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Whether you are an experienced investor or a novice, your motivation for buying investment property is the same. You want to increase your net worth and make some money from rental income.
If you are an experienced investor you probably already know what you need to know to invest wisely. As a novice investor, you should make sure to do your due diligence and learn everything you need to know before trying to buy investment property so your deal goes off without a hitch.
The best piece of advice you can get is to start small. Do not go for that multiple unit apartment building right out of the gate because not only will you be biting off more than you can chew but the experienced seller will see that you do not know what you are doing and take advantage of you unless you are working with an experienced commercial real estate broker. Working with a broker is your best bet because the broker can guide you throughout the transaction process and look out for your best interest. The best part is you will have representation at no cost because the broker’s commission is paid by the seller.
Start small and learn all the tricks of the trade so you will lessen your risk of being taken advantage of by some unsavory characters of the investment business. There are several different types of property to invest in and for the novice investor the choice should be a single family home to fix up and rent out or maybe buy a duplex where you only have two tenants to deal with. Handling your first few investment properties well and getting good deals will give you the confidence to eventually go after the bigger fish down the road.
Before entering into any kind of a contract you should research each property and get each one inspected for unseen factors that may affect your pocketbook. You will have to do some freshening up of each property you invest in, but the problems for your pocketbook will come if you start sprucing things up and then find that you need to replace the entire kitchen floor because of dry rot or there is a termite infestation in the house. An inspection of the property before you buy it will determine what those unseen problems are.
You should make up a budget for the work that needs to be done on the inside of the property after you buy it. You want to spend the smallest amount of money you need to to make the property appealing to prospective tenants and you need to get the work done in a timely manner to get a tenant into the property as quickly as possible. If the property sits vacant it will only cost you money instead of making you money and that just defeats the purpose of investing. A commercial broker can help you find a qualifies tenant.
Once you master a smaller unit or two you can consider moving up to an intermediate type of property and maybe invest in and rent out commercial property of some type. Before buying any commercial property, research the area and make sure the location is sound. Is there a lot of vehicle traffic going by everyday or maybe a lot of foot traffic. You need to make sure that the commercial building you want to buy will get the customers needed to ensure your bottom line. That bottom line is continued monthly rental income from buying investment property.
The best advice is to work with a professional and experienced commercial real estate broker to help you find the right property or the right buyer and facilitate the purchase and sale process. They can help you dot your i’s and cross your t’s so that you don’t lose money or leave any at the closing table.
Ask us how we can help you. Call, text or email us today.
Establishing tenant selection criteria can be one of the most confusing areas of operating rental property for many people. On one hand, you want to make sure you choose the most responsible tenant possible; a tenant who will pay his or her rent on time and one who can be relied upon not to destroy your property. Yet, at the same time you must make sure that you abide by fair housing laws.
Before you actually begin renting out your property it is a good idea to sit down and determine the criteria you will use to choose that best tenant. Without guidelines you will have no choice but to rely on your instinct to choose the best tenant and this could result in trouble if you are only relying on your feelings to make a tenant selection. One of the worst risks you can take is to let your own personal opinions and biases guide you in your decision because this could open the door for a discrimination lawsuit.
First, you should always make sure that you notify prospective tenants that you utilize a fair system to make your decision. Ideally, it is best to include this type of statement on all rental applications. For example, you might state “Our policy is to rent our units in compliance with federal, state and local fair housing laws.”
If you are fairly new to operating investment rental property, you may not be cognizant of fair housing laws. Be sure to consult your state’s fair housing office to determine those guidelines which you must follow.
Beyond fair housing laws, it is important to make sure you establish criteria that is concrete by which to judge all potential applicants.
For example, it is common to require that the applicant provide identification that is verifiable. You may require the applicant to present a photo ID with their application so that you can make a copy of it. This type of requirement is valid because you may need it in the future in the event you need to describe adult occupants of the unit. If someone co-signs the application, it is also a good idea to obtain identification for them as well.
