Finding the Perfect Real Estate Agent for Your Investment Property

Posted on by Bay Management Group

finding-perfect-real-estate-agent-investment-property-marylandFinding a reliable real estate agent is essential to anyone looking to purchase a piece of real estate. Whether you are a real estate professional looking to expand your portfolio or a casual home buyer, picking a real estate agent you can trust is a must when it comes to buying or selling homes.

But how do you go about finding the right agent for you?

The best agent for you is not always going to be the most familiar real estate name in the biz, the one who has sold the most homes in the area you are interested in or the one working for the largest brokerage. In fact, many times those things will not matter at all.

What will matter is that you find someone that acts in a professional and ethical way, is willing to listen to your needs and knows the market you are looking to enter.

Today we will take a look at what role a real estate agent plays in the home purchasing process and provide you with some helpful tips for finding the right real estate agent for you.

 

What is a Real Estate Agent?

real-estate-agent-maryland-rental-propertyReal estate agents are licensed professionals that represent buyers and sellers in real estate transactions. Many times a real estate agent will work under one of the following:

  • Real Estate Broker: A professional or firm in the real estate business that charges a fee or commission for conducting buy and sell transactions of real estate initiatives. They also handle the earnest money deposit and escrow account. A real estate agent that works under a broker is licensed to help people buy and sell property.
  • Realtor: A real estate professional that is a member of the National Association of Realtors. They are considered expert real estate agents and are more educated than your typical real estate agent.

A real estate agent’s duties will depend on whether they are representing a buyer or seller in the purchase process.

If representing the seller, a real estate agent will advise the client on how to price the property, how to prepare the property for sale and what improvements can be made to boost the value of the home. They also promote the property through things such as listing services, networking platforms and traditional advertisements via online or newspaper ads.

If representing the buyer, a real estate agent will search for available properties that match the buyer’s needs and price range and arrange for the purchase of the property.

 

How to Find the Perfect Real Estate Agent

find-perfect-real-estate-agent-maryland-rental-propertyNow that you know what a real estate agent is responsible for, let’s look at some things that can help guide you to an agent that works best for you.

Get Referrals

Satisfied customers of exceptional real estate agents will not hesitate to refer them to family, friends and co-workers. In fact, word-of-mouth is one of the best ways to find out if meeting with a potential real estate agent is a good idea. Here are some things you should discuss with those that have had experience with a real estate agent:

  • What was the experience like from start to finish?
  • How satisfied were you at the end of the process?
  • Did the agent truly listen to your wants and needs?
  • Did the agent give you exactly what you wanted?
  • What did the agent do that exceeded you expectations?
  • How likely are you to refer them to others and why?

Visit Open Houses on Your Ownopen-house-rental-property-marylandOne way to see an agent in their element is to visit an open house in the market you are interested in. This is an informal way for you to meet the agent and get a first impression that may encourage you to pursue them as your agent.

Observe how prepared and knowledgeable the agent seems. Notice how the open house is set up (should you be in the market to sell your home) and decide if the setup is something you would want for your home. In addition, notice the energy you get from your interactions with the agent. Although not always right initially, your feelings about someone upon a first meeting are usually right.

Lastly, make sure you know who the listing agent is on the open house. Experience is a must when it comes to choosing a real estate agent. Just because an agent has attended an open house does not mean the property is theirs to sell.

 

Check Their Experience Level

The goal of finding a great real estate agent is to find someone experienced in doing deals that are similar to the one you are interested in conducting. For example, if you are looking to buy a starter home that will fit your family’s needs, finding a real estate agent that has experience only in luxury condo sales is probably not going to be a good fit.

You need an agent that understands the market, whether you are looking to buy or sell. Additionally, an experienced agent will have many connections, will know of properties that are considered off-market that may suit your taste and have the negotiation skills to help get your offers accepted.

 

Match These Qualities

There are plenty of different personalities, experience levels and success rates floating around the real estate industry that can confuse anyone when it comes to choosing a good real estate agent. Make a list of the personality traits you are looking for in an agent and look for someone that matches the majority of them prior to hiring them to help you buy or sell your property:

  • Make sure they are licensed. Being a real estate broker or Realtor is not required. However, your real estate agent’s license should be in good standing. In addition, they should have zero complaints against them. This information can easily be Googled.
  • Knowledge is key. You want to find an agent that excels in the type of real estate transaction you are interested in. Residential and commercial properties are very different. Short sales or foreclosures have their own individual issues to contend with. Buying versus selling makes all the difference.
  • Communication is also key. This seems like an obvious point but unfortunately with many real estate agents, communication is not a strong point. It is your right to know what is going on with your real estate transaction at all times. Make sure you are receiving regular updates in your preferred method (email, phone, text). Also, make sure you can easily get in touch with your agent should you have any questions or concerns.

In addition to these important qualities you want to make sure you find a real estate agent that is truthful, has integrity and performs their job with pride. Investing in a property is a big deal and is one that does not come cheap. Someone who does not understand this is not worthy of your time or money.

 

If you are looking for a real estate agent to represent you in your real estate endeavors, take note of the above-mentioned tips. They will go a long way when it comes to choosing the right agent to represent you and get you the best deal possible, no matter which side of the bargain you are on.

Is it a Good Idea to Invest in a Fixer-Upper Rental Property?

Posted on by Bay Management Group

Deciding which Howard County rental property to invest in takes a lot of consideration. The purchase price, location, nearby amenities, and curb appeal are just some of the things to think about.

But have you ever considered purchasing a fixer-upper rental property?
howard-county-property-management-tips-invest-fixer-upper
People love to buy fixer-upper rental properties in Howard County and there are plenty of advantages to doing so. However, many property owners fail to weigh both the pros and cons of investing in a property that needs a little extra TLC.

Thus, today we will show you both sides of buying a fixer-upper property so you can better decide whether to take on a project home or invest in one that is move-in ready.

 

What is a Howard County Fixer-Upper?

A fixer-upper property is a property that needs some rehab before it can be leased to the high-quality tenants your Howard County property management company finds to reside in your property.

The repairs a fixer-upper might need include:

  • Light cosmetic work such as a fresh paint job or new carpet
  • Roof and wall work
  • Landscaping in both the front and back yards
  • Foundational work
  • Plumbing or electrical work

While some of this repair work may seem trivial at first, it is crucial to look at the bigger picture before making the final decision to purchase a fixer-upper.

 

Pros of Buying a Howard County Fixer-Upper Property

Discounted Prices

discounted-prices-fixer-upper-rental-property-howard-county-mdOne of the biggest advantages of purchasing a fixer-upper property is the purchase price. For those that want to get into the rental property business but cannot afford move-in ready homes or for those just looking for a great deal, a property that needs work is often a great solution.

