To begin with, just count the number of mailboxes that yousee in your neighborhood.. Once you know the number of units, you can estimatethe vacancy rate by counting the number of For Ren
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There is a fast and easy way to determine your local vacancyrate To begin with, just count the number of mailboxes that yousee in your neighborhood It is not necessary that you be 100 per-cent accurate, for you just want an estimate of how many unitsthere are Once you know the number of units, you can estimatethe vacancy rate by counting the number of For Rent signs in thatsame area and then dividing that number by the number of mail-boxes The math will look like this:
Number of FOR RENT signs ÷ Number of mailboxes = Vacancy rate
This method of determining the vacancy rate is an inexact ence, but it should help you determine a general vacancy rate at agiven time With this knowledge at your fingertips you will always
sci-be able to stay one step ahead of the competition
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Because the thought of managing your units on your own maygive you initial pause, odds are you’re considering turning yourbuildings over to professional management right after you purchasethem No doubt about it, though, it is best to get your feet wet bymanaging your first buildings yourself — your bottom - line returnwill be significantly better and you will be much wiser from thisexperience But managing your own units isn’t always practical forevery investor and you may have no choice but to use professionalmanagement One way to double - check your management com-pany’s effectiveness is to “manage the manager.” You can do this byalways knowing what the market rate for rent should be via a sim-ple rent survey that you conduct yourself
It is easy to do a rent survey One good way is to pretend youare a prospective tenant Whenever you see a FOR RENT sign in your
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neighborhood, jot down the phone number and call on the unit.Make sure you ask all the applicable questions that any prospectivetenant would and then note the details in your notebook
Rental survey questions:
How much is the unit renting for?
How many bedrooms and bathrooms does the unit have?
What is the square footage of the apartment?
What amenities are included?
Do they accept pets?
Will it be a month-to-month agreement or a lease?
How much will it cost to move in?
Can you see the inside of the unit?
By habitually doing this exercise, you will accumulate plenty
of ammunition to guard yourself against a complacent managementcompany It is ver y easy for a management company to producegood numbers if it never pushes the rents to the upper end of themarket But this is a business, and your cash - on - cash return andnest egg depend on management keeping the rental rate at the cor-rect level Your tenants will never moan if your rents are too low; infact, they’ll be thrilled and probably will never move But keep inmind that when it comes time to refinance or sell, any lower -than-market rental rates will directly affect the value of your building
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As a real estate investor, you will wear many different hats Thevery day a tenant tells you that he or she is moving is the day youput on your salesperson’s hat; it’s now time to market your vacantapartment to someone new The key to getting your apartmentfilled as quickly as possible lies in doing the right kind of advertis-ing for your soon -to-be -vacant apartment Some of the best adver-tising methods are:
Place a rental sign or banner out front
Offer a referral fee to an existing tenant
Hold open houses on weekends
Post f lyers at local businesses
Place ads in the local newspapers
Send direct -mail material to tenants in similar buildings
Register with rental agencies
Contract with management company
Your decision on how much or how little advertising you willneed to do will be based on the results of your ongoing vacancy sur-veys Normally, the lower the vacancy rate, the quicker the unit willfill and the less effort is needed to fill it Most important is that youget the unit filled so you don’t lose any rent Remember, if you wait
to advertise your vacancy until the current tenant leaves, you willprobably lose a month’s rent
The secret to not having any downtime is to start your tising campaign the day you receive notice from the tenant that he
adver-or she is moving Even if the rental market is strong and you only
Trang 4Most landlords drop the ball when it comes to rerenting a unit
by not getting the unit cleaned and “rent -ready” in a timely manner.One key to not falling into this trap is finding out ahead of timewhat has to be done and lining up the proper contractors to do thework When a tenant gives notice, you or your manager shouldmeet with the tenant and walk through the unit to see what needs
to be done to clean it up and get it ready for someone new Thingslike tired carpet, scuffed walls, ripped screens, and so on should bewritten down on a fix -it list
Once you have a list to work from, you can schedule the work
so it can be finished in a timely manner In most instances, manysmall items may need to be replaced that you can buy ahead oftime — things like towel bars, shower curtains, window coverings,light fixtures, and so on The goal is to get the unit completely fin-ished as quickly as possible, whether or not you have a new tenantready to move in
Two points to remember are:
1 If you have a tenant ready to move in, he or she usuallywants to move in as soon as possible, so get the unit rent-ready as quickly as you can
2 If you don’t have a tenant lined up, it is easier to rent a unitthat is clean and ready to move into
