Abandoned and distressed property real estate investing can make your financial dreams a reality. I've seen countless students succeed who take a property that they've located, made a few repairs, and then re-sell it for a tidy profit. Some enjoy these fat paydays so much that that's all they do.
Others believe that selling a cash cow before it has been depleted of its supply of milk isn't in their financial best interest. By holding onto some of your properties and renting them out on a monthly basis, you can not only let your tenants take care of your operating expenses, debt service, and any other expenses that come up, you can also let your tenants provide you with a steady stream of income that doesn't have to stop until you say so.
Why do so many real estate investors opt to go the “landlording” route? The answer is simple: That's where the money's at!
Investors who buy, rehab, and re-sell their properties have a solid wealth-building strategy. You can generate a tremendous amount of money – and sometimes very quickly – by utilizing this strategy.
There's nothing wrong with this strategy if you decide that's all you want to do. However, the secret to creating income – money that comes in on a regular, ongoing basis – takes another, equally impressive investing strategy. This strategy is sometimes referred to as “landlording”.
While the income generated from a single rental may not seem worthy of writing home about – a decent monthly return can average $300-$500 per property for single-family units – the real life changing nature of this opportunity is realized when you begin accumulating properties.
Multiply that monthly income stream by a factor of 8, 10 – or 30 – and it becomes readily apparent why so many real estate investors want to learn more about the on-going profits that can be generated by renting their properties to tenants. That single little stream of cash can very quickly turn into a torrential flood of profits, overflowing your bank account with huggable, squeezable, life-changing prosperity.
The primary reason that some investors decide to avoid the rental market is a lack of knowledge. Most of them are fearful that they won't be able to generate positive income from their properties or that expenses will gobble up all of their profits.
While these are legitimate concerns, I've developed a fool-proof system for ensuring that a property will always make money. If for some reason it doesn't, I even have an exit plan built into my strategy to ensure that you can cash out of a property that doesn't meet your expectations – that will allow you to fill your pockets with cash on the back end!
Know rental rates – One of the trickiest aspects of renting properties lies in knowing how much to charge. Because rental rates have a general range instead of a fixed, absolute price, the rental rate range in a given area could vary by as much as $100 – or more – per month. This doesn't mean that you can't charge substantially more than the prevailing market rent for a property, but it does mean that if you do, you had better have a special property with unbelievable amenities or you could be stuck with a property that you can't rent.
A general rule of thumb is that if you have what you consider a fairly average property (in terms of condition, location, and amenities), then your monthly rental amount should probably fall somewhere in the mid-rent range for that particular area. However, you could always set the rent a little bit higher to start and subsequently reduce it if it doesn't rent as quickly as you would like.
Figure Your Income & Expenses – Your cashflow, the amount you have left each month after expenses, must be a positive number. (The government might get away with spending money they don't have, but it doesn't work so well for the average real estate investor unless you have some VERY good friends in high places.) In order to ensure that you have adequate financial resources to meet these expenses, it's important that you have a firm grasp over how much these on-going expenses will be.
While your monthly payment will usually be a fixed amount each month, other expenses can fluctuate wildly. If you do a good job in estimating these expenses, your property will make you very happy and will provide you with spendable cash each month. However, if you misjudge your expenses – or you fail to include an expense in you projections – it is very possible that your positively enriching real estate investing experience could turn into a financial disaster that could make you wish you were a greeter at Walmart.
One of the best ways to solve this particular problem is to be conservative when considering projected income and to be extremely liberal when estimating expenses. When you figure income, don't forget to work a vacancy allowance into your projections. No property will have a 100% occupancy rate, regardless of how great your tenants are or how wonderful your tenants think you are.
Set money aside for unexpected expenses – Your properties may feature brand new heating and air conditioning systems, water heaters, and state-of-the-art appliances or it could have major systems that are held together by duct tape and a short prayer – but one thing remains a constant in real estate: regardless of age or condition, these things will break, and usually when you least expect them to.
In keeping with the Boy Scout motto, you should always be prepared by having a maintenance fund. Whether you segregate the money based on whether it's a routine maintenance item or an emergency
replacement fund is irrelevant, as long as you budget for this contingency. What you don't want to happen is to have a tenant call you on the coldest night of the year to tell you that the furnace is broken – and have to break the news to them that help will be coming with the Spring thaw.
Explosive, long-term income from rentals can be as close as the next abandoned property. You can generate stable, long-term income opportunities by renting to the “average Joe”. However, there's another segment of the population that has traditionally been under-served as well: low income renters.
Before you shrug off the Section 8 Housing Choice Voucher Program as being more trouble than it is worth, let me point
out that this program can provide you with a stable, ready source of income that will always be on-time.While there are a few government hoops to jump through, this program can be extremely lucrative, especially if you have a property in a transitional area. One of the chief benefits to the Section 8 housing program is that rents will be paid on-time, and tenants have an incentive to take care of your property. If they don't, they can lose their housing voucher – in most cases – for life.
Depending upon where you live, you may be able to take advantage of the opportunity to rent to college students with a desire to live off-campus. In most cases, you won't be pairing students together in housing situations. Instead, what typically happens is that students who already know each other who have a desire to live together will rent from you.
It can be a triple win for you. You can charge premium rents, in some cases can collect rent in advance, and in most cases, you'll be
able to require a parent to co-sign on the lease. This all but guarantees that the property will be wellcared for and rent will be paid on-time.
If for some reason the student doesn't live up to their rental agreement or lease, enforcement of the terms is usually just a matter of calling mom and dad on the phone and reminding them that they cosigned for their child. While Johnny may not realize that it's in his best interest to pay on time, mom and dad will ensure that the terms of the lease are adhered to because their credit rating is on the line.
By following just a few of the guidelines I mention in this message, you will have an advantage that most real estate investors with lots of investing experience can't claim: you'll know some highly effective best practices that will enable you to create real wealth and income-creating opportunities.
However, because abandoned and distressed properties can be acquired so inexpensively, if you discover that a property that you've purchased is routinely costing you more than you had anticipated –
or market conditions change and you opt to unload the property quickly, you'll still be able to do so in a profitable way.
Rentals can help you to reach your real estate investing dreams, and doing so doesn't have to be a nightmare. While getting from where you are to where you want to be might seem overwhelming right now, it's really much easier than you think.
If you don't know each step of the process, you're at a crossroads right now. You can take the left fork in the road and venture down the real estate investing path cautiously, and hopefully, in time, reach your destination through trial and error, hoping against hope that you don't make an expensive mistake that could cost you dearly. Or learn from others.
Honestly, life is simply too short to be caught flat-footed without the best real estate investing advice that can help you to reach the pinnacle of investing success much more quickly than you could on your own. I've been there, done that, and I have the battle scars to prove it. Of course, you might be one of those rare types who prefer to do things the hard way. If you are, I wish you the best.