In addition, buying a rental home at a lower purchase price, putting in some hard work to make it look great, and leasing it to high-quality tenants that will take care of your property will add value to the home over time. Called appreciation, this concept is great for those who wish to increase the monthly rent at some point. It also helps if you are planning to sell the home sometime in the future.

Less Competition

In a popular location such as Howard County, it can be tough to grab a nice, move-in ready home for a reasonable purchase price. This is especially true because many property owners don’t want to invest in fixer-uppers because they do not want to invest the time and money to make the property move-in ready.

However, by investing in a property that needs some upgrades or repair work, you avoid a lot of the competition. Even in a competitive real estate market, purchasing a rental that needs work significantly increases your chance of finding a deal.

 

Increased Positive Cash Flow

Buying a Howard County fixer-upper property at a lower purchase price than that of neighboring properties has the potential to generate more positive cash flow. For instance, buying a rental home below full value price means lower monthly mortgage payments. It also means more money in your pocket when you charge competitive monthly rent rates.

 

Property Tax and Loan Savings

Since property taxes are based on a home’s sale price, your biannual property taxes will be significantly less if you buy a fixer-upper as opposed to a move-in ready home. In addition, some fixer-uppers in Howard County will qualify for an investment tax credit for rehabilitation costs, meaning you may actually make money off the repairs you put into your fixer-upper.

Lastly, the great thing about this type of investment purchase is that you may also be able to finance the property using a 203(k) loan. This means that your loan amount can be used to purchase the property and make the improvements needed to make the property livable.

 

Cons of Buying a Howard County Fixer Upper

 

Hidden Expenses

howard-county-rental-property-fixer-upper-hidden-costsAlthough you may be able to save money on a fixer-upper thanks to a discounted purchase price, property tax savings, and even a creative financing solution such as the 203(k) loan, there are possible hidden costs you may run into once the rehab work begins.

For example, you might start remodeling your property’s kitchen cabinets and then realize your entire kitchen actually needs electrical work. Or, maybe you will discover your antique fixer-upper home is covered in lead-based paint. Maybe you’ll find rotten wood in the roof structure, mold in the bathroom, or leaking pipes in your backyard sprinkler system. In the end, this means more money, more work, and more headaches.

 

Extra Work

Buying a move-in ready house means that you have the luxury of leasing the home to Howard County tenants right away. And that is one of the reasons they cost so much more. However, if you buy a fixer-upper, whether it needs minor repairs or an entire rehabilitation, there will be lots of work involved.

Oftentimes the remodeling process can take months. Even if you only project it to take a few weeks, it is easy to fall off schedule. Dealing with unexpected problems, multiple contractors, and the reality that fixer-uppers take time to fix can be a tough pill to swallow.

 

Unexpected Costs May Outweigh the Savings

Sometimes purchasing a fixer-upper will cost you more in the long run than if you had just bought a move-in ready home. It is critical you do your research before making a final decision on a fixer-upper property. This includes listing the necessary repairs and upgrades you will be making, investigating costs associated with such repairs, and comparing that to the purchase price of a move-in ready home. Although rare, your remodel could end up costing you more than your initial savings, thus defeating the purpose of investing in a home that needs work done.

In the end, fixer-uppers pave the way for you to be creative, likely save money, and maintain a slight edge in the rental property business when it comes to positive cash flow. That being said, they are not easy to deal with and present numerous increased risks. If you are looking to buy a fixer-upper in the Howard County area, make sure you do your due diligence before making such a large investment decision.

 

In addition, if you are looking for some help managing your fixer-upper rental once it is complete, get in touch with Maryland’s finest property management company, Bay Management Group. Understanding all things property related, Bay Management has the knowledge, experience, and staff to manage your Howard County rentals so you don’t have to. Though the stress a fixer-upper may cause can only be dealt with by you, rest assured that Bay Management Group will relieve all other stresses related to your fixer-upper once it is move-in ready.

The Investment Property Owner’s Guide to a 203(k) Loan

Posted on by Bay Management Group

203k-loan-montgomery-county-rental-propertyIf you are looking to purchase a Montgomery County rental property that needs a little extra TLC, and have noticed that the lenders have become very strict with loan approvals, you are not alone.

And, in light of this tight-fisted approach, investing in a fixer-upper rental property becomes problematic, even for a seasoned property owner.  In addition to a large down payment, exceptional credit, and all of the other hoops you must pass through for a loan approval, you must have enough cash left over to make home improvements in order to make a fixer-upper appealing.

So what is an investor to do when he needs to purchase a home that requires extensive remodeling?

Though there are plenty of creative ways to finance a rental property in the Montgomery County area, if you are looking to purchase a residential rental property that requires renovation, you may benefit from getting a 203(k) loan.

 

What is a 203(k) Loan?

An FHA 203(k) loan allows you to borrow money for a property purchase and home improvements.  In other words, this type of loan finances both the cost of the property and the amount needed to fix it up, all in one mortgage.

Guaranteed by the FHA, this loan is less of a risk to lenders than other types of loans.  With the lower risk level, you are more likely to be approved and with a lower interest rate than a traditional bank loan.  In fact, some 203(k) loan interest rates can be as low as 3.5%.

In addition, using a 203(k) loan will give you quick and efficient access to the much-needed cash you will need to pay for repairs, renovations, and improvements on your less than perfect Montgomery County rental.

 

What Improvements Can You Make?renovating-rental-property-montgomery-county

Since this loan helps investors improve their properties for occupancy, it is important to understand the eligible repairs you can make on your property with the loan money you receive.

Here is an overview of the types of home improvements covered by a 203(k) loan:

  • Roof replacement or repair
  • Replacement, repair, or upgrade of HVAC system
  • Repair or replacement of plumbing
  • Full interior or exterior painting
  • Replacement of old windows
  • Appliance replacement
  • Attic finishing
  • Replacement or repair of deck, patio, or porch
  • Bathroom remodeling
  • Landscaping such as: tree removal, driveway/sidewalk repair, or grading correction

Keep in mind, luxury items that do not become a part of the real property—such as BBQ pits, exterior hot tubs, swimming pools, tennis courts, and satellite dishes—are ineligible for repair under a 203(k) loan.

 

Types of 203(k) Loan Programs

Two loan types fall under an FHA 203(k) loan program.  Which one you need will depend on the cost to purchase the property and the estimated cost to repair your Montgomery County rental.

