INVEST IN RESIDENTIAL INCOME PROPERTY
INVEST IN RESIDENTIAL INCOME PROPERTY
TENANTS
While it's nice to make a monthly income from your rentals (rental income is called "wake up money", because you wake up every morning, and you've earned some more money), our main goal is to enjoy long term appreciation from owning the property. We won't buy a property unless we believe it's going to double in value in the coming 5-10 years.
Be careful who you rent to! We've rented our houses to military, retirees, divorcees, students, families who have a bankruptcy, etc. We evaluate each potential tenant individually and go with our gut feeling about them. Sure, it's possible to get deadbeat renters - but it's not likely - especially not in a newer home in a master planned community with homeowners association guidelines. If you have a problem (for example, your renter pays late each month) you simply deal with it. You charge a late fee and evict the renter if they don't pay. You can trash your tenant's credit report with collections, and they don't want that to happen!
Make sure your renters know that they must obey the rules and regulations of the homeowners association, and write it into their lease that if they violate the rules, that they will be subject to any penalties that are incurred.
Renters WILL destroy the flooring and the landscaping. That's just how it is. Provide them with cheap flooring. When they move out and you find that the carpets have been trashed, you simply replace it with tougher flooring (IKEA laminate wood floors are about $1 per sq.ft. - or you can buy ceramic tile at Lowe's or Home Depot for 89 cents per sq.ft. and install it everywhere downstairs).
DON'T DISCRIMINATE! There are some pretty serious laws you will break if you refuse to rent to someone based on race, religion, nationality, sex, etc. Don't even go there! Besides, we haven't noticed that any particular group (we've got every sort of renter imaginable) is better about paying their rent and maintaining their property.
It's okay to write into the lease that the tenants must maintain the yard. However, they probably WON'T keep it nice.
Renters WILL have pets, whether you allow it in the contract
or not. They'll sneak the dog in, and then they'll lie about it ("Oh, I'm
just babysitting the neighbor's puppy", so you might as well allow them to have
pets. If possible, charge them an extra $500 security deposit to pay for
the damage their dog will do. To protect your property from animals,
install laminate wood flooring (IKEA has cheap, good quality laminate wood) or
ceramic tile throughout the entire downstairs of your rental unit.
AND, write in your lease or in a
separate communication, "If tenant has an attack dog on the premises, this lease
shall be terminated." (I don't know WHAT the deal is with renters, but
they like big mean dogs - we've had tenants sneak in a rottweiler, and at another
house, a doberman. Sometimes they ask for an exception to the "no attack
dog policy", and explain that their pit bull is the sweetest little lapdog - puh-lease! Hazard insurance could be cancelled because of
that!)
We don't like the idea of owning a rental house with a swimming pool. Too much liability!
Vacation properties are not usually an investment. You
are unlikely to make money on a condo in Vail, for instance. You may love
your condo in Vail -- just don't think you're going to make money on it.
Where to invest
- Right now, we HIGHLY recommend Austin, Texas
(not Dallas, not Houston...)
Buying a new home from the builder
Tenants
Property Management
Never pay capital gains tax - 1031 Exchanges
Depreciation is your friend
Leveraging your money (it's a beautiful
thing!)
Tenants in common -
TIC Investments
Excel Spreadsheet
Investment Property Analysis worksheet
(note: you must have Excel on your computer to open this)
When To Sell
Miscellaneous - And
recent remarks by Suze Orman