Real Estate Q & A

Have a question send me an e-mail and I will try and answer it. Jglasgow@patiostore.com 

Q: How do you know what a fair price is?

A: Go to the making money real estate articles the question is answered there.

Q: How much should I charge for rent?

A: Easy answer, purchase price for one unit divided by 100 if a house cost you $100,000 then the rent is $1,000 a month. Having said that you need to know what similar properties are charging in your area. About every six months go look at a few similar properties and get the current rent rates, adjust your rents as needed. The information is critical when buying to help you set the price you will pay.

Q: How much should I improve a property?

A: The quick answer is enough to attract tenets. When you look at other properties to buy or get the rent rates, look at condition and amenities offered as a guide for your own properties. I only improve a property good enough to attract rents in a given price range. When I show a property and the potential renters are leaving I ask them what they would like to see different or what they did nope like. Th4ey will tell you if you ask them if they would help you by answering a few quick questions. Do not over do, but don't be a cheap-skate either.

Q: How do I know a good deal; when I see it?

A: You will know it when it happens. My rules of thumb are for likely candidates to consider as a possible bargain are properties that have, 15% plus cap rates, properties where the expenses exceed 50% of rent collected, properties where the asking prices is less then ten times the annual net income

and properties I know are rented to cheaply.

Q: How do I find good deals?

A: Look, look, look. Tell everyone, I mean everyone that you are looking and pass out your phone number liberally. It make take six months of broad casting but a deal will come your way. Look at REO web sites, check the newspapers papers and drive the streets and look at properties. 100 properties later you just might find that deal. If not start on the second hundred, they are out, there millions of them so look, always and often. Don't forget Craigs list, classified papers, and all your network of friends and acquaintances. Read the articles on this web site.

Q: How do I get the money.?

A: Anyway you can. Read this web site and you will find ways to get the money and ways to reduce the amount needed and information on financing. Money is but a tool and everyone who has it need it working so it is there for you to find. Read the real estate investor magazines for additional sources.

Relatives are a great place and As you are telling everyone you are looking for properties some will ask about the business and you can find partners. Be creative, you have accesses to more then you think you do.

Q: How do I overcome the fear or butterflies in the stomach.?

A: Hard one? Do the first deal. I did my first deal (a duplex) with a Realtor to hold my hand. I did not make much money on that deal and I sold it a year later for a break even. But I needed that first deal out of the way. My next two deals where owner carry notes and terribly profitable, one I still make money on thirty years later. Find a small property that will at least rent for enough to cover the nut and just do it. When the world doesn't come to and end the butterflies will head south.

Q: Why don't more people do real estate investing if it is so good?

A: Fear, fear of loss, lack of money, fear the renters will tare things up and on and on.

And someone owns all those rent houses and apartments, more people are doing this then you might suppose.

Q: How do I avoid bad tenets?

A: most of this type behavior is avoidable if you screen your tenets. Charge a application fee of say $35.00 and then pay to have the possible renters background checked. This can be done on line. Call the renters past landlord(s) and their job reference. That will help you avoid most of the problems. If the tenet can not pay a security deposit and the rent then how can they pay the rent when do?

Q: What if the renters tare things up?

A: Despite your best efforts you will sooner or later hit the bad renter. So let us put the damages perspective. What is the worst that can happen, stolen appliances, holes in walls, etc? It has been my experience that all this cost abut $3,000 to fix and rarely does it cost $5K (only once in my thirty five years). The average bad tenet cost about $1,500 including eviction. So put $3,000 in a savings account and you will sleep better. Most every time after fixing a ruined apartment I was able to raise the rent $25 to $50 a month and IU soon had my money back.

Q: I have two rentals but they barely make any money?

A: I suppose you mean they have very little cash flow beyond the payments. I have had several of these over the years and loved them all. One I kept until paid for by the renters then it was all profit. You still make money assuming you are raising the rents every year (about 4%) to cover repairs and taxes etc. You make money from the value appreciating, from tax savings and from mortgage note principal pay down. Long term you win.

Q: What are the average returns on real estate investing?

A: Depends and varies widely. Having said that about 12% if you pay cash for the properties. The total returns from all ways the property makes money can be as much as 15% to 20% if you use some leverage or if you find ways to add value. See making money with real estate and real estate syndication for more on this.

Q: I have not had much luck with real estate agents. Your Take? On them?

A: One in one hundred are any good. Most are so concerned with the commission they serve neither the buyer or the seller very well. Mediocre is the word that comes to mind and in the way of a deal most often. Those agents who are the top producers and close the most deals do not worry about commissions. They let the pay take care of it's self. A good agent takes care of you the buyer because that serves sellers best. Those who do not get it leave the trade when the market turns down and the going gets tough. There are good agents and if you are always looking for deals the two of you will cross paths.

Q: Why is it so hard to get started as an investor?

A: Because there is never enough money and you have a lot to learn and then there is figuring out where to start. Start by reading all the articles ion this web site. Then just do that first deal to get your feet wet. As for the fear factor just keep in mind that the risk is only the difference between what you pay for the property and what you sell it for if things do not work out. The risk is only a few thousand dollars and you risk that much when you buy new car. As for getting loans it is a matter of filling out loan request until some one says yes. I was once turned down thirteen time before I found a yes at 10% down. But I got the loan.

Q: How much interest should I expect to pay?

A: As little as you can get by with. Actually figure out the net operating income from a property, then take the loan if the interest rate is 75% or less of that properties net income percent. For example, if a property net annual income is 12% of the cash purchase price, then a loan at 8% to 9% is doable. The lower the interest rate the higher the positive cash flow. Another way to look at loans is if the loan payments are 75% or less of the net cash flow, or if the payments are 50% or less of the gross rents.