Standard 203(k) Program

This loan is for properties that need extensive repairs, including major additions and structural changes to the property.  Take a look at the stipulations for the standard loan:

  • Allows for a loan amounting to 110% of the after-improvement value determined by appraisal
  • A thorough property inspection must be conducted by a 203(k) consultant
  • A minimum of $5,000 must be borrowed for repairs
  • All other guidelines are similar to FHA standards

Streamline 203(k) Program

This loan is for properties that require repairs that will cost less than $35,000.  This includes cosmetic improvements that will not affect the structure of the property or do not include an addition.  Furthermore, you will finance your property using a streamline loan, meaning your property will not require an appraisal and the approval process is finished quickly.

 

The Rules of a 203(k) Loan

rules-203k-loan-montgomery-county-rental-property

Since 203(k) loans are a unique kind of loan, there are specific regulations you must follow upon loan approval.

Here are some of the things you can do with a 203(k) loan:

  • Purchase a fixer-upper. 203(k) loans are for those properties that need improvements or remodeling.  Since banks will not typically finance a house that is run-down, a 203(k) loan is a great way to invest in that rental property you know is a diamond in the rough.
  • Do the work yourself. If you can prove you have the ability to do your own remodeling, and can finish within the 6-month timeframe, you can use your 203(k) loan money to do so.  However, you can only use the money on supplies.  Since you are performing the work yourself, you cannot pay yourself as a hired contractor.
  • Expect multiple inspections. An inspector will inspect your property’s progress throughout the 6-month time period.  This is why your contractor must be reliable—he must start working on the home within 30 days and cannot stop work for longer than 30 days.  In addition, there is that ever-looming 6-month timeline.
  • Use the loan money to make the mortgage. You are able to do this even if you cannot yet occupy the property; you can use the loan to pay for up to 6 months of principle, interest, insurance, and taxes.  This is the beauty of having a two-for-one loan.
  • Upgrade your property to be energy efficient. You can get approval for a 203(k) loan to upgrade your rental home to be energy efficient.  An added bonus is that these improvements do not require appraisal.
  • Make mini-renovations. If you invest in a Montgomery County rental that needs a minor renovation such as a new kitchen, bathroom, or room addition, you may quality for the streamlined 203(k) loan mentioned above.  This is assuming the improvements fall within the eligible repair limitations and cost under $35,000.
  • Start over. With a 203(k) loan, you can tear down the entire property and build up again, so long as you keep the foundation in place, and again, make the deadline.

 

Here are some of the things you cannot do with a 203(k) loan:

  • Invest in a new-construction home. The home you are looking to remodel with 203(k) loan money must be at least one year old.
  • Make repairs under the $5,000 minimum. You must spend at least $5,000 of your 203(k) loan on renovations.  This means you cannot replace one or two appliances and pocket the rest for mortgage payments.
  • Break any 203(k) loan rules. You can trust that your 203(k) loan lender will hold you accountable to all of the stipulations such a unique loan has.  He will be involved in every step of your property’s renovations and in the end, you can bet to find yourself in a lot of trouble if you violate any of the loan provisions.

The One Major Downside of a 203(k) Loan

Now that you have a clear idea what a 203(k) loan is all about, there is one major downside to using the 203(k) loan as an investment opportunity that needs to be addressed.

In order to prevent rental property investors from using 203(k) loans to build their portfolios quickly and efficiently, and thus avoiding the hardships many lenders pose as portfolios grow, investors are not allowed to use 203(k) loans to finance their rental properties.

Those looking to utilize a 203(k) loan must occupy the property themselves for a minimum of 12 months, unless you are a qualified non-profit organization.

However, a 203(k) loan can still be an excellent opportunity to buy a property, enjoy it for a while, and then turn it into a rental property after the 12-month minimum residency.

If you are looking to turn your primary residence into an investment property, you should definitely look into the pros and cons in using a 203(k) loan.  Though there are some restrictions in place, this type of loan can be a great way to get quick financing, remodel your property for additional value, and get it into the rental property market looking great.

 

In addition, property owners that need a highly experienced Montgomery County property management company should contact Bay Management Group today.  Bay Management Group can help you keep your remodeled rental home in shape with a 24-hour maintenance staff ready to fix any issue, regular inspections to ensure your improvements are not going to waste, and managers to help you set the highest rent rates possible for your new and improved property.

So get in touch with Bay Management Group now to get started with your rental property business.  You will not regret the peace of mind this exceptional property management company provides its Montgomery County property owners.

6 Reasons Not to Invest in Rental Properties with Family

Posted on by Bay Management Group

Mistakes to Avoid with Washington D.C. Property Management Company

Investing in a rental property, such as one in the Washington metropolitan area, sometimes requires an investment partner.

And who better to trust than a close family member?

Working with family can be fun; it is a great bonding experience. Plus, it is an effective way to get things done.

Unfortunately, when it comes to matters of business, Engelo Rumora ‒ successful property investor, motivational speaker, and serial entrepreneur ‒ says it best:

“Keep your friends close, enemies closer, and family as far away as possible.”

While many of us love our families very much and want nothing but the best for them, mixing business with family can open up the possibility for some precarious situations. Thus, while there are some professionals that will attempt to convince you otherwise, it is often best to keep family out of your Washington, D.C. investment opportunities.

Today we will look at 6 of the most important reasons why you should not include family in business matters, especially when it involves the complexity of rental properties.

 

1. Generational Gaps = Conflict

Tips Buying Rental Property Washington DC Area

Every generation grows up slightly different. Many times, there are different views on education, job opportunities, how to raise a family, and even how to run a business.

If you choose to invest in D.C. rental properties with older family members, you will likely have very different outlooks on how you should run your business.

From which property to purchase, to how much time and money to invest in fixing it up, to running day-to-day operations, the chances are high that you will not always see eye-to-eye.

This is especially true for family members that may have a difficult time separating their personal feelings from the business.

This conflict could potentially harm your future success and ruin a familial relationship, neither of which you want.

 

2. Trust Issues Crop Up Everywhere

Investing Rental Properties Family Washington DC Area

How many times have you uttered the phrase “But I trusted you!”?

The truth is, family-related trust issues can pop up anywhere, especially if money is involved. In fact, oftentimes the money being generated from income properties can breed distrust and cause family members to behave in ways you have never seen before.

The comfort of family relationships can cause professional boundaries to blur and allow relatives to take advantage of certain situations, sometimes without you even knowing it. This happens because we often tend to over-trust family members.

Sure, trust issues can occur with non-family investment partners as well. However, taking the personal relationship out of the equation makes decision-making, oversight measures, and money-related problems less emotional and much easier.

 

3. Lack of Experience

Just because your cousin has money to invest in a Washington metropolitan area property with you does not mean he is cut out for the rental property business.

When it comes to investing in rental homes, especially when partners are involved, there should be a balance of expertise.

