Tip # 1:
A great property manager will make or break you! Not only will they do a complete credit, employment and background check on your potential tenants, they will handle bookeeping, ordering repairs, and evictions. Do not attempt to manage the properties on your own unless you intend for your full time job to be managing properties! Think about it! The more properties you buy, the more management duties there will be! We all are only granted 24 hours in a day. So, if you are planning to grow a sprawling empire, buy the properties right and hire a good manager to run them so your full time job becomes buying even MORE properties!
Tip # 2:
Instead of doing a plain vanilla rental agreement, consider putting your homes on a “rent to own” program. Not only does this add more value in the eyes of your tenant, but they also treat the home with pride of ownership! Not only that, but most “rent to own” agreements are set up where the tenant takes care of any and all repairs in the home. That means no calls at midnight about general maintenance concerns! Also, most “rent to own” tenants are willing to pay a substantial percentage of the purchase price to secure an option to buy the property in the future. Basically, you are promising not to sell the property until their option expires. Most “rent to own” contracts are anywhere from 1 to 3 years, but all are negotiable.
Tip # 3:
If you opt out of doing a “rent to own” program with your tenants, be sure to find a reputable contractor you can trust! Remember that offering work in volume commands a reduction in prices! So, negotiate with your contractor to cut you some slack on fixing your homes!
Tip # 4:
How much of an annual return do you want to make? Most investors would say, “As much as humanly possible!” But we all have to start from somewhere. For instance, in Oklahoma City, which is the city I purchase homes in, I look for rental properties that generate a MINIMUM of 24% return. Did I pull this number out of the air? Is 24% my lucky or favorite number? The answer is no. How I came up with this number is going to my local real estate investors association and finding the wealthiest property owners who buy the greatest number of homes in my area. I asked the top 3 in my industry what they expect to make each year when they buy a property. Amazingly, they all said 24%. That is what the Oklahoma City market commands for investment properties. This means that it becomes harder and harder after you pass the 24% mark to find properties that will generate more of a return than that (but it is possible!) But you must have a standard to go by! You must know how to purchase your homes!
Tip # 5:
Get that property out of your NAME, including the home you live in (if you own it!) Here is the reason why: If you get sued, the first thing a lawyer is going to do is research and see what type of assets you personally own. If the lawyer goes to county records and cannot find properties in your name or any other assets, chances are, he will not take a clients case without a retainer fee, paid by the person who is suing. But if the lawyer sees you have thousands or millions of dollars in assets, he will go after you free of charge! See how that works?
Tip # 6:
It’s not good enough to just get that property out of your name if you are buying multiple investment properties! It is smart to set each individual property up in a separate LLC or land trust. Why? Because if one of your tenants decides to sue the LLC that is holding your investment property, and you have used that same LLC to purchase multiple properties, then ALL of your investment properties will be frozen until the lawsuit is settled. This is why it is so important to set each property up in it’s own individual LLC or land trust. This way, if one LLC is sued, your other ten properties are not effected by that LLC because they each have different names.
Tip # 7:
Make rent due on the 25th of each month, and late after the 1st. This gives your tenant a 5 day grace period instead of 5 extra days to not pay their rent on time. And it will also aid in your bookeeping, since most mortgages are also due by the 1st.
Best of luck to you in your new investment endeavor!