money, it might surprise you to discover that homeowners who have never invested in rental property are more open to the idea now than ever before.

Lastly, it benefits you to have the ability to sell income-producing properties because it prepares you to service walk-ins and others who inquire about income property. So you never risk losing a sale opportunity or have to refer it away because you’re not prepared to work with real estate investors.

You Don’t Need to Become a Specialist

The beauty of rental properties is that you don’t have to become a specialist or have any special training to sell it. Naturally, there are exceptions with some types of commercial property, but at the end of the day, most properties associated with real estate investing require little preparation on your part.

How to Prepare

Bear in mind that real estate investing is about the numbers—cash flow, rates of return, and profitability. Therefore, obtain good real estate agent software that will enable you to run those numbers correctly (and easily).

A good real estate agent software solution will provide you with cash flow presentations you can give to (and capture) investors and, just by virtue of using the software, enable you to learn all you need to know to service investment properties adequately. As an added bonus, having the ability to create multifamily cash flow and rate of return presentations, you may even get some referral business from colleagues.

Here’s to your success.

Know More About Real Estate Investments

Real estate, in general is defined as the immovable property. This type of property is sometimes synonymous to real property, which is referred to as the property which includes not only the land but also elements which are fixed to the site such as buildings, machines and others.

With this knowledge, the potentiality of the real estate as an aspiring business opportunity is a verifiable fact. Venturing into real estate investments is an amazingly risky way to generate wealth. It is even considered a big part of the business sector. A real estate investment basically undertaken by real estate investors is the appreciation of property value, paving way to more capital gains. Such investments can generate income in many ways.

Among these are rental income and using of such property as collateral for loan. The rental income comes when a property owner, allows his or her buildings to be occupied either as residential places or as office spaces, allowing rental income to accrue. Also, real estates are very valuable assets; it may be used in several ways. There, one first mentioned, is the use of lands as collateral for loans. It may also serve as safety net for other business transactions.

Real estate investments are always long term investments which mean with such values, these investments may never be sold easily nor transferred quickly. These assets are usually so valuable it can create undeniable assurance. Long term investments create such a spurge in the business world as it is such a major part of business activities. For example, such investments being more valuable as time passes and its permanence more certain, entrepreneurs are now venturing into businesses which are real estate-related.

The extent of its profitability is sometimes coined with the risk adjustments an investor has to go through as this endeavor is undertaken.
Real estate investing involves the management, sale, purchase of such properties and usually is profit-oriented. People who aggrandize such undertakings are called real estate investors.

Investors are in charge of handling real estate deals, and usually are just involve in investing in real estates. Such persona’s are either active or passive, the first being directly involved in further real estate activities and the latter being just a starter and just hire another real investment firm to conduct further investment properties. This altogether expands the network of people working in the real property business, making it that of a bigger network than it is. Real estate investments create a wider arena when it comes to profitability; employment, more business ventures as well as tax generated for specific places of investments and are usually chosen as investments for reasons of appreciation, depreciation, tax benefits and leverage.

Most people are drawn to such investments because they provide a sense of security and certainty in a world which seems to have the capacity of taking away seemingly secured possessions. Real estate investments are of the essence for some group of individuals for they do not only provide such senses, they also pave way to a more secure life, bigger income, and a certainty of a very well-to-do future.

The owner of the website http:// RealEstateInvestor.com has formed this website for the people who truly want to achieve success. His goal is to create a community where that support is accessible and abundant, and is a major asset in every investor’s toolbox for their achievement and growth as real estate investors.

Article Source: ArticleSpan

The APOD and Rental Property Performance Evaluation

An income-and-expense statement for real estate commonly used by investors as a guide to evaluate rental property performance is the annual property operating data, or APOD.

In this article, we’ll look at the APOD and consider what it may reveal about a property, how it’s constructed, its strengths and weaknesses, and when it is best used during the profitability analysis of investment real estate.

