Investing in real estate can be an effective way to make money both today and in the future. However, there is no guarantee that you will see a return on your investment right away or ever. Therefore, it is important that you choose your properties wisely to give yourself the best chance to make a return on your investment. What should you know about real estate investing and how to choose a property?
1. Hold 10 Percent of Monthly Profits for Maintenance Purpose
You should hold about 10 percent of your monthly profit in a bank account earmarked for maintenance expenses. While you shouldn’t have to replace a toilet or repair the roof every month or even once a year, having an emergency fund ready ensures that you don’t need to go into debt or sell the property as opposed to making the repairs.
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To keep costs low, you should develop relationships with contractors who you trust to do a good job at an affordable cost. In exchange for guaranteeing a contractor the right to work on your properties, the contractor may offer a discount off of his or her standard rates. It may also be possible to work on a Net 30 or Net 60 system, which means that you pay 30 or 60 days after services are rendered.
Finally, you may want to look into getting a home warranty or purchasing properties that already have a warranty. This can make it easier to cover the cost of maintaining your home without having to file an insurance claim to recoup your losses.
2. Bill Each Unit Separately for Utilities
Through the use of an electric sub-meter, you can bill each tenant separately for the utilities that he or she uses. This ensures that your tenants are billed accurately and that no one is paying for services that other tenants are using in their own apartments. Each month, you can bill the tenant, have the utility provider bill the tenant or simply roll the cost into the rent and adjust as necessary each year.
In a typical lease, the landlord requires the tenant to pay for electricity, air conditioning and water. However, you may want to cover the cost of heat, hot water and basic cable. Whether or not you’re cover utilities and other extras may play a role in how much you charge each month to rent out your home or each unit in your complex.
3. Utilize Real Estate Investor Software
A lot of people don’t even consider real estate investor software because of the high price that usually accompanies it. What they do not consider is how much more money could be made by property utilizing some of the available software. Increasing your profits by just 5% in the real estate business can be tens of thousands of pounds a year. While this software isn’t for everyone, they should be carefully considered by all serious real estate investors.
4. Landlords are bound by Previous Leases
If you have a tenant who is already living in a home or apartment building that you want to buy, you must honor that lease. This means that if an individual is paying less than what you would charge, you have no choice but to accept that rate until the lease runs out. However, if the tenant is living on a monthly basis, you have the right to ask that person to sign a formal lease for however long you wish the tenant to stay.
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In some cases, tenants may be willing to leave as opposed to fighting with a landlord who they don’t know or have a working relationship with. However, having a tenant in a home or any other rental property makes that property more valuable if your plan was to rent it. Depending on the home market, waiting a year to sell it could actually make it worth more because of appreciation in the housing market.
Buying real estate to flip or rent could be worth your while if you understand what you are getting into. Whether you decide to flip for quick profits or rent for long-term revenue, understanding these aspects of real estate investing can help you make as much as you need for as long as you want.