One partner should be knowledgeable about the rental property industry, as well as the real estate industry as a whole.

The other partner should be money-wise when it comes to accounting, taxes, and balancing the income and expenses to tip in your favor.

Investing with family may cause an imbalance when it comes to workload because of lack of experience and expertise.

Investing in a popular area such as Washington, D.C. requires solid strategies and teamwork. If each partner does not bring a certain level of skills to the table, you risk your entire portfolio crashing. This is why it is better to seek out a reputable investment partner.

 

4. Misunderstood Long-Term Goals

Investing Rental Properties Washington DC Metro Area

Communication amongst colleagues can be difficult. This is truer with family members.

Initially, a family member you choose to invest with may seem be onboard with your long-term goals. In reality, however, they may not even fully understand what your goals are, how you intend to achieve those goals, or what kind of hard work and dedication it will take to get there.

Sometimes, family members get so excited at the thought of being able to work with family and make a little dough in the process that they overlook seriously evaluating whether this is the right investment opportunity for them.

For example, maybe you and your dad invested in a couple of properties in the D.C. area. Come to find out, two properties are plenty for your dad, who is nearing retirement age and simply wants to boost his retirement income. You, on the other hand, sought to build a strong portfolio over the course of many years. Now you and your dad are stressed about the reality of your investments and your father/son relationship will suffer in the end.

 

5. Leniency Creeps in

No one wants to be harsh with family members. But the truth is, when working with family, you run the risk of not being able to put your foot down as hard as you may like when things are done incorrectly.

Demanding work to be redone, negotiating salary, and even requiring strict deadlines become awkward conversations.

These harsh realities of investing with family may cause you to upset your family member or cause you to become too lenient in order to preserve his/her feelings. In either case, your rental property business is going to suffer.

 

6. Legal Situations Are Uncomfortable

Washington DC Investment Property Mistakes Avoid

In reality, any legal situation with an investment partner is going to be difficult. However, this is intensified when it involves a family member.

There are two scenarios that can cause legal trouble for you when you are working with family members:

  • You are forced to sue. If you have a solid contract in place and the family member you invested with breaches that contract thus forcing you to sue, expect things to get ugly. In fact, the consequences of this may even spread throughout the rest of your family causing irreparable damage.
  • You failed to have a contract. Since family members often feel so close, it is not unusual to see them go into business together without proper contracts. Then, when something bad happens that should be handled by the courts, there is no written contract backing your case. This can lead to a lot of damage to your finances and career as an investor.

There is only one way to avoid having to take a family member to court as an investment partner that went awry.

That is to never employ a family member as your partner.

In the end, there are two sides to every decision. However, in order to preserve the precious family relationships you have, it may be a better option to avoid going into the rental property business with a family member.

That being said, if you currently own a Washington, D.C. income property and are looking for a high quality property management company to help manage your growing business, contact the best – Bay Management Group. Whether you have invested with a family member or not, Bay Management Group can help you with all things income property-related and give you the peace of mind that your properties are being well-cared for.

 

Should You Invest in Long-Term or Short-Term Vacation Rentals?

Posted on by Bay Management Group

invest-maryland-vacation-home

If you own a rental property in a prime vacation spot, you have probably questioned whether it is better to lease your home to as a short-term rental to those on traditional vacations or on more of a long-term basis.

Independent property owners and property management groups looking to lease out rental properties for varied lengths of time should consider many factors such as cash flow, property turnaround and usage, as well as maintenance, to name a few.

Today, we will look at both types of rentals to help you make the best decision for you and your rental business.

 

What is the Difference between Long and Short-Term Rentals?

When people refer to “vacation rentals,” they are typically talking about short-term rentals.  Usually leased on a weekly basis, short-term rentals are rented to those looking to stay for a small period of time and leave.  Holiday getaways, family vacations, and honeymoons are all instances where a tenant may lease your vacation property for a few weeks at a time.

On the other hand, a long-term rental is a more permanent living situation.  Long-term vacation rentals are normally for those escaping seasonal weather for 4-6 months at a time.  For instance, your tenant may take an extended “vacation” and lease your Florida during the cold Minnesota winter months.

 

Long-Term Vacation Rental Pros and Cons

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Leasing your vacation home long-term lends itself to many benefits:

  • More consistent cash flow since tenants are contracted to stay for months at a time.
  • Less turnover due to longer lease terms.
  • Responsibility of utility payments fall on tenants.
  • Collection of a security deposit for damages, much like with a traditional rental agreement.
  • Higher possibility your tenant will have their own furnishings due to the longer stay.

 

However, there are also some downsides to leasing your property long-term as a vacation rental:

  • Less flexibility when it comes to using your own property as a vacation getaway.
  • Poor tenant placement can affect your bottom line and cause landlord-tenant disputes.
  • Stricter landlord-tenant laws for things such as inspections and squatter situations.
  • Higher HOA fees and more restrictions because of prime location as a vacation rental, regardless of lease lengths.

 

Short-Term Vacation Rental Pros and Cons

Just like long-term vacation rentals, short-term vacation leases have many benefits:

  • Rental rates can be set drastically higher than traditional rentals, especially if the property is located in a high demand area.
  • Less maintenance and wear on your property since tenants are simply “visiting” and will not be making your property their home by redecorating.
  • More flexibility when you want to use your own home for vacations.
  • Potential tax breaks including income reporting and operating/advertising deductions.

 

On the other hand, there are some cons to consider if you are looking to rent your vacation home short-term:

  • Hidden costs such as utility payments, external grounds maintenance, furnishings, advertising, and annual fees associated with the property such as HOA fees.
  • Extreme competition with surrounding properties that can dip into your positive cash flow or leave you with an empty rental.
  • Some community restrictions such as limiting short-term rental stays to 30 days or less.
  • Constant upgrades to make your home desirable for those on vacation rather than living day-to-day.

 

Final Thoughts

In the end, whether you decide to lease your rental property long or short-term there are significant things to consider.  Things such as your financial goals, the responsibilities you are willing to take on, and your own personal preference will help dictate whether your property is suited more for the casual vacationer or the lengthy snowbird “vacationer.”

Have you used your rental property as a vacation rental?  Do you lease long-term or short-term and why?  I would love to hear all about it in the comments below!

 

Money Saving Tips for a Rental Property Down Payment

Posted on by Bay Management Group

If you have been in the Baltimore County rental property business for a while now, surely you have benefited from reading our money saving tips when it comes to being a landlord.  After all, regulating investment property expenses is essential to maintaining a positive cash flow and ensures your rental property costs do not break the bank.

how-to-invest-baltimore-county-income-property

In addition, for those who were interested in how to finance their White Marsh or Essex rental properties, here at Bay Management Group we offered up 7 creative ways to do just that.