It is also quite valid to require information which would help you to determine that the applicant has a sufficient income to rent ratio. If the applicant were applying for a loan to purchase a home, the lender would require similar information. The general rule of thumb is to identify applicants that have a gross monthly income that is three times the amount of the rent. One way to document this information is by requesting copies of the applicant’s pay stubs along with their application. If the applicant is self-employed, you might ask them to provide their last tax return in addition to three months of bank statements. If you cannot verify the applicant’s income, this would be a perfectly legitimate reason to deny their application as you have no assurance that they would be able to pay their rent.
Many property managers and landlords also check credit ratings and scores on applicants as well. The purpose of this is to verify the financial responsibility of the applicant. The general guideline is to obtain a credit report on all applicants as well as any co-signers who are over the age of 18. Keep in mind that you will need to receive permission to run a credit report; however, you can request this information on the rental application. Applicants with low credit scores could be legitimately denied on the basis on being unable to prove financial responsibility.
In addition, you should check references. Typically, you should ask all applicants to provide the names and telephone numbers of individuals who can verify the applicant’s income sources as well as character references.
Make sure you follow-up to check that the applicant has been able to successfully rent a dwelling in the past and paid their rent on time. In the event an applicant is unable to meet this requirement but does meet all other requirements you may consider requiring the applicant to have a co-signer.
Finally, the best and easiest way to insure that you have qualified tenants in your property is to hire a Professional Real Estate Broker who has a good system in place. Work with a Broker that has experience in both Commercial and Residential properties and ask to see their tenant screening process. The cost of having to evict a tenant is much greater than paying for a Broker to handle this work for you.
If you don’t have a professional to help you, call, text or email us today for a complimentary analysis of your property.
Investing in commercial real estate can be highly profitable, but it requires patience, as well as careful study and research. The following article will outline essential knowledge for you to propel your real estate venture to new heights, where you can enjoy all of the benefits that investing in commercial real estate has to offer.
Record problems by taking digital pictures of them. Your pictures should portray any damage or defect in the property. Common things you should look for include any cracks or holes in walls, and damages to the carpeting.
Do some research on the internet to learn more about real estate and investing, whether you have a lot of experience already or are completely green on the matter. There is no such thing as having too much knowledge, so it is always a good idea to learn as much as you can.
Location is vital to commercial real estate. You will want to consider many things, including the neighborhood that the property is located in. Look at similar neighborhoods to determine the likely growth trends over time for your property’s neighborhood. By calculating growth in similar areas, you will be able to ascertain whether the piece of property you are looking at is going to continue growing. An easy way to do this is to hire a commercial real estate broker. They could provide you with a local market report.
Compared with buying a home, purchasing commercial real estate requires more time, money and paperwork. Although commercial property purchases take longer you will normally receive a higher return on the investment.
If you are hesitating between different properties, buy the larger of the two. Whether it be a twenty or ten unit apartment complex, you want to get adequate financing to back you up. You may have a better price, figured per unit, on the larger apartment complex than on the smaller one.
Learn to understand the commercial real estate metric called Net Operating Income (NOI). As long as you get positive numbers, you will be successful.
Before you talk about a lease in commercial real estate, make sure to lower anything that might be thought of as events of default, wherever possible. The tenant will then be less likely to violate these terms. You definitely don’t want this to occur.
Both local and non-local advertising of your commercial real estate property will be beneficial to you. There are a lot of people who make the big mistake who think that only local people want to purchase their property. There are many private investors who buy property outside of their area if the price is affordable. A professional and experienced commercial real estate broker can help you reach more investors in a shorter period of time.
Put the tips in this article into practice to begin making money by investing in commercial real estate. By following the advice in this article, you can join the ranks of those who are reaping the benefits of this lucrative field. If you are not working with a broker and would like to know how we could help you expand your investment portfolio in commercial real estate, call, text or email us today.
Commercial real estate has been a successful endeavor for many people.
Unfortunately, there are no shortcuts in this type of investing. You need knowledge, hard work, and experience in the industry. Read this article for tips on how to deal successfully in commercial real estate.These and other headaches can be avoided when you work with a professional and experienced broker. They can guide you through the purchase and sale process helping you save time, money and stress.
First, to prepare for any sizable investment in commercial real estate, investigate indicators of fiscal health around the property in question, such as average income levels for nearby residents, rates of employment and unemployment, and whether jobs in the area are rising or falling. If you’re property is close to a university, hospital, or large employment center, they sell quick and at increased values.
