Most Real Estate Investors Repeatedly Waste Time, Money and Focus In The Wrong Areas.
Ok, so it’s a big milestone in your life, we get that! But, just like anything in life there are some areas that you are just flat out wasting your time and money on. Here they are!
In our opinion you might as well light your money on fire, and call a home inspector to tell you that your money is on fire. Kidding kind of! But, in actuality it’s quite true. In our experience, the Southern New England multi-family housing market has nothing so crazy that you need to be concerned about. Yes, you will need a roof at some point, a water tank will let go, and you probably have knob and tube wiring in the attic. Big deal! If you need an inspector to point these things out than you probably shouldn’t be getting into this business! The home inspection is a very generic, cursory overview of the property. They check roof condition, for water leaks, fridge temperatures, hand railings, light fixtures, deck planks, chimney condition, etc. These are all items you can practice yourself at your own home or rental property. Take a walk around with a checklist and notate what items are wrong and will need repair. This will help you factor in what near term expenses you would have on your investment property. Save the $1000 on the inspector and put it towards your upcoming repairs instead! The icing on this cake here is that your bank will be conducting an appraisal ANYWAY to determine if the property they are loaning you money on is worth it to them. Use this as your barometer as you have to pay for it! Don’t pay twice!
Overpaying For Insurance on The Property
Another hot topic when it comes to purchasing a property is what options you want to select when picking an insurance policy. A common mistake we see is that property owners are over insuring their buildings and overpaying as well. Here are 2 of the areas you should trim the fat on;
1. Replacement cost –
If the property burned down to the ground this is the cost it would take to rebuild it. So, in today’s day and age you can’t cheaply build like they used to in 1920, so that number to rebuild is going to be high! Usually, it’s about double to triple what you are paying for the building. An option to cut the premium price on the insurance is to insure for the purchase price instead of the replacement cost. This can slash the total cost of your policy instantly. Just keep in mind if the property does burn to the ground you will likely just have enough to pay off the mortgage and then sell the land.
2. Deductible amount –
If you are in the business of property management (or have a property manager) you can likely handle (and afford) the common issues that come across. This is why it’s not smart to have a $500 deductible. Would you really file a claim for a water heater letting go in the basement? Just clean up the water, replace it, and move on! It’s not worth the time/effort of filing the claim, and the subsequent claim appearing on your insurance report card in the future. Opt for a high deductible such as $2000 instead. This will cut back your premium price and let you still use the policy when something substantial such as a roof leak or puff-back occurs.
There are other options for saving on your insurance policy, so feel free to explore this topic further online!
Worrying About The Existing Tenants or What They Pay For Current Rent
So sorry to burst your bubble here, but it DOESN’T matter how long the tenants have been there, if they are ‘good’ tenants, or even what rent amount they pay. The reason is that they can pickup and go at anytime. So, what you need to do when looking at a prospective property is imagine the unit vacant, and estimate what you COULD rent it for should it become vacant next week. Often times when a property is sold it’s not because things are going well. On top of that, tenants are usually coached to lie on how long they’ve been there, how great they are, and actually fabricate how much ‘rent’ they are paying. A desperate home seller will go to any lengths to pass off their problems to the next eventual weakling. So, don’t be that weakling! Look through the smoke in mirrors and imagine each unit as a blank slate. It is suggested that you bring along your property manager to property showings so they can provide you with a current market estimate for each unit.
If you are not familiar with investment realty or property management keep in mind that Nexus Property Management does offer its NVest® service FREE to investors. The service includes locating potential investments, setting up showings, forecasting potential return rates, and assistance with the entire loan/closing process. It’s a win, win! Contact us today for more information!
Gregory Rice is the Vice President of franchise sales for Nexus Property Management™.
Nexus Property Management™ is a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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