But what about those who are just starting out?  Those who have yet to save enough money for a down payment, no clue which Baltimore County city they want to invest in, and no idea where or how to even begin?

One of the biggest roadblocks to realizing the rental property dream is getting that first property bought and leased.  Though purchasing rental properties is one of the best ways to increase your wealth and create a passive income, saving for that down payment can be difficult.

Whether you are opting for a Federal Housing Administration mortgage loan that requires 3.5% down, or are aiming for a conventional loan that requires 20% down, the following money saving tips can help you realize your goals sooner than you think and get you on your way to becoming the best landlord Pikeseville has ever seen.

 

Typical Purchasing Costs

Before we get into how you can save money for a down payment on an investment property, we will take a glance at the typical costs you can expect to see during the purchasing process.

 

Purchase Price

Yes, each property purchased will come with its own unique purchase price, but for example’s sake we will look at how much the average 3.5% and 20% down payment might be on an Baltimore County property purchase. With the average home price hovering around $220,000, it is safe to say that most surrounding areas, such as Owings Mills will be similar.

3.5% down on a $220,000 property = $7,700

20% down on a $220,000 property = $44,000

Either way that’s a lot of money.

Closing Costs

There is no way to avoid the closing costs when it comes to making a property purchase.

You might be able to convince the seller to cover some of the closing costs, but typically, you are responsible for a sizeable amount.

 

Closing costs include:

  • Interest
  • Insurance
  • Recording fees
  • Origination fees
  • Tax certificates
  • Appraisals
  • And more

You can expect closing costs to be about 3% of your purchase price.

3% closing costs on a $220,000 property = $6,600

Again, this is a lot of money most people do not have easy access to.

So, if we take a look at our running example, to purchase an investment property in the Baltimore County area, whether in Catonsville or Parkville, you can expect to need between $14,300 and $50,600 as a total down payment on your rental property.

Now, let’s take a look at how you can start saving for that amount starting today.

Saving for a Rental Property Down Payment

Create a Budget

In order to save a large amount of money, you must have a plan.

create-budget-baltimore-county-rental-property

Start by creating a budget and keeping tabs on every penny that you spend.  Determine what must be paid for each month (i.e. living expenses) and dedicate yourself to setting aside a specific and affordable amount of money each month to be used strictly on your down payment.

 

Get a Separate Savings Account

Experts have long advised that in order to have success in sticking to a budget, the way to do it is to have a separate savings account.

The money you decide to set aside each month for your Dundalk property down payment should not be in your regular checking account where it can be easily spent without you even realizing it. Keeping this money separate protects it from being spent and gives you a visual on your progress.

 

Live Like a College Student

Cut out the excess and start living more like Towson students to save faster than ever.  You do not need a $5 latte from Starbucks every morning.  Maybe that gym membership you never use can be cancelled.  That expensive cable bill you pay each month?  Consider getting rid of it.

Plus, any extra income you come across such as a bonus from your boss, a tax refund, or the money you get from doing some side work for your friends and family can help build your down payment quickly by putting it into your savings account straight away.

Borrow From Yourself

Sometimes using your retirement savings to fund your down payment is an option worth considering.

Certain retirement plans will allow you to withdraw money that you have saved and use it on a large purchase such as a home.  For instance first time homebuyers can often cash out up to $10,000 from their IRA without being subject to the 10% early withdrawal penalty.

Before you do this, however, consult with your tax attorney or accountant to make sure that you are making a good decision.

 

Get Out of Debt First

Before you even start to save up for your first property’s down payment, it is a good idea to clear away as much debt that is in your name as possible.

financing-baltimore-county-income-properties

Do you have a lot of credit card debt, an outstanding car loan, or even student loans?  Check out this debt calculator to see how much you would need to pay each month to become debt free.  Not only will this help with your mortgage approval, but it will free up lots of extra cash each month that can be used towards saving up for your down payment.

 

Reduce Other Expenses

Another option for freeing up extra money each month is to reduce other expenses that may come in at lower rates elsewhere.  Things such as your car insurance, renters insurance, health insurance, and those pesky internet/cable/phone bills.  Sometimes making adjustments in service plans or calling around can secure you a better deal saving your hundreds or even thousands of dollars each year.

 

Final Thoughts

The truth is, saving any amount of money can sometimes be difficult.  Life expenses, emergency situations, and the fact that everyone wants a vacation every now and again, can make it feel as though saving enough money for a down payment on a rental property is out of reach.

However, by implementing some of the above-mentioned money saving tips, you easily see that a lot of your money can be directed towards saving for a down payment, without having too drastic of an effect on your daily life.

Just remember, after you save for that down payment and purchase the perfect Baltimore County rental property, you are probably going to need a quality property management company to help you manage this new endeavor you have taken on.

Managing your own rental property is no easy feat.  Yet, the property managers at Bay Management Group are experts at keeping costs low, handling all of your property’s needs, and giving you the peace of mind that your investment was a wise choice.

 

How to Handle Bad Neighbor Behavior

Posted on by Bay Management Group

When your tenant is deciding whether to lease your Montgomery County home or not, chances are they are looking at more than just the interior of the home. They want to have a reasonable rent payment, a good looking exterior with nice landscaping, and be within close proximity to amenities such as shopping centers, restaurants, and entertainment venues.

But what about right next door? Or does the street a bit? What about the surrounding neighborhood?

neighbor-behavior-affect-rental -property

Even if you own a renal property in the coveted Gaithersburg area where the value of homes continue to rise, your property’s neighbors and their homes can make or break your rental property business, whether you like it or not.

While you have a certain level of control over the behavior of your tenants, especially with a rock-solid lease agreement in place, unfortunately, you lose much of that control when it comes to the behaviors of neighbors around that property.

Today we will look at some of the bad behaviors your rental property’s neighbors may exhibit with some possible solutions so that your home does not go vacant due to their poor decisions. Sometimes forging a strong relationship with your property’s neighbors may be just the ticket to keeping quality tenants in your Silver Spring home.

Neighbor Behavior That Could Affect Your Property

Neighborhood Eyesore

Nobody likes to see a neighboring property with overgrown lawns or weeds, trash piling up in the front yard, peeling or rotting paint, or generally unkempt property appearance. This is unsightly to look at and can drive the value of your own property down.

