The rise in foreclosures has increased the demand for rental properties across the nation, and that trend will continue for some time. But aside from that new group of renters (people who have lost their homes) there is another demographic that remains constant. 40% of Americans earn under $35, 000/year. Most of these people will be lifelong renters, who search for a decent rental accompanied by an attentive landlord. This segment of the rental market represents tremendous opportunity for smart investors, regardless of fluctuation in the economy. The Landlord Chronicles is based on Barb Getty's personal journey. She began her real estate investing career over 15 years ago, at the lowest point in her life, with little money and no background in rehabbing, management or real estate. Written in a lighthearted, conversational style, this guide walks the reader through every phase of the process: finding target neighborhoods, locating the "diamond in the rough", financing, rehabbing, attracting and keeping tenants, managing and maintaining the rental, evicting non-payers, accounting and record-keeping, selling/exit strategies, etc. Getty details specific products, tools, tips and techniques to simplify and expedite the process, and shows how start-up costs can be kept to a minimum. There are hilarious personal stories sprinkled throughout the book, highlighting some of the rookie mistakes she made early on. Although seasoned investors will add to their knowledge base by reading The Landlord Chronicles, the beginner investor will find the book invaluable. It provides the reader with everything he/she needs, including various business forms and resources. Getty's career has provided autonomy, freedom and flexibility . . . precious commodities. But in addition, whether you do it part- or full-time, investing in low and middle income rentals can provide steady income and build wealth for the future. Enjoy the book!
THE LANDLORD CHRONICLES
Investing in Low and Middle Income RentalsBy Barbara Barnes GettyAuthorHouse
Copyright © 2010 Barbara Barnes Getty
All right reserved.ISBN: 978-1-4520-4237-4Contents
1 WHAT'S YOUR NICHE?.....................................................12 FINDING THAT GEM OF A DEAL.............................................93 FINANCINGTHE "F" WORD..................................................234 GO AHEAD, MAKE AN OFFER................................................315 INSURANCE AND LIABILITY................................................356. GOT IT! (NOW WHAT??)..................................................417. THE FINE ART OF FINDING GOOD TENANTS..................................678 FAST FOOD LIVING (GETTING 'EM IN, GETTING 'EM OUT).....................819. MAINTAINING THE APARTMENT.............................................10910. PESTS (INCLUDING THE TWO-LEGGED VARIETY).............................12511. ACCOUNTING (EENIE, MEENIE, MINEY, MO)................................13712. CHANGING GEARS.......................................................15713. YOU CAN DO THIS......................................................191
Chapter One
WHAT'S YOUR NICHE?
So, have you already purchased that first rental, or are you merely toying with the idea? Either way, you've picked up the right book. I wish I'd had a hands-on guide to help me stumble through it all, several years ago. At age 46, one might think middle-aged wisdom would see me through. Unfortunately, no. Even though I read everything I could get my hands on, I still managed to make just about every mistake in the book. The goal of this book is to save you from repeating those same mistakes.
Since embarking on this journey, I've been approached by a variety of individuals who want information and advice about starting up their own real estate investing career. They're people who:
Are newly divorced or widowed
Are in their 20s and 30s and want to supplement their income
Are in their 40s and 50s , looking to escape the 9-to-5 grind associated with their jobs
Are unemployed due to downsizing at their companies
Have faced discrimination in the corporate world and decided to control their own destiny by striking out on their own
Are in high income tax brackets and want to take advantage of the incredible tax breaks available to real estate investors
Have taken early (or even late) retirement, in good health, and are "re-inventing" themselves as they take a new direction in the business world
Real estate investing is an attractive alternative for a wide variety of individuals. Unlike many other business ventures, it's possible to get started with very little money. The beauty is that, as you're earning income from the rental, the value of the home is (hopefully) increasing each year. A wise purchase will provide you with income quickly, but is also a growth investment over the long haul.
Over the past few years, we've seen a plateau in home prices, and in places where the market was soaring, there's been a significant drop in price. Thousands of foreclosures are appearing in the real estate market throughout the country. Savvy investors are taking advantage of the situation. With foreclosures on the rise and credit becoming more elusive for people with less than stellar credit scores, a greater number of Americans will be forced into rental homes instead of becoming buyers; the demand for rentals will increase. The current climate represents a tremendous opportunity for the smart investor who is interested in getting into rental properties.
Do you enjoy people? Are you willing to listen and learn from others? Are you good about record keeping? Does the idea of running your own show excite you? If you're willing to participate in the rehab process and manage your properties on your own, this book will provide you with a simple, solid plan that will ensure personal and financial freedom for you. Sound crazy? It's not. Most people I know spend their lives working the daily grind, taking very few vacations or days off, hoping their pensions or social security will be there for them when they retire. Doesn't sound very uplifting, does it?
My close friend Darren has several single-family homes in this area. He's built his portfolio over several years and although he's only in his mid-thirties, he has a lot of free time on his hands. He's busy through the first week and a half of the month when rents are due, but aside from move-outs and occasional repair issues, he's on the proverbial Easy Street. With his spare time, he's vacationing with his family and starting up another business. Not because he needs the money to survive, but because his entrepreneurial spirit is leading him there. With this type of investing, it's very possible to earn full-time income and put in part-time hours. It's a beautiful thing.
