So you wanna be a Real Estate Investor? You’ve spent the money to attend several seminars, weekend boot camps, coaching programs, and other various educational events to acquire knowledge from the “experts.” Some of these events were worthwhile, some were not. In either case, the gist of these programs is to teach you the systems and tools you need (everything from A to Z) to be successful investing in real estate, whether you’re doing deals yourself or learning how to invest passively in real estate. I’ve been investing in single family homes for 8 years and I’m going to share with you what it takes to succeed based on my experience. Regardless of what the “gurus” say, success in the single family space comes down to 3 things:
1. Rehabbing your home to the highest standard and better than your competition
2. Buying your home in great areas
3. Managing your property by Experienced Professional Property Managers
That’s it! Now, I’m not saying you won’t have hiccups along the way and experience some ups and downs. That’s just the nature of the investment property business. But, what I am saying is that if you have all 3 qualities mentioned above, your probability of success is much greater! This will truly position you to have the passive income you desire.
Let’s briefly discuss each:
Rehab your home to the highest standard and better than your competition
Today’s market is saturated with rental homes, giving prospective tenants lots of choices. You want to make sure your property stands out. Similar to selling a home on the retail market, the key to a quick sale is to hook your prospects early and make them feel uncomfortable about turning down your home. The buying process in real estate is very emotional, as is the selection process for tenants! They want to live in the best home possible and you can do a few simple things to ensure they pick yours first.
The model of doing a quick “cosmetic” rehab to prepare a house for rental is over! It is no longer acceptable to just “throw lipstick on the pig” (i.e. paint the walls, give it a quick clean, keep the ugly 70’s style tile in the bathrooms and laminate flooring in the kitchen, etc). After all, it’s just a rental, right? Wrong! It’s an investment property and it’ll only perform when it’s rented to a paying tenant. The key to consistent passive income is reducing vacancy and maintenance, and we do this by spending the extra money on the front end to rehab the house right, place the best tenant, and encourage them to stay forever!
We no longer put carpet in high traffic areas, instead we place a durable high quality Laminate hardwood floor. Gone is the old vinyl flooring in the kitchen, replaced by high quality travertine tile floors. Dated kitchen countertops are replaced with brand new, as is the kitchen sink. Old electrical fixtures are replaced by a more modern look- including brand new ceiling fans in the bedrooms. Also, we add the extra “sizzle” features such as oil rubbed bronze fans, brush nickel faucets, and updated bathrooms with new towel racks and mirrors. The exterior of our homes get cedar shutters and a new landscaping package for enhanced curb appeal!
Lastly, we always recommend our clients get a home inspection before closing on a purchase so that we can address and fix any items missed during the initial renovation. A minor punchlist is produced from the inspection that we usually can knock out in a day or two at the most. Keep in mind that these are still rental properties, and may have slight imperfections (you won’t be living there, your tenant will). But any and all major items will be addressed and fixed to avoid costly renovation expenses down the road.
Competitor’s Living Room
Memphis Turnkey Living Room
Buy Your Home in Great Areas
When I started investing in real estate I focused exclusively on numbers and paid little attention to location. If the numbers of the deal made sense, I would buy it. Most of the “gurus” teach you to “fall in love with the numbers and not the property”, because “you won’t be living there your tenant will.” Logically, this seems to make sense, however, experience has taught me otherwise. As I acquired investment properties in lower income areas I discovered that they didn’t perform as the proformas had predicted. Vacancies and maintenance expenses took their toll over the years and eroded my cash flows to negative numbers! When I started purchasing homes in the best areas, however, the performance was more in-line with the proformas. Tenants stayed longer and cared for the properties as their own and the cash flows were stable and consistent. To be successful investing in single family homes, the quality of your tenant is everything! Good tenants make you money, bad tenants cost you big time! Purchasing better properties in better areas allows you to attract quality tenants, while purchasing properties in bad areas makes it harder because it’s difficult to put good people into bad houses.
Don’t fall victim to purchasing property strictly based on proformas. Lower-income properties will look better on paper because the property taxes are cheaper, and the rent-to-price ratio is higher. In reality, you likely won’t get that rent every year due to turnover and excessive maintenance costs as a result of corners being cut on the initial renovation. Instead, focus on the area and try to acquire the properties with the best proformas in those areas. The projected ROI’s may not look as good initially as those for cheaper properties, but at least you’ll be able to trust the numbers better! Passive income should come with minimal headaches—minimize the headaches by buying homes in great areas.
Experienced Professional Property Managers
Selecting the right property manager is critical to the success of your investment. After all, they will be interacting with your tenants, collecting rents, servicing maintenance calls, and dealing with all the potential headaches of property management (I literally could write an encyclopedia on this!)
The bottom line is you don’t wanna be dealing with these issues; you hire a property manager to “shield” you from the toxicity and negativity of actively managing your property. Your goal is to be a passive real estate investor who just collects checks every month, let your property manager deal with the headaches!
However, if they are not qualified or professional then you will eventually have to step in at some point and this could be a major setback for you. Don’t hire some “fly by night” mom and pop property manager; spend the extra time, effort and money on the front end to find the best, especially if you are out of state.
Here are the main things to look for:
- Professionalism — do they look and operate like a business? Are they licensed? Most states require Property Manager’s to be licensed Real Estate agents working under a Real Estate Broker
- Staffing – is their office adequately staffed? Do they have a full time outside individual working in the field?
- Software – are they using innovative property management software?
- Communication – Are they prompt in responding to you? How soon are calls and emails returned?
- Marketing – how do they market homes? You want a company that uses multiple forms of marketing beyond just “a sign in the yard.” Also, pay close attention to the quality of their marketing materials- especially property pictures! High quality pictures will increase the likelihood of renting a property quickly, poor quality pictures will likely result in the property sitting longer (remember, the buying process is very emotional). In our property management business online leads account for over 80% of our tenant placement leads. That being said, great pictures and great marketing descriptions are critical to filling a property quickly. Carefully review your potential property manager’s materials and if they are inadequate, forget it!
Gurus are great at teaching you “everything you need to know” to build your own real estate investing business. But if your goal is to be a passive real estate investor who employs the services of a turnkey provider, then simply follow the 3 “must haves” above. This business doesn’t have to be complicated or difficult; you truly can enjoy the benefits of being a true investor. All it takes is a little due diligence on the front end to find and align yourself with the right people, then it’s off to the races!!
Contact Us if you’re ready to get started!
Great Marketing Pictures
Terrible Marketing Pictures