Here are some key ways you can take care of a neighboring eyesore:

  • Make a list of the exact issue(s) you would like to discuss with your neighbor and what you would like to result from the conversation. Be ready to explain the effect the issues are having on your tenant and try to approach them kindly to avoid confrontation.
  • Take mental notes about the conversation had with your neighbor and jot them down later. This can be used at a later date if need be should the problem cause legal issues in the future. You can also try taking discreet photos (without trespassing, of course!) to be used as evidence of the eyesore. Sometimes just talking with your neighbor is enough for them to fix the situation.
  • If, after the conversation, your neighbors fail to take the action they agreed to, consider writing them a letter reminding them of the issue. If your neighborhood has a HOA, discuss this issue with them. Many HOAs have regulations regarding the appearance of a property. As a last resort, you should contact the authorities and have them handle the situation properly.

Tree Annoyance

house-damaged-tree

In the beautiful area of Chevy Chase, where walking trails and parks abound, it is not uncommon for homes to have the same greenery that makes the region so likable in their own front yards.

Unfortunately, sometimes your neighbor’s tree may begin to invade your rental property’s space causing a nuisance to the tenants you have leasing from you. If your neighbor has a tree that is extending across your property’s boundaries, there are some very important things to keep in mind should you decide to take matters into your hands so that you avoid irritating your neighbor and getting into trouble yourself:

  • You have the legal right to trim the branches of the tree should they hang over your property line. However, if you or someone else, such as your tenant, cuts down, removes, or harms the neighbor’s tree without permission, regardless of whether it is on your property or not, you will be responsible for that damage.
  • The same consequence is true if you use any type of chemical that seems into your neighbor’s yard and damages the tree.
  • Trees that pose a safety risk do not have the same legal protection as safely growing trees. This means that if your neighbor’s tree is about to fall on your property, you have the legal right to protect your tenants from physical harm and can do whatever is required, even if that means cutting down the tree.
  • In Montgomery County, if you damage your neighbors tree without their permission, there are some serious consequences:
    • You will be responsible for triple what the tree costs
    • You will also have to pay for any surveyor fees, debris removal, and cleanup
    • If any court fees result in connection with the tree annoyance, you may be held financially responsible.

In the end, if your neighbor has a nuisance tree, it is best to try and deal with it face-to-face with them to avoid any legal conflict. Make sure you are knowledgeable about the local tree annoyance laws before you do any type of tree removal yourself and before bringing in the authorities, try managing the situation yourself.

Noisy Neighbors

Your tenants may have to deal with the occasional loud weekend party while residing in your Potomac home. However, if the noise gets out of control, you will be the one held responsible for your tenants’ quiet use and enjoyment of your property.

Noisy-neighbors-upstairs

Most local statues set maximum allowable decibel levels in residential areas in the 55 decibel range at
night and 65 decibel range during the day. If a neighbor is constantly bothering your tenant with excessive noise, you may be able to call the authorities and have them fined for violating the local noise ordinance.

It is important to know that each county has their own procedure for documenting violations after you have filed a complaint. For instance, farmers have separate noise ordinances to follow in Maryland and may not be subject to your complaint, even if the noise is bothersome to your tenant. That is why thoroughly researching the area you wish to invest in is a wise idea before purchasing a rental home in a potentially problematic area.

Dangerous Animals

In Maryland, there are strict regulations regarding dangerous animals, especially dogs, being owned as pets. Your tenant may have major cause for concern if the following apply to one of your rental property’s neighbors:

  • If the dog (or animal), without provocation, has killed or inflicted severe injury to a person or other animal regardless of whether the animal is on its owner’s property or not.
  • The animal in question is being allowed to damage or defecate on property outside of the owner’s property, whether that be in your Bethesda rental home front yard or just on the sidewalk nearby.
  • If the animal causes enough persistent noise that it disrupts your tenant’s quiet enjoyment.
  • The animal(s) cause unsanitary, dangerous, or offensive conditions because of the size or number of animals being kept in one location that is not appropriate.

If any of the issues above are creating problems for your tenant, it is up to you to manage the situation. Each tenant deserves (and is legally allowed) to enjoy their leased home without having to deal with bad neighbors.

If you live in the Rockville area, or any Montgomery County area, it is your responsibility to maintain a peaceful environment for your tenants.

Though you cannot always control what your neighbors will do or how they will react if confronted with a situation such as a messy yard, that is part of being a landlord. If you think you need help managing your properties, especially when it comes to the legalities behind dealing with bad neighbors, consider contacting your favorite Maryland management team, Bay Management Group, to help. Fully compliant with all the state and local laws, Bay Management Group will help you manage bad neighbors the right way. And should the case be taken to court, they will fully support you and aid you in your suit.

Don’t let bad neighbors bring your home value down or cause your tenants to find residence elsewhere after the end of their lease term. Let Bay Management Group manage your properties so you can worry about other, more important things, such as finding good quality tenants to lease your property for the long haul.

 

Local Vs. Long Distance: How Close Should You Live to Your Properties as a Landlord?

Posted on by Bay Management Group

One of the best things about being a landlord is that you can run your rental property business however you see fit.

That means you can purchase and rent a property just about anywhere – even if you live far away from it. If you don’t feel comfortable doing that, you can opt to only purchase local properties, which are plentiful in Maryland areas like Anne Arundel County.

Local-vs-long-distance-rental-properties

However, the freedom to choose your properties place pressure on your to make sound decisions. You need to figure out whether you are best suited to be a local landlord or a long-distance landlord before you start investing. Otherwise, you could end up feeling overwhelmed and facing problems that make you question your choice to become a landlord in the first time.

To help you with your decision, we’ve put together this blog post. Keep reading, and you’ll learn the different issues faced by landlords living both near and far from their properties.

Should Landlords Invest in Long-Distance or Local Properties?

The benefits of being a long-distance landlord

If you’ve been considering buying properties far from your home, you many be curious about the pros and cons of doing so. First, let’s talk about some of the benefits of being a long-distance landlord:

More investment opportunities

When you only invest in local properties, you may be limited the annual income of your rental property business. However, long-distance landlords can invest in properties anywhere, giving them the opportunity to become more profitable.

For instance, you may live in Northern Maryland but choose to purchase rental properties in Central Maryland areas like Anne Arundel County, which have a higher cost of living and a denser, or diverse population. By doing so, you could see a considerably higher return on investment in the long run.

Or, if you would prefer to keep your upfront financial investments low and manageable, you could try to a region with a lower cost of living that would allow you to buy more property. But remember, the larger your territory, the more you may need to rely on property management!

Somewhat passive income

When you live far from your property, you can’t easily travel to it to handle tenant requests, make repairs, and collect rent. Everything must be handled from afar.

In other words, you’ll need to plan carefully to create a realistic financial model. It’s necessary to forecast the projected cash flow your properties will bring in while considering all the necessary expenses of being a responsible landlord from a distance.

