Thursday, November 24, 2011

Real Estate Investor Mistake # 5 - Not Charging Tenants for Damage

It isn't OK to allow your tenants to get away with damaging your property and not paying for it.  You are running a business after all, and your responsibility does not include being their baby-sitter and repairing things that are either damaged by accident or willfully.  Realize that if you fix things that you shouldn't, you're telling the tenants that it is just fine to be negligent.  And guess what?....they'll take that to mean that they can be negligent in the future and this will cost you $$.  Stop these activities by clearly advising the tenants at the first time you meet with them or have your manager meet with them of what is taken care of and what isn't.  

Place repair limits by writing into your lease.  For example, write in that any repairs under $100 are the responsibility of the tenant.  Alternatively, a more aggressive approach if the tenants call complaining about a damage repair that wasn't your fault, is to estimate what the repair would be on the phone and tell them to have payment ready when the repair person arrives.  This is not a recommended technique as it may create tension between your tenant and manager, but it can be used depending on the situation.  Many times, the tenant will just take care of the problem themselves.

How about If your tenant tells you that their apartment has been "broken-into"?  Insist that they give you a police report.  Only do related repairs on receiving a copy of the police report.  Most likely what happened is that they either lost their key or misplaced it...were likely drunk at the time and broke into their own apartment.  Now they're claiming that there was a break-in.  Doesn't it make sense that if you have a break-in, you'd call the police anyway???  It sure does. Don't believe everything you hear or see.  

Until next time........

Friday, November 4, 2011

Real Estate Investor Mistake # 4 - Not Having Enough or the Right Insurance

This is an area that many people forget about or believe they have sufficient insurance but in fact don't.  What kinds of real estate activities are you involved in?  Are you driving people in your personal car or truck and showing them properties?  Your personal car insurance probably doesn't cover you for this type of activity because you're using it for commercial purposes.

If a contractor you hire doesn't have liability insurance coverage, and he gets injured or injures someone else while on your property, you may be held liable and are probably not covered.

An friend of mine told me a story about what happened to him a few years ago....He left his own home for vacation and he had a fenced yard.  While he was away, the next door neighbor's teenage son tried to climb this fence to get onto my friend's property for some reason, and ended up breaking his neck and was suddenly a paraplegic.  The neighbors sued my friend and won.  The lawsuit was in excess of $2 million yet his coverage was only $1 million under his insurance policy.  He was out of pocket for the rest.  True story.....He did nothing wrong, and had a fenced yard as required by law to enclose his pool.  You don't need to be guilty to be guilty in the 21st century.

Another pointed example is a recent telephone conversation I had with a seller in Indiana, and he had a property with 32 units that he intended on repositioning but ran out of money, so he was selling it completely vacant.  Not a good situation, and even worse, his property was vandalized with thieves breaking in, and stealing among other things, the copper wiring and the copper tubing used for the plumbing.  Unbelievable what some thieves will do!  Yet, it happened and this poor fellow did not have insurance on his property because he was trying to "save some money".

Don't make the same mistakes that others have done, and the best way to check is to talk to a knowledgeable insurance broker to discuss your insurance needs.  You don't have to be over-insured, but being under-insured can be disastrous.

Wednesday, November 2, 2011

How to pick the area you want to buy your investment property in. It doesn't have to be your own backyard.

Is your city or area a good place to invest?  If you don't think so, then why would you bother?  There is always an area of the country that is doing well real-estate-wise or is about to see some good things happen because of increasing employment, infrastructure changes that are going to attract more people to live there etc., regardless of what the media portrays.  If we just listen to the news and don't filter the dribble, we are doomed into an existence of negativity and inaction.

We all want better returns, but when it comes to understanding what truly is a good investment and what isn't, CAP is only part of the picture.  A high CAP may well be true, but you have to make sure that the area that the property is in has for the most part, good tenants, is in a good neighborhood and if possible, invest in properties that have higher rents because the lower rent areas do give more trouble by statistics.  You don't want a high CAP in an area that has plenty of crime and related problems because you'll be dealing with those problems for the most part with YOUR pocket that high CAP rate you thought you were earning gets pared down to something much lower, and then you're wondering why you even bother investing in real estate.  Don't fall into that trap.

Just because an area looks good, don't be fooled.  You need to understand the investment landscape, especially if you don't live in the area you're looking in.  Finding a trustworthy broker or realtor is something you really should consider, who is far more familiar with the area than you.  Beware of unscrupulous brokers and realtors who only want one deal from you and they want to sell you the first thing that they think they can get you to buy.  This is not the kind of person you want to deal with.  You need to work with someone who takes your well being and requirements as prime focus, and not theirs.  If they are respectable and do a good job for you, they will earn their commission regardless, so be on the lookout for that really good person who will help you make money.

Make some phone calls, go on the mls and/or ask around who is the best of the best and then contact them.  Meet with them and explain what you want to do and ask for guidance.  Then, do your own research before you decide on a neighborhood in the city you're looking to invest in, and it most certainly doesn't have to be in your own.  You just need to be careful.  Look for good employment numbers, an area that is gaining employment or is at least stable over the past few years.  Look at the demographics of the people who will rent in the area or your particular average client base for further confirmation.  

At any given time, there are markets that are appreciating, or are just about to do so.  If you don't know anything about emerging markets, you may want to pick up the book, "Emerging Real Estate Markets" by David Lindahl.  David also wrote a book for Donald Trump on Commercial Real Estate Investing, so he's well qualified to explain Emerging Markets and Commercial Real Estate Investing.  Both books are worth the read and it's a really non-technical read that almost anyone can understand.  I just want to finish with noting that I am in no way being compensated by David Lindahl, Donald Trump or their associates in promoting these books.  I have read them, and the information is superb, and I'm simply passing on this referral for those that wish to read them as well.  All the best until next time.