Whether you are a business owner, employed or in a management position, rental real-estate should be a part of your long term growth strategy. If your grandfather had bought ten pieces of rental real-estate throughout his working career while working, what do you think the property value would be of those today? Imagine that he bought a bought a rental property every other year for twenty years and renewed the mortgage every five years. By the second renewal term he would have received all of this investment back. The tenants would have paid down the mortgage substantially and it is cash flowing incredibly well. This in its self is a perfect retirement strategy.
Owning rental real estate is owning a business …… there have been many successful businesses that have paved the way for us, and each have one thing in common – they use systems. There systems are based on proven fundamentals that provide repeatable, predictable results. Whether you are just starting out, a rookie or a veteran (there is always room to do better) build a system that works!
If you want to EARN an excellent return and build long term wealth within Rental Real Estate you have to LEARN, Execute and Implement many strategies. This is the process that builds a solid business foundation and the steps to GROW – profitable. Rental Real Estate ownership has many moving parts – it can be complex at times … so assembling a brilliant team is the key to success.
Learn how to:
- Conducts Market Research
- Study Economic Fundamentals
- Located cities with a future not a past
- Source properties and filter out ones that work!
There is a process and a tried and tested formula to get the most out of your properties:
- Learn how our filter system that allows you to sort through hundreds of houses per year to find an investment property that fits criteria and has a positive cash flow
- Learn schedules that detail out each properties renovation costs and timelines, saving you time and money
- Learn how offers are written what are clauses that you should and how to obtain access to the property prior to closing so that we can show it to pre-qualified client-tenants in advance
- Learn why each should get a written letter explaining the offer to purchase
- Use a real estate management software to organize this whole process, which can save you hundreds to thousands for each property
- Use a rental information tracking system for rental payments, cash flow, renovations, vacancies and maintenance
- Learn how to track your mortgage renewal – if its missed, the bank will renew it for the posted rate, track the mortgage number, cross reference, property tax role number, address and bank that’s holding the mortgage – very organized and professional
- Learn how to Track lease renewals to see if tenant will renew or not and looks at and determines new rental pricing trends in our areas of interest so we remain current.
- Learn how to Track vacancies – so your property(s) are taken better care of than any others
- Learn how to market and collect on database information on private sales (“For Sale by Owners”), for rental clients-tenants and “Rent-to-Own” clients.
- We have spent years gathering, classifying, testing, and organizing the system of which we use in our coaching program – it is time to get in on the action!
There are three primary strategies to deliver short, long-term growth, and ensure predictable, management when investing in rental real estate.
1. Organic Growth Potential
Growth potential through detailed analysis of economic fundamentals at both macro and micro levels is the foundation and LEARNING how to do the right due diligence is key. This means focusing on specific properties, in specific regions, cities and neighborhoods which, signals a strong upside in capital appreciation over the next decade. For example, these areas are often signaled when big box and other large retail investments enter the area and/or are reflected in planning departments’ strategic plans. Or transition areas. These areas provide the greatest possibility for above average capital appreciation over the long term.
2. Forced Appreciation
Simply put, properties with superficial and/or fixable structural issues often command prices at or below median and thus represent opportunities to make money at the point of purchase. So LEARNING a targeted, systematic renovation and an upgrade process you can implement would be the 2nd key! Cost-effectively, the property will undergo forced-appreciation. Furthermore, this value is captured via a refinancing exercise 18 months later.
3. Equity-Building Tenants
The first responsibility is to our tenants – or as we like to call them, clients. In satisfying your clients’ needs, you first and foremost respect your clients while delivering high quality service. Always be sure to maintain the properties you operate, while protecting the environment and ensuring your properties are safe, secure and clean.
Client selection, orientation, ongoing care and most importantly have impeccable property management. LEARNING how to attracts and retains the highest quality clients is the 3rd key to success. As a result, you will experience low tenant turnover, high tenant satisfaction, lower property management loads and premiums above market rent.
Why Rental Real Estate Properties?
Real estate is a strong, decade spanning investment. Unlike the hottest stock or the latest rush decision, real estate is a stable and reliable investment. While stock markets are up and down with the latest world event, Real Estate continues to appreciate.
LEVERAGE: Real estate is a “hard asset” which makes financing easy. This means that you can benefit from leverage and substantially increase your ROI. Based on a typical 25% down payment, the return dramatically increases as compared to a non-leveraged investment such as stocks or mutual funds. You may wish to look at the next section for an illustration of the leveraging effect.
POSITIVE CASHFLOW: Real estate is a cash generating investment particularly in the long term. This allows you to have someone else pay off the mortgage, taxes and maintenance. After all expenses are paid, the investment provides cash flow that keeps up with inflation. This cash flow can be used to supplement retirement income.
PRINCIPAL REDUCTION: As the tenants pay rent; they cover the mortgage payments, taxes, and utilities. They also help to pay off a portion of the principal on the mortgage. Over 25 years, this will end up paying off the entire mortgage and the owner is left with a property free and clear of mortgage. When we invest in Real Estate, we typically have a 1st mortgage which is principle and interest payments. With a 25yr 6.5%, 75% mortgage, the average principal reduction will be 2% of the original mortgage per year for the first 5 years. That’s additional “Cash in Hand” upon sale or refinancing.
CAPITAL APPRECIATION: Through the selection of the correct property, in the right town, in the right area, one can begin to increase the appreciation above market trends. With value added enhancements, creative marketing, and other efforts we can increase the appreciation of a property. This is a unique feature of investing in real estate that other investment vehicles do not offer and is, in many cases, the secret to greater profit.
WEALTH CREATION: Real estate values have increased significantly over the last 25 years and have proven to be a powerful method of creating wealth over time. While values are increasing, debt is being reduced. Equity increases, through both processes, to increase your wealth.
COMBAT INFLATION: In times of inflation, when purchasing power is declining, individuals seek “hard” or “real” assets to maintain wealth. Real estate is an excellent vehicle to hedge against inflation as its values increase at least as much as (and historically more than) the rate of inflation.
DIVERSIFICATION: As part of any portfolio, real estate allows you to reduce risk by holding real assets. You can also diversify by holding real estate in different areas that vary by economic class. Finally, within one city, you can purchase multiple buildings or different building types to diversify within the same asset class.