While this can present its own set of challenges, it also gives you the opportunity to turn your rental property business into a more passive source of income. That’s because long-distance landlords outsource some of their duties to property managers and contractors so their tenants stay happy and their properties remain in good shape.

Tip: Check out this blog post to learn what questions you should ask a potential property manager to determine whether or not they’re the right fit for you. 

Tax deductions

All landlords get certain tax breaks, but what you may not realize is that you can write off any long-distance travel expenses related to your rental property business.

long-distance-landlord-tax-deductions

Of course, long-distance landlords also face certain challenges that local landlords do not. For example, they are often unfamiliar with the area their property is located in, which sometimes results in poor investments. Also, some long-distance landlords face challenges when they pick the wrong property manager, resulting in a worse return on their investment.

Overall, having an experienced team of professionals on your side is key to your success as a long-distance landlord. You many want to visit the area where your property is located before you rent it out so you can meet up with potential property managers and contractors in person. While this may take up a bit of your time, it’s better than dealing with problems in the future that  affect the profitability of your rental property business.

The benefits of being a local landlord

Lots of landlords choose to invest locally before they branch out to other areas, but some prefer to stick to local property investments because of their benefits:

Familiarity with the area

One obvious benefit of being a local landlord is that you’re more likely to make good investments due to your familiarity with the local area. On top of that, if you live in or near a place like Anne Arundel County, you may be able to use your knowledge of local attractions to entire tenants to live in your properties.

However, even the most knowledgeable local landlords are not immune from making bad decisions about which properties to invest in. Regardless of whether you’re a local or long-distance landlord, you should always do your research before you purchase a rental property.

More control over your business

Long-distance landlords must rely on property managers to run certain aspects of their business and handle problems with tenants and properties. This can be challenging if you pick a property manager who lacks communication skills, fails to properly screen tenants, or chooses to cut corners.

Local landlords, on the other hand, have more control over their rental property business and the ability to take a hands-on approach to running every aspect of it. For example, they can show their properties in person, inspect their properties as needed, and meet up with tenants when necessary.

local-landlord-hands-on-approach-managing

Of course, local landlords who prefer a more hands-off approach may still choose to take advantage of the benefits that come from allowing a skilled property management team to handle their unwanted tasks.

Local contractors

When you choose to invest in rental properties, you’ll likely need to work with a contractor at some point. Being local means that you can meet up with potential contractors in person to determine whether or not they are a good fit.

Obviously, long-distance landlords can’t meet up with contractors in person too often. Sometimes, that results in contractors taking advantage of the fact that the landlord lives far away by doing a poorer job than they might have done otherwise. When that happens, tenants are likely to become upset, which makes your job as landlord more difficult.

As you can see, local and long-distance landlords each face a different set of challenges, but each approach has its perks. Think about which challenges will be easiest to manage for you. Then, you can make a good decision about where you should invest in rental properties.

Remember, both local and long-distance landlords can reduce their responsibilities and get a good return on their property investments by partnering with a trusted property manager. If you’re interested in learning more, contact Bay Management Group today.

 

Find Financial Freedom Through Real Estate Investments

Posted on by Bay Management Group

Everyone is looking for nice ways to gain financial freedom. The idea of being debt-free and have the ability to travel and plan nice vacations sounds appealing, right? Well financial freedom isn’t hard to gain, if you invest properly!

financial-freedom-investment-properties

Owning rental properties in Prince George’s and Montgomery counties, and the surrounding D.C. metro area is a great way to start your journey to being debt-free! In suburban areas like Bethesda and Silver Spring, where the cost of living is higher and the employment rate is at a low 3.7% (approximately 2% lower than the Maryland average!), it is very likely you will be able to run a successful rental property business.

Renting Investment Properties: All About Location!

Southern Maryland is a popular place for rental properties, due to the higher cost of living and crowded neighborhoods. Families appreciate sending their children to the best schools in Maryland and millennials appreciate the variety of entertainment and nightlife at their fingertips.

Easy access to both Baltimore and D.C. make surrounding counties very popular for young professionals and millennials who are in the market to rent instead of purchase a house. The median income has decreased, making down payments much harder to save for, and with the hefty amount of student loans the average millennial has, purchasing a house is usually out of the question.

Here are  few ways to make your rental property more attractive to millennials:

  • 24-hour maintenance
  • Attached yards
  • Covered parking
  • Locations near shopping, restaurants, and entertainment

Millenials-Live-Work-Play

Many people choose rentals in these areas because the property taxes are high, making mortgages and down payments unreasonably high. However, as a landlord, you can change higher rental costs due to the area and cost of living. These properties are generally very successful in returning a high profit, but you’ll have to make an informed guess when you’re determining the actual return on investment in regards to your rental property business.

Rentals Are on the Rise

A few years ago, Prince George’s county housing market suffered from large amounts of foreclosures. However, this has increased the need for rental properties. House are auctioned off to investors much lower than their original cost, some costing only $80,000. The good news for investors is that these houses can be flipped with ease and rented for high rates due to their location right outside of D.C. and urban centers.

The market for rental properties is booming in Maryland, and is only projected to grow in the upcoming years. Now, while housing prices are relatively low, is the time to start your rental property business. Over the past 12 years, more Marylanders have decided to rent a property due to the high taxes, a decrease in the average income, and a multitude of other reasons. And the number of renters is only projected to get higher.

Maryland-Rental-Trends

If you are curious about the value of your rental property and to see if you are undercharging for your Prince George’s county rental property, use this handy tool. The best way to ensure financial freedom is to stay up-to-date on rental trends in your property’s neighborhood. That way you’ll know how in-demand your property is, similar property rental rates, and your estimated return on investment.

Being familiar with the rental property marketing around your Hyattsville property will help you make informed decisions about your investments and the kind of tenant you will choose to reside in your rental.

Hire a Rental Property Management Group

One of the safest ways to make sure your property will bring in positive cash flow instead of falling into the red is to hire the help of a property management group. This is also the easiest way to earn “hassle-free” money – almost like getting a monthly paycheck for not doing anything!

financial-freedom-hassle-free-money

A reliable, well-known property management group will be able to help you with every aspect of your rental property business, but here are some of the ways Bay Management Group helps that sets them apart from the rest:

  • Full leasing services – These services not only place high-quality tenants in your property, but they take care of the most important part of leasing your property – the tenant screening process. Background checks are completed before qualifying a tenant to live in your property.
  • 24/7 maintenance – Never worry about waking up at 2am for an emergency maintenance call. Reliable handymen and contractors ensure high quality work.
  • Eviction services – BMG is familiar with rental laws and ensure a smooth eviction process for all parties involved.

Just a few of the tasks Bay Management Group will take over when you enlist their aid, but the list goes on. Click here for an extensive list and descriptions of their services that will help put your mind at ease!

