The investment property conundrum
Investors seeking diversification have often turned to a rental property or collection of rental properties to balance and spread risk across their investment portfolios. As with any investment, people must consider all the issues, problems, and pitfalls along with the potential benefits. Unfortunately, many investors are not aware of potential problems and do not take the time to investigate these issues before closing escrow. A property management course and a basic real estate investing course would be great investments of time for someone considering rental properties as a source of investment income and a long-term investment. Some of the issues and concerns are discussed below.
Inexperienced brokers and uneducated investors make a deadly brew
Rental property investors often use the services of an inexperienced real estate agent who doesn’t fully understand rental properties, doesn’t fully understand return on investment, and doesn’t fully understand what cap rates are. Most of the time, these investors simply go to their friend ‘the real estate agent’ or use any real estate agent they are familiar with or feel comfortable with to buy these types of properties, as sad as that sounds.
The fact is, most real estate agents aren’t smart enough to understand rental properties, cap rates, cash