To begin with, understand that just as the name annual property operating data implies, all the financial data on an APOD are annualized. So when we refer to the income, expenses, mortgage payment and cash flow, we are speaking about an annual amount.

What the Statement Reveals

The popularity of an APOD lies in fact that it gives an analyst a good first-glance at a property because it projects the income and expenses out just twelve months. So it acts somewhat like a “snap shot” of the property’s financial performance. When you look at the statement you see a rental property’s income, operating expenses, debt service (mortgage payment), and cash flow instantly.

Of course, all this financial data is assumed (it may or may not be the true story), but we’ll cover that later.

How to Construct

An annual property operating data statement, unlike other income-and-expense statements commonly associated with investment real estate analysis, is that it is generally constructed on one page.

It will show the gross scheduled income (income generated from rents at 100% occupancy), vacancy allowance (loss due to vacancy), other income (such as income generated from coin-operated laundry facilities), operating expenses (itemized and total), debt service, and cash flow without having to sort through two or three pages.

The data’s objective is straightforward: income less operating expenses less mortgage payment equals cash flow.

Pros and Cons

As stated, one of the essential advantages of an APOD is that it can tell you quickly and comprehensibly what cash flow an income property might generate after the first year of ownership.

On the other hand, it doesn’t include any elements of tax shelter. It will not show you what cash flow you might expect to receive after you pay taxes, or what your tax benefit or loss might be due to owning the property. An annual operating property data statement simply does not calculate for, or reveal tax issues.

The APOD also does not account for the time value of money. There are no calculations for either compounding or discounting; the cash flow it assumes in twelve months simply represents what a dollar is worth today, not how much less it might be worth next year perhaps after inflation.

Garbage in Garbage Out

Naturally, not unlike any report being used to evaluate the financial performance of investment real estate, an APOD is only as good as its data. The income, expense, and mortgage figures must be accurate (or at least reasonable) for the cash flow to be accurate and/or reasonable.

As a result, no prudent real estate investor would ever base an investment decision solely upon an annual property operating statement and, in fact, would undoubtedly have more questions about the property after looking at the report than satisfactory answers. But this is what any preliminary information about an investment property is intended to do anyway, so this is a good thing.

Okay, so when is the best time to present an APOD to a potential buyer? Include it in your initial presentation. As stated, it might not influence a buying decision (and shouldn’t), but if done correctly, this one-page income-and-expense statement can arouse a buyer to continue to evaluate at what price and on what terms a rental property will make sense as an investment. And that’s a good thing.

Time to Tool-up with Real Estate Investment Software

There are buyers galore who would like to increase their return on investment and are looking for real estate investment opportunities; virtually hundreds of people who are sitting on thousands of dollars deposited in accounts earning less than two percent and open to investment properties that could earn them more.

A colleague recently told me of two separate instances where her residential customers (not previous investors) expressed absolute dissatisfaction with the meager return they are currently collecting from their bank account and asked her to find them a rental property investment.

This is not surprising. I have been urging my real estate investment software customers for months to start calling their customers and asking whether they might have an interest in real estate investing.

If you are a real estate agent and you are not ready to work with rental income property (i.e., you cannot produce a rental property cash flow analysis presentation to a rental property buyer or seller) then you should listen up.

You’re not going to be effective with your customers unless you can show them what rate of return they can expect to receive from rental properties. Merely sending them listings from the MLS without a concise cash flow analysis is like trying to sell a house without letting the buyer preview it. It’s crucial to the decision making.

You must bear in mind that real estate investing is all about the numbers. If you truly want to succeed at converting your residential customers into real estate investors, you must be able to create clear and concise rental property cash flow, rates of return, and profitability analysis presentations.

Real estate investment software such as ProAPOD is not expensive; moreover as a tool in your real estate arsenal, it can make the difference between your ability to make the sale or not. In this economy, it just makes sense that you would want to take advantage of any opportunity you can to sell real estate; and this is really a great time to start selling rental properties.