If that isn’t enough to convince you that Bay Management knows what they’re doing, take it from their own clients! Rave reviews are easy when a business is so focused and dedicated to the client’s success and the tenant’s satisfaction with their property.

“I honestly don’t think I could have picked a better group. During the 32 months we worked with this company the renter never missed a payment and we only had a few maintenance issues… I would definitely recommend this company to any landlord looking for management.”
– Jessica P.

Even for clients that live far away, Bay Management will work with you to ensure your Montgomery and Prince George’s county properties are well taken care of!

“I have 4 properties with Bay Management Group and I live overseas. I love how I can trust them to make the right decisions with me being more than 5,000 miles away.” – Greg W.

Among other things, Bay Management Group has one of the lowest management rates in the Greater Baltimore-Washington Metro area. They provide outstanding service so all your have to worry about it planning your next vacation!

Talk to the talented group of professionals at the Bay Management Group office in Laurel, MD and see how they can help you manage your rental property and get you on the path to financial freedom! Call or stop by today!

Real Estate Numbers You Should Know for Property Investment Success

Posted on by Bay Management Group

Getting into the rental property business is an exciting time, especially if you are a new landlord. With the dream of making money, whether just to supplement your current income or become financially independent from the grind of the corporate world, there is much to look forward to!

The good news is that most people who make rental property investments do become successful over time. With some hard work and determination, earning a steady flow of income is not unreachable. There are, however, some important financial considerations to make before jumping into a property investment.

real-estate-investment

 

Today we will look at some of the most crucial real estate numbers associated with rental property investment success that you should know before you join the ranks as a landlord.

8 Real Estate Numbers to Know

1. Your Mortgage Payment

Although it seems obvious you would know this number when purchasing a rental property, there is more to it than just knowing a price tag.

Before working with a lender, it is not only good to know the purchase price of the home you are interested in, but how it matches up to your debt-to-income ratio, as well as your cash reserves. The lower the ratio, the better chances you have of getting approved for a loan. Similarly, the more savings you have set aside for things such as maintenance, repairs, taxes, and HOA fees, the better.

With ratio requirements ranging between 28-45%, along with a high credit score and cash on hand, you must be qualified to make an investment if you want to get approved to buy a rental property. Plan ahead so that you are financially secure before setting out to make any property investments.

2. Down Payment Requirements

Unlike owner-occupied homes, investor mortgages typically require larger down payments in order to secure a sale. Sometimes requiring as much as 40% down, investment properties command a lot of upfront costs. In addition, you many not use a gift fund for either the down payment or the closing costs of an investment property.

Your credit scores, debt-to-income ratio, cash on hand, purchase price, and estimated monthly rent of the property will determine how much money down you will need to make your dream of becoming a landlord a reality.

3. Gross Rental Yield

A great way to help decide whether an investment is a good one or not is by calculating the gross rental yield of the property to get a general expected annual return. Simply divide the annual expected rent by the total property cost, then multiply it by 100 to get the percentage. Anything above 10% is a great investment and is worth your consideration as rental investment.

For instance, if you pay $100,000 for a house and you can $12,000 per year for the house, the gross yield is 12%.

 

Keep in mind while making your calculation that the total property costs consists of the purchase price and closing costs, and does not include and deductions such as maintenance, vacancies, taxes, insurance, etc.

real-estate-numbers-to-know

4. The 1% Rule

A quicker way to decide if an investment has potential is to apply the 1% rule to the property you are interested in.

Ideally, you would like to be able to collect 1% or more of the purchase price in rent each month. So, if you bought a rental for $100,000, you would need to collect $1,000 or more each month for it to be considered a good deal.

5. Capitalization (Cap) Rate

A step up from the gross rental yield, and a more accurate description of your expected returns, is the cap rate. This real estate number takes into consideration all operating expenses for your property and attempts to give you an idea of how much income to expect.

Calculating the number is just as easy as calculating the gross rental yield. Simply start with the annual rent and deduct any expected expenses for the year. This will provide you with a net operating profit. Then, divide that number by the total property costs (purchase price and closing costs) and multiply it by 100 to get your percentage. The higher the percentage, the better rate of return and the more successful you will be in the end.

6. Cash Flow

In order for your investment to be considered a successful one, you must have an overall positive cash flow. This is not to say that you can never be in the red, because you can and you will, but the point of investing in rental properties is to come out ahead.

Make sure that your monthly rent payments can cover the mortgage, interest, taxes, and insurance. Anything left over is your positive cash flow and is how you make money. Understand that maintenance costs and repairs can creep up on your quickly and damage your positive cash flow in an instant, so be prepared.

7. The P/E Ratio

As one of the most widely used indicators of a good investment in all financial sectors, the P/E Ratio (or price to earnings ratio) is used to compare differing investments on a more level playing field.

This real estate number is useful in determining whether a rental property purchase is good or not. To calculate the P/E ratio, just take the current market value of the property and divide it by the current net operating profit (remember, above you used this value to calculate the capitalization rate). The number you receive is approximately how many years of net operating profit years it would take to get back your original investment.

real-estate-investment-risk

For example, if you purchased a property for $100,000 and make a net operating profit of $8,000 a year, it would take about 12.5 years of tenant payments to get back your original $100,000. This does not consider any extra expenses you may have to put into your investment, nor does it calculate things such as rent increases. It does, however, give you a good idea as to whether your investment option is worth considering.

The average P/E rates for solid investments range from 12-25. The lower the P/E rate, the better it is for someone looking to purchase a rental property.

8. Check Your HOA

Something very important to take note of when making a rental property investment in a neighborhood with a Homeowner’s Association is to take stock of their financial health.  Asking for the HOA’s financial statements will give you an idea as to how stable the neighborhood is.

If the HOA is in the red, you will likely see poor maintenance of the neighborhood or spike in HOA fees, neither of which you will want to contend with. You also want to avoid investing where the HOA is in litigation. This type of situation can negatively affect your tenants and may cause you to have some unexpected vacancies.

In the end, understanding some of the most prevalent real estate numbers is what is going to allow you to make an informed decision when it comes to your rental property investments.

It is important to understand, however, that these numbers are not concrete. Many things can change over the course of a year and you may find yourself starting out with what seemed like a great investment in the beginning and ending with a problem investment whose value simply dropped.

While you cannot avoid market fluctuations and  unexpected costs associated with rental properties, you can help to secure some things by using a good property management team like Bay Management Group. Helping you to find high-quality tenants, routinely inspecting your property for damages, and even supporting you should need to file a lawsuit, many unexpected costs will never become a reality because Bay Management Group will be warding them off from the start.