When I began purchasing rental property, I didn't have much money to invest in the venture, so I looked at low-priced homes. I also researched the rental market itself. According to the 2004 U.S. Census, 40.3% of American households earn less than $35,000 per year. Of that 40.3%, more than a quarter earn $25,000 or less. A large portion of people in these income brackets will be renters for life - creating a stable long-term market, offering tons of opportunity for someone like me, or you. Armed with this information, I began my search for a low-priced home in need of a little TLC.
Please note: Inexpensive rentals are not synonymous with slums! There are thousands of affordable rental properties being rented by decent, hardworking Americans whose income places them in low and middle-income brackets. The focus of this book will be on those types of rental properties.
SINGLE-FAMILY: GET YOUR FEET WET
You may want to consider buying a single-family rental property if you already have a full-time job or other obligations that take a fair amount of your time. Also, if risk-taking isn't something you embrace, the single-family option will feel less like jumping off a bridge than a duplex.
It's less labor-intensive to buy the single family home, for the following reasons:
It's easier to manage one tenant, rather than two or three, under one roof
The tenant will pay their own utilities, may be on a one-year lease, and will pay the rent by the month, rather than weekly or biweekly
In most cases, a single-family home takes less time (and money) to rehabilitate
Buying a single-family rental will give you a taste of what it's like to be a landlord, and if you decide you've made the worst mistake of your life, selling that home may be easier than trying to get rid of a multi-family dwelling.
However, there's a down side to the single-family, middle-income home. If mortgage interest rates take a dive, your tenants may explore the possibility of buying their own home, and you'll be looking for new tenants. (Unless, of course, it's your rental they want to buy. In that case, you may want to structure the deal and look for another property to buy. More about that later ...)
MULTI-FAMILY: THE MORE THE MERRIER
When I looked into buying my first rental property, my research showed there was better earning potential in multi-family rather than single family rentals. Throughout this guide, I'm referring to multifamily rentals as buildings with four or less units. Anything above four units is treated as commercial instead of residential housing, and loan terms aren't as favorable for the buyer.
Because I was strapped for cash, the duplex option seemed right for me. For example, if I spent $20,000 on a duplex, two-bedrooms per side, and spent another $10,000 in fix ups, I would have $30,000 in the property, and could earn about $1000 in total rent per month. Using the same figures with a single-family three-bedroom home (you can often find a duplex for the same price as a single-family home), I could earn no more than $700 per month. Although the actual figures will vary in different regions of the U.S., the bottom line will be the same. There's more money to be made in duplexes than single-family homes.
It's interesting to note that if you buy a higher-end duplex for a little more money, the rents you receive don't often reflect that difference. Spending a total of $50,000 on a duplex doesn't mean you're going to be able to charge much higher rent. Be sure to check rents in the area before you buy!
Because income potential was my primary focus, it was pretty much a no-brainer that I'd try my hand at multi-family rentals. However, the process of buying, fixing up and managing rental properties is the same regardless of whether you own single or multi-family homes, so the information contained in this guide will be helpful regardless of which way you go.
To help in your decision-making, it's best to look at your own lifestyle, personality and work situation. Multi-family homes will be more labor-intensive:
You have two or more tenants and two or more units to repair and manage
The lease is often month-to-month
The owner may pay some or all utilities
Rent is sometimes due on a weekly rather than monthly basis
Time constraints will play a role in your decision. Remember, nothing is written in stone, and you can always jump to the other option if you're not happy with where you are. You've lost nothing as far as your investment goes, and your learning curve will go up regardless of your housing choice. And if you end up hating the whole thing, no problem. My good friend John quit after his first rental. He doesn't have the personality to be a landlord, and he worried about the "what-ifs" all the time. He was driving himself crazy, so he got out. However, he still made money on the sale of his duplex. If you buy smart, you'll make money regardless of whether you buy fifty more, or quit after one.
A quick word here about condos and mobile homes. That word is no. There aren't many low-priced condos out there, and association dues are connected to ownership. The only direction the dues go is up. I'm not a big fan of mobile homes as rentals, because their life span is shorter than other, more permanent homes, and you have to pay a park fee where there are utility hookups. Also, if you live in an area where tornadoes or hurricanes are prevalent, your investment may be here one day and gone the next.
FACE THOSE FEARS
You will encounter challenges if you decide to launch this type of business: analyzing neighborhoods, finding that diamond in the rough, dealing with finances, evicting non-paying tenants and finding good replacements, determining selling strategies, etc. All of these issues will be covered in this book. Whether you choose to invest in single or multi-family units, there's going to be a certain amount of fear and doubt as you begin the journey. First and foremost, don't worry about issues you can't control.
Stress had been my constant companion prior to buying my first rental. Launching a new career in the midst of personal turmoil overloaded me. I knew from my research that multi-family rentals were my niche, but I was afraid about so many things. Would tenants ruin or vandalize my units? Would there be fights between tenants living next to each other? Would my personality be conducive to landlording? What if I couldn't find reliable tenants? Would the whole thing be more than I could handle, physically and emotionally? Would the plan blow up in my face?
