When buying a house or apartment with the intention of letting it out to tenants, you may well have in mind one thing only – that day every month when the money transfers into your account and, for the privilege of letting people live in a property you own, you make a profit. However, if you are the landlord of a rented property, life is very rarely that simple. It is not necessarily a bad life at all, but it pays to be realistic at these times. If you are prepared for what you will face, it is always much better.
Often, you will go for months without hearing from or about your tenants. The principle of “no news is good news” is one that many people subscribe to. There is good reason for this. Mostly, people just want a quiet life and will go about their business in a way which does not infringe upon anyone’s time. However, if there is a problem which could threaten the liveability of the property you are renting out, then it can end up costing you money and ruining the living conditions of the people living there. It is essential to keep in contact with tenants.
Having a good relationship with your tenants is something that will pay off. You don’t need to send them a Christmas card every year or attend their kids’ ball games, but being prepared to meet them halfway on certain matters will benefit you in the long run, as they are prepared to continue paying the rent, and will leave it in a good condition when they vacate
One of the most popular ways of making money in the past few decades has been the boom in buying houses in order to then let them to tenants. Some investors do this by purchasing a house and then redeveloping it into apartments. Others simply buy the house and then let it exactly as it is or with minor renovations. Either way, it is something that a lot of people have chosen to do, and it can be profitable.
Think about it this way – when you look at the amount that is charged for rent on a property, it is almost invariably a lot higher than you would be paying monthly on a mortgage if you had taken one out and bought the property. Therefore, there is a potential profit margin in doing the latter and letting other people do the former. Just bear in mind that the mortgage is not the only cost you will be paying as a landlord.
If you are looking to buy to let, then it is essential that you scrupulously check the property for any necessary repairs, and that you allow money for those repairs should they be needed. You will also potentially have a higher level of tax to pay on income from rent, and you may also be expected to pay maintenance costs on the property depending on the level of rent you are charging. However, if you can get the costs to stack up in your favor, there are always people willing to rent so it can be a big money maker for you.
It is important when renovating a house to bear in mind that there is a big difference between a loose plan and a final certainty. You may have ideas about what the house is going to look like and how much money it is going to make you, but those ideas can only become reality with a lot of work. Don’t get carried away by the seemingly foolproof nature of your plans.
You should always make sure that you “comparison shop” every decision you make. You may need to pay builders and other workmen to do the renovation work. You should consult as many different companies as you can before contracting one to do the work – check them for references and price. Do the same for materials and for any other service that will be required.
It can be tempting to walk away from a development, even temporarily, because you have just reached a point where every decision is difficult and you are second-guessing yourself on everything. You may just want to give up. At these times, you need to show steely reserve and keep in mind that time is very nearly equal to money.
Finally, you should always be ready to take the opinions of others on board. By going with your own gut on every decision you make it is possible to develop tunnel vision. You don’t have to run every decision by someone and agree with all of their points, but it can be useful to ensure that you are looking at the plan from a more detached angle – as this is what potential purchasers will be doing
When you buy a house for the purposes of renovating it, there may well be a simple equation in your head. Money spent on buying house + money spent renovating = total spend. Resale price – total spend = profit. Simple! Isn’t it? Well, maybe not. You see, on top of this you do need to consider what else is going on while you are renovating. Renovating a house is not something you can do in “dead time”, so you also have to look at how you live in the mean time.
After all, if you need to be present for the work – because you are helping to do it or because you need to monitor the project – then this cuts into time that you would ordinarily spend working and making money. If you have sold your house to buy the new one, then you will also need to take care of resettlement costs, whether you are renting or have found another solution. It is hard to live in a house which is in the middle of renovations, as anyone who has done it will tell you.
You may need to work into your budget an amount which will cover the costs of your time spent on site and your temporary accommodation. If you have borrowed in order to buy the house, you will need to at least service the mortgage on it, too. Therefore it is essential that you have a plan, and that that plan is realistic. Many people get carried away thinking of the profit that they will make, but it is important to think about the difference between gross and net profit
The “fixer-upper” is a grand tradition of real estate. Many houses go on the market needing some work before they are truly habitable. Whether your intention is to live in the house or to fix it up and sell it on for a profit, you will need to do some work one way or the other – and because of the work involved, often these houses are available for a bargain price. However, it should be noted that not every house that is available for a low price is a bargain. Sometimes, people only find this out after doing a lot of work.
A “money pit” is a house which looks like a bargain when you initially buy it, but when you come to realize the extent of the renovations that need to be done before it is even habitable you realize that you will have to spend a ludicrous amount of money. If you are selling, you may not make a profit. If you plan to live there, you’d have been better moving in to an already suitable house and paying the extra money up front. Of course, by the time you have found this out, it’s already a little late.
Before buying a house which requires work, it is always advisable to have a survey carried out on the property to find the extent of work that needs to be done. You may be pleasantly surprised, or you may get a warning that you should not proceed with the purchase. Although it costs money to have a survey done, it is still immensely preferable to buying rashly and then spending time and money putting that decision to rights
If you were offered a deal that sounded as though it was unbeatable, and it turned out that there was no risk involved for you, you’d surely take it, wouldn’t you? Most of us, if not all, would. But then throw this variable into the equation: You can only have this deal by taking advantage of the fact that a couple with three children are divorcing after one of the parents lost their job. They will sell for just over half of what they paid for the property because the bottom fell out of the market and the repayments are crippling them.
