Weekly Wisdom #229 – I’m Not Fooling Around Here

November 22, 2014

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It’s Not Too Late to Add Real Estate to a Retirement Plan

RealtyTrac.com tracks home foreclosures and a lot of other real estate market sales and price data. In a recent report, RealtyTrac says that distressed residential properties sold for a median 37 percent below market prices in September 2014.

Sure, there are far fewer foreclosure properties on the market today than there have been in recent years, but there is still opportunity for investors. This discount is based on a median distressed property sale price of $ 130,000 nationally as compared to $ 205,000 for non-distressed properties. We can see from this data that there are still some great bargains out there for the investor who is willing to overcome poor property condition and other pitfalls.

Generally, these homes are in less than stellar condition, some in really poor states of repair. However, 37 percent leaves a lot of room for corrective action, even for the aggressive flip investor. For the rental property investor who wants to keep the property as a long-term investment, there is still a lot of opportunity. Rehab of a distressed property that comes in under around 90 percent of current market value results in a purchase that locks in an investment profit at the closing table.

It’s the long-term positive cash flow that seals the deal for rental investors though. When a property can be purchased below market value, it’s easier to keep expenses of ownership below what the property will rent for in the current market. This monthly positive cash flow can be used for other living expenses or reinvested in rental property. If you’re investing inside an IRA or 401k, keeping the cash flow profit in the account allows your investment to grow with pre-tax dollars. These are called “self-directed” retirement accounts, and your choices of account custodians is limited. There are also some strict rules, so if you check into this do a thorough job of it.

The point of this article is to show the potential for retirement account building with rental property, and to let you know that it’s never too late to start. The RealtyTrac report tells us that there are still bargains. Of course, real estate should only be a part of your overall retirement plan, so discuss your allocation of assets with someone you trust. Single family rental home investment isn’t the only avenue to invest in real estate. An interesting article over at NuWireInvestor.com titled “Why Mobile Home Parks Are Wowing Wall Street” describes one alternative investment avenue.

We’re talking here about mobile home parks that charge rent for the space where a privately owned mobile home is parked. A very interesting statistic in the article tells us that 98 percent of mobile homes never move from the original spot to which they were delivered and set up when purchased. Turnover certainly doesn’t seem to be a problem. When you compare this to vacancy rates in even the best of rental portfolios, it’s impressive.

Several other data points in the NuWire article help to illustrate the opportunity in mobile home park investing:

Recession resistance — Because the tenants in mobile home parks are for the most part in the lowest income demographic, they continue to work and earn through the ups and downs of the economy. It also costs thousands to move a mobile home, so they aren’t going to leave on a whim.
Rents are flexible — Mobile home space rents are low, generally around a quarter or less than the rent for an apartment, so there’s room to push them upward when the need arises.
Low maintenance costs — Land and installed utilities are the major costs involved in operations. Land requires little or no maintenance (landscaping maybe), and utilities are also low maintenance items over the long-term.
Double-digit cash-on-cash yields — The combination of all of these factors produces a great yield on money invested, particularly if you can buy a park at a discount to value.

I’m not recommending buying into a mobile home park for all investors, just pointing out an overlooked investment opportunity that may appeal to some investors, particularly those living where mobile home parks are common.

The point is to think about diversification into real estate in a long-term retirement plan. Single family homes are still a great asset, but getting creative can provide alternatives that involve less competition and at far higher yields than other investment types.


Dean Graziosi

Weekly Wisdom #192 – Worst Case Scenarios

November 18, 2014

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Weekly Wisdom #219 – Being an Area Manager

November 14, 2014
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Weekly Wisdom #219 - Being an Area Manager

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Weekly Wisdom #232 – EDGE 2013 Is Almost Here, Will You Be Participating?

November 11, 2014

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Weekly Video Blog #118 – How to Drop Your Stress Level INSTANTLY

November 7, 2014

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Weekly Video Blog #18 – Are you a Sameness or a Difference Person?

November 3, 2014

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Weekly Wisdom #234 – Peek Inside the EDGE 2013

October 31, 2014

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Top 5 Happy Landlord Tips

October 30, 2014
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Landlords come from all walks of life, and they can be pros or reluctant landlords who couldn’t sell their home. Whether you’re considering rental property investment, can’t sell and need to rent out your home and move, or you’re already a landlord, these five tips can help you sleep at night and keep a smile on your face on your way to the bank.

#1: The Right Rent

Take the time to study your area’s market rents and property types. Compare apples to apples, not apartments to single family homes. Call and ask about rents and features. Check the rental ads for promotions like free rent. A lot of this type of marketing may signal high vacancy rates. Be objective about your property’s features and location, and set a competitive rent rate. Being just 5% over market rates may still get you a tenant, but if it causes too much turnover you’ll lose that and more in lost rent between tenants.

#2: Be Legal

We don’t live in a simple world anymore, and landlord-tenant laws can be pretty complicated in many states. Even if you must get some legal advice from a real estate attorney, be sure that you’re using legal application and lease forms. They should be legal, but there will be room to draft them to favor your interests and protect your investment.

Misunderstandings cause a great deal of landlord-tenant stress, and using clearly worded and comprehensive leases can go a long way toward eliminating problems. When rent is due, what constitutes poor tenant behavior, and explaining the difference between “wear and tear” and damages are all important for a good relationship. It’s every bit as important for you to abide by the rules as it is for the tenant. If you legally must give notice before entry into the unit, do it the right way and with the right timing. When you don’t follow the lease, tenants don’t feel obligated to do so either.

#3: Screen, Screen … and Interview

Once that lease is signed, if you let the wrong tenant into your property it can be an expensive and painful process to get them out. You want to check their credit history, rental history, job and landlord references, and even do a criminal background check in most cases. Letting a previously convicted drug dealer into your property can create some major problems for you if they lapse into old habits. There are services that pull together these background and reference tasks, and you can find them online with a search, or there may be local companies.

Think back to the previous tip and be legal. Don’t ask for information you aren’t legally allowed to gather, or don’t ask questions that cross the line when it comes to anti-discrimination laws. This is another area where you may want some legal advice and a script for your interviews so you stay on the right side of the law. That said, if your gut is telling you that there’s something not quite right about a prospective tenant, especially in the interview, then you should reject them for any legal reason.

#4: Maintain for Comfort and Safety

The best way to avoid late night “no heat” calls is to have regular maintenance performed on heating and cooling systems. Maintain all of the equipment in your rental and you’ll have a happier tenant and fewer emergency repair visits. For safety, do regular checks of smoke and carbon monoxide detectors, even changing the batteries at your expense. On a side note, this is a great way to get access every three to four months to inspect for damage or problems when you’re doing a courtesy safety battery change.

#5: Make it a Home

Be nice to your tenants. Send them surveys or call them now and then to see if they’re happy or experiencing even minor problems. Be proactive and address their concerns. Whenever you can add a feature or amenity at reasonable cost, do that. When the end of their lease rolls around, you have two possible situations:

1. They give notice and move on to another rental, or
2. They make a rent concession necessary to keep them, or
3. They’re happy, and want to stay, even if you must do a minor rent increase.

The first two cost you money in lost rent and possibly rehab between tenants. The last one takes almost none of your time and keeps the cash flowing.

There are a lot of details involved in these five tips, but keeping them top-of-mind in all of your landlord activities will keep you in a better mood and add to your bank balance.
Dean Graziosi

Weekly Wisdom #231 – Expectations and Experience

October 27, 2014
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Weekly Wisdom #231 - Expectations and Experience

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