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When you buy your building you will inherit a pet policy fromthe previous owner; he or she either allowed pets or didn’t Nowthat the building is under your watch, should you consider rentingyour units to tenants with pets? Don’t say no so fast Here are somereasons we say yes to pets:
You can command a premium rent from someone with a pet
Because most landlords don’t allow pets, it’s difficult forsomeone with a pet to find a new residence By consideringthese tenants, you will have a large pool of grateful tenants
to pick from
Because it’s so difficult for pet owners to find an apartmentthat allows pets, pet owners generally stay in the apartmentlonger than nonpet owners do
Most pet owners will be willing to put down a large securitydeposit if you accept them as a tenant If the pet damages theapartment, you will have the money to fix it and make it asgood as new for the next tenant
Accepting tenants with pets is a good method of combatingperiods of high vacancy
As you can see, there are plenty of good reasons why you maywant to accept tenants with pets —all of them financial If you dodecide to consider pets, you should advertise your unit just thatway: “Will consider small pets, call to discuss.” Make sure you inter-view the pet as well as the tenant A dog that yips and barks would
be a bad idea, but one that is generally quiet or a cat that is litterbox–trained might be perfectly OK
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This chapter began with a quote from L.L Bean talking aboutthe importance of keeping your customers happy As mentioned,your customers are your tenants, and making sure they get theirmoney’s worth for the dollars they pay in rent is a key component
to your ultimate success This is the basic philosophy most nesses operate under, but when it come to renting apartments, thissometimes becomes easy to forget
busi-Lots of investors buy a building or two, fix them up, and fillthem with nice new tenants Unfortunately, as the years go on, theyoften let their buildings deteriorate But this doesn’t have to hap-pen If you want to have a sharp building with a great tenant base,fix it up, manage it properly, and keep up the property at all times.This will ensure two things:
1 The current tenants will want to stay in the nice home youhelped create for them
2 Prospective tenants will see how you care for the buildingand will be willing to pay you top dollar to live there
Remember that most restaurant customers don’t complainabout bad food, they just don’t come back With units, if you let thebuilding deteriorate without keeping it up, the tenants will probablyjust find another place to live rather than complain to a deaf ear It’s important to take care of tenant requests as fast as possible.The truth is that most people don’t like to complain, so when they
do, assume that the problem has been going on long enough that it
is really starting to be a nuisance You should also get in the habit
of asking your tenants how things are going in the building ever you see them They may forget to mention that little leak undertheir sink unless you ask On the other hand, by finding out about
Trang 7ten-The first secret to raising rents successfully is to know whatthe other owners in your neighborhood are getting for comparableunits If they are getting more than you are, then a rent increase foryour units is probably in order Many landlords fear that their ten-ants will move out if they raise the rents The truth, however, is thatmost people won’t go to the trouble and expense of moving just to
“get even” with their landlord Explain to your tenants that you areforced to give them a cost- of-living increase and are only taking therent to the new market rate for the area Your tenants certainly willnot be happy about it, but if you’ve made a strong case about whatmarket rents are, then there really isn’t too much they can do about
it In a worst-case scenario, your tenant may give you notice andmove out In that instance, get the unit rent ready as soon as possi-ble and charge the next tenant the market rent you deserve
To soften the blow of a rent increase, consider doing thing extra for your tenants It doesn’t hurt to follow or precede acost - of - living increase with some upgrades to the building Youmight consider putting some new plants or f lowers in front of thebuilding or new doormats in front of the apartments Another idea
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would be to have all the outside windows washed at your expense.Even a $15 gift certificate to their local Starbucks would remindthem how lucky they are to have you as their landlord
One great way to get the message out to your tenants aboutrents in an increasing market is to prominently display the currentrental rate on your FOR RENT signs When your existing tenants seeyour other units being rented at a much higher rate for anyone newcoming in, they will be far less apt to object when they get a raise,especially if they are paying less than market rent
Trang 9to find a better way to fund your future
A mentor of ours has always preached, “If you always do whatyou’ve always done, you’ll always get what you always got.” Truerwords couldn’t be spoken, especially for the 95 percent of Ameri-can retirees who retire practically broke To add insult to injury,the amount of money needed to retire comfortably is increasing,and the effects of inf lation often hit retirees the hardest The goodnews is that medical advances are giving all of us the possibility ofmany more years of a healthy life after retirement The question is,
If you’re practically broke when you do retire, is that really goodnews?