How do you feel now? Still thinking of popping open a bottle of champagne and toasting your good fortune? Well, you may well be. The fact is that there will always be misfortune in this world, and if you feel that it is excessively unkind to profit from someone else’s misfortune then there will be countless other people out there who are not at all bothered about taking that step. Obviously you would be well advised not to celebrate your good fortune in front of the family who are losing their home, but they need to sell it, and you will not be helping them by opting out of the decision.
This is how many people make their first step on the real estate ladder. Equally, others will buy houses from seized-property auctions without considering that the work that went into those homes may have been funded by drug dealing, and buying from a repossession auction is also a way of profiting from another’s misfortune if you wish to take that view of things. It’s all relative, and you are not the bad guy
Most of us have heard someone – often our parents, but probably more often a character in a TV show – describing another individual as being “from the wrong side of the tracks”. It is one we hear, and repeat, without necessarily giving any thought to what it means. We as humans, have a tendency to do that – but what does it mean?
Well, to make a long story short, it was realised some time ago that people who could afford to choose where they lived would pay for a house in a location that was peaceful, clean and sedate. Too much through traffic means a lot of pollution, and can also cause structural faults, and also an increased number of strangers – something we were always taught to dread.
Poorer neighborhoods, with higher crime rates and naturally a “less desirable” kind of person living there, as a result, were often positioned close to public transport links such as railways and (in larger cities) airports. Anyone living in that area would be considered bad news by the richer families who intended to maintain a spotless reputation – and if the son or daughter of a rich was seen to be consorting with someone from those areas, that could mean social suicide.
This kind of reputation still persists for many people. However, there are also advantages to living and buying in what might be considered a poorer, grottier neighborhood. Prices are lower, but sound investment does mean that you can still make a decent profit. After all, proximity to public transport links also has its benefits.
There is a common mantra among real estate professionals and investors which is simply the word “location” repeated three times. The thinking behind this is that, when it comes to making money in the world of real estate, the most important thing is where the property is located. The second most important thing is, also, where the property is located. This is also the third most important thing. Essentially, location is important when it comes to making a success of real estate investments.
Of course, most people already know that, so why does the business make such a big fuss about location? It’s like making a big issue out of breathing, isn’t it? Well, not quite, because many people do not realize just how important location is, how fine the margins are and how big the difference can be between two houses which are in plain sight of one another. It’s not just about what town the house is in, it’s about what street, the exact position within that street, and what you can see from there.
It may be tempting when listening to a friend talking about the great deal they got on a house in a certain area, to think “well, I know for a fact that there is another one up for sale there – I can buy it for that price and raise a significant profit”. This may not actually be the case, however. The position of a solitary tree, church tower or bend in the road can have a pronounced effect on what you can expect to pay and what you can expect to receive for any real estate – so do your homework.
The importance of turning a maximum profit in a minimum time frame is as important in real estate as it is in just about any other sector of the business world. And of course, when you create a profit margin this makes for three immediate variables. How quickly can you do something, how much must you spend and how few mistakes can you make while doing it?
The introduction of these variable factors can make it very difficult to carry out the perfect real estate development. If you are keen to get the job done quickly, you will face the challenge of avoiding paying through the nose while trying to ensure that the job is still done correctly. Decide that price is your priority, and you will still want the work done as well as possible, but you don’t want it to take forever. And if your major priority is a good job, you will have to consider how you will get that done on time and within a budget.
In trying to make sure that each of these priorities is served, you will find yourself with some judgement calls to make. On some issues you will not be able to satisfy the need to do something cheaply and quickly and well – so what do you sacrifice? Sometimes the circumstances will go some way to making the decision for you. In order to make sure that you can live with the decision, you need to be firm in making it. Too much procrastination will simply narrow down your options, so be prepared to make tough choices if you want to make a success of your development.
For the ambitious real estate investor, one of the most interesting ventures can be the purchase of an overseas property. There are many of us who would like to one day retire overseas, and even quite a few of us who would like to move abroad while we are still some way away from retiring. If we are adaptable individuals, perhaps with one or two foreign languages in our lexicon, we can often find that the challenge of living and doing business overseas can be an enjoyable one.
Of course, for those of us used to doing business predominantly in a domestic setting, the practice of buying a house abroad can often be wildly different to the idea. Depending on where you plan to buy there may be restrictions on foreign nationals buying or owning property. You may have to pay larger taxes, and you may face different and sometimes strange rules regarding exactly what you can develop, where you can develop, and how you do it. For this reason it is essential to do your research.
Overseas real estate is a tricky way to make money, because you will need to commit a large amount of your time to being present on site. Many people try to avoid too much time spent away by appointing a project manager, but to paraphrase an old saying: “Who manages the project manager?”. If you want to guarantee a profit, you will have to take an interested involvement in the development, and if you are planning to lease the property to tenants you will need either to employ a trustworthy individual or move – temporarily or otherwise – to the country in question.