What I've learned is that fear isn't a wall, it's just an emotion. If you walk through it step by step as you approach your goals, it loses its intensity. You may be very uncomfortable for a while, but eventually the fear fades away to nothing.
An excellent remedy for fear is to get in the habit of asking yourself, "Is there anything I can do to change this outcome or remedy this situation?" If the answer is "No" then let it go and move on.
The second remedy for fear is to be prepared. Gather all the information you possibly can. Ask for advice. Quite often, people are too proud to admit they don't know what they're doing. And sure enough, that pride comes back to bite them. My friend Tom has a 30-year-old son who wanted to get into the business. The three of us were at a party together, and Tom asked if I'd be willing to consult with Brad before he got started. I told Brad to give me a call, but he never did. I got the impression he felt very confident about his plan, which is great. Well, he called me two years later, requesting that consulting session. He'd made numerous glaring mistakes that could've been prevented had he done his homework, and his investment property had been on the market with no offers for a year and a half. Obviously, Brad hadn't prepared well. Believe me, getting advice from a variety of sources, books, magazines, and other investors will save you a lot of time and money.
THE BOTTOM LINE
Before your first purchase, look at your personality, lifestyle, and work/ family commitments. These factors will influence your choice of rental property. Multi-family homes will provide better cash flow than single-family homes, but they're also more labor intensive.
Read about it, and talk with others who've been in the business.
Beware of infomercials and people who boast about the millions they've made and how easy it is. They're exaggerating. I love what I do, but I'm the first to admit you need to be organized and work hard to achieve your goals. Regardless of your past experience or educational background, today's preparation will determine tomorrow's success. Once you've done a couple homes, the process will become somewhat routine; it gets easier with each endeavor.
Truly, the only limits are those you set for yourself. Personal and financial freedom are attainable if you do your homework and stay the course. You're the hero of your own story, as I am of mine. Prepare well, trust yourself, and go for it!
Chapter Two
FINDING THAT GEM OF A DEAL
I followed my realtor down the narrow street and parked in front of the nastiest duplex on the block. No problem. Although it needed a facelift on the outside, the roof was fairly new and the aluminum siding was in good shape. After a major cleanup and some minor cosmetics, the outside would look fantastic.
Once inside, we encountered one of the tenants, a surly 300-lb. redhead. He was lounging in a tattered Lazy Boy in his bib overalls with a fat, smoldering stogie clenched between yellowed teeth. My peripheral vision picked up a couple of cockroaches wandering aimlessly across the floor. While my realtor (trying to fit right in) walked casually through the room, Mr. Lazy Boy noticed me eyeing the gun rack on the wall.
"Are you a hunter?" I asked brightly.
"Nah, them're fer perteckshen."
Each house has its pros and cons. This duplex had potential, but the gun rack conversation rattled me a bit. Further research revealed the area had a high incidence of drug-related crimes, so I stopped looking in that neighborhood.
WHERE IS YOUR TARGET AREA?
Legwork, legwork! The real fun begins after deciding which type of property is right for you. First, decide what section of town would be appropriate. For me, the top priority was finding an area no more than 30 minutes from my home. God only knows what gas prices will do, now and in the future. If you plan on buying a bunch of rentals, keep them in the same general area. But make sure the neighborhood's stable and has good growth potential. I bought my first duplex in one neighborhood and when I was unable to find a second bargain there, I sold that one for a fat profit (thank you very much) and targeted a new area. I've been there since. All my rentals are within a three-mile radius of each other.
GETTING INPUT ABOUT THE NEIGHBORHOOD
I suggest spending a good deal of time on this phase. Finding a good area for your rental is of prime importance. This business is income producing, but you're also hoping to build wealth by investing in an area that's going to appreciate in value over the years.
Become familiar with your target area by driving the streets, not just once or twice, but frequently. I visited my potential buying areas several times, and at different times of day. Mornings, midday, evenings, and weekends. This is really the only way to get a feel for the neighborhood you're considering. If you get the chance, stop and speak with residents of the area. They're a wealth of information. Are there many renters in the area? (If the vast majority of homes are rentals, this may lower the stability of the neighborhood.)
Remember Mr. Lazy Boy's neighborhood? After that day, I started checking with the local police department before I wasted my time looking in crime-infested neighborhoods. The criminologist or a detective can provide a printout of how many times they've had to visit the area in the past year, detailing what types of situations were presented. I never worry much about noise violations, domestic disturbance, or neighbors' squabbles. But I'd just as soon keep my distance from murders, gang wars, stabbings and the like. I often work alone, and I don't want to fear for my safety. These occurrences can be hazardous to your health and hazardous to your wealth. Also, you have to assume that at some point down the road, you're going to sell your property, and serious crimes in the area do nothing but drive down property values.
(Continues...)
Excerpted from THE LANDLORD CHRONICLESby Barbara Barnes Getty Copyright © 2010 by Barbara Barnes Getty. Excerpted by permission.
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