Most of us probably never gave it much thought when westarted our careers, but work is something we’ll be doing for 30 to
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40 years of our lives While working we honorably and consistentlypay into Social Security, or maybe even a company pension plan, allwith the expectation that those investments would magically payoff as they were supposed to As the future of Social Security growsever dimmer, however, and the Enron debacle proves, to think we’ll
be taken care of in retirement by others is nothing but a pipe dream
To solve this dilemma we haven’t suggested any major life changing moves Instead, one solution is to not fall for the SocialSecurity/401(k)/pension fund hocus - pocus trap As you k now,there’s no way those things will fill the bill when your time comes.Another solution is to refuse to abdicate the responsibility for yourretirement by turning it over to experts picked by the people thatare “supposed to know.” If they really knew, the 95 percentile sta-tistic wouldn’t be what it is
-No, you need to take charge of this most important issue foryourself and make concrete plans now to create a worthwhile nestegg later We say do it via real estate, or do it any other way thatworks, but above all just do it so you don’t have to work forever Ofcourse, you know that we believe real estate is the best and safestway Our challenge has been to lay out the facts so that you believe
it, too The limited space in this book has only allowed us to touchthe high points of investing in real estate This review should havegiven you an outline of the topics that need additional study andresearch
We encourage you to use the five -part system we laid out inChapter 4 Remember, we’re talking about a process that will payoff in 15 to 30 years We want you to get started, but, as important,get started on the right foot To recap, the components of the sys-tem are:
1 Learn about real estate as an investment vehicle
2 Research property in your local market
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3 Plan how to invest your money
4 Invest your funds according to your plan
5 Manage your property according to your plan
We realize how hard it will be for many of you to get started.There are always people around who will tell you why it won’twork They will fill you with fear about property management andtell you how their uncle or family friend lost everything trying to
do just what you’re contemplating doing But these are the peoplewho will be in that 95 percentile practically broke group That is,unless they hit the lottery, which, of course, they play every week.What we hope you have learned is that we’re not talking about asystem of winning by chance like the lottery We’re talking about asystem of investing based on education —your education
Our approach in this book has been to present an vative approach to this topic —that is, buy a property or two withthe goal of getting them paid off by the time you retire This simpleplan should make a significant difference in your life in retirement.What makes this approach tough to sell is that it takes 15 to 30 years
ultraconser-to see the real payoff On the other hand, it’s a lot easier ultraconser-to motivatepeople with dreams of the get - rich - quick approaches to makingmoney— things like “placing tiny little ads in papers” to sell things
or buying and f lipping distressed real estate for nothing down.Sure, these ideas do work out sometimes, but more often than not,people f lock to them too quickly and the inherent pitfalls in theseideas swallow them whole
Odds are if you accept your probable fate for your future, youare on the road to a better way to care for you and your family Nodoubt that a modest investment in real estate now could allow you
to have the fruitful future you have dreamed of For many, gettingstarted small will lead to greater investments and bigger rewards—rewards beyond their wildest expectations But let’s not get ahead