Take digital photographs of the property and the individual units. Make sure the pictures show the defects (such as spots on the carpet, holes on the wall or discoloration on the sink or bathtub).
It is always best to be aware of the market and of how your asking price is in relation to the market price. There are a lot of uncertainties which can have a huge impact on the price of your lot.
Get the credentials of any person who will be doing an inspection on a property you are trying to buy. You need to be especially diligent when it comes to hiring a pest control service, as many people who work in this field aren’t accredited. Staying on top of this will help you avoid issues after the deal is completed.
Do your best to have your properties occupied at all times. You’re the one who has to pay to keep the building maintained, and if no one’s renting them, you’re wasting your money. If you have more than one empty property, think about why that may be, and consider what you may be doing to drive tenants away.
Advertising your property to parties locally and abroad is important to ensure you get the best price possible. Many people only think locals will buy their property, and that’s a mistake. Many investors will consider purchasing a property outside their own region if the price is right.
Conduct tours of potential properties. Definitely consider having a professional contractor go with you when looking at potential properties. Start negotiations by making a preliminary proposal. Take your time and really explore your offers before you decide to buy or pass.
If you want to make money in the commercial real estate business, working with a professional and experienced Commercial Broker can help you learn how to approach each purchase, sale and Lease and then keep what you learned in mind as you go about your investing business.
If you don’t have a broker to help you, call, text or email us today.
The process of searching for investment rental property can be exciting; however, before you get too excited it is important to run some preliminary numbers to make sure you know exactly what you are facing to ensure a successful investment.
First, you need to carefully examine potential rental income. If the property has already served as a rental property, you need to take the time to find out how much the property has rented for in the past and then do some research to determine whether that amount is on target or not. In some cases, properties may have rented for lower than they should have while in other cases a property may be over-rented. Look at comparables in the area to make sure you know whether the property in question is on target; otherwise you may find that the amount you think you will be receiving in rental income is unrealistic.
Mortgage interest is another area that should be considered carefully. Make sure you know and understand prevailing interest rates as well as the details of your specific loan because mortgage interest is the biggest cost you will face when purchasing investment property. First, understand that homes and duplexes tend to have loan structures that are similar to any mortgage loan. With a larger property; however, such as a triplex; rates tend to be higher. If you are looking at commercial property with even more units; the matter of terms and rates is completely different. Typically, the more money you are able to put down on the purchase of the property, the less interest you will have to pay.
Taxes are another issue. Many people use the taxes from the year in which the property was purchased and assume they can use these figures to estimate expenses. This is not always the cases because taxes do not remain the same; they typically change every year. Usually, taxes go up after a property is purchased. This is especially true if the property was previously owner occupied. So, it is typically a good idea to just assume that the taxes will go up on the property after you purchase it.
One area which many people fail to take into consideration is the cost of the property being vacant. While you would certainly hope that your property would remain rented all the time, this simply is not realistic. There will probably be times when your property will be vacant. Generally, you should assume that your property will have an average 10% vacancy rate.
The cost of tenant turnover should also be taken into consideration. This is often a big surprise to many landlords who assume they will rent out their properties and their tenants will remain in the property for some time. Even more of a surprise is how much it costs to prepare the property to rent out again. Just a few of the costs include not only advertising for a new renter but also repainting, cleaning, etc. If damage was done to the property, the total cost of repair may not be fully covered by the security deposit you charged.
Of course, the cost of insurance should also be taken into consideration. Keep in mind that the insurance for investment properties is usually higher than an owner occupied property. Make sure you obtain a quote rather than just using the insurance cost for your own home as an estimating guide. In addition, make sure you take into consideration not only property insurance but also liability insurance as well.
Utility costs are another area that are frequently underestimated. If the property has already served as a rental property make sure you find out exactly what the owner pays for and what the renters pay for. You should also make sure to find out whether you will be responsible for other costs such as trash collection.
Finally, take into consideration the costs of property management if you will not be managing the property yourself. Property management and working with tenants can be a little stressful and we at Aim Higher suggest that you use a good property manager who knows how to handle all of the points mentioned above. The cost of working with a professional and experienced Broker is a wise, time and money saving investment.
To learn how we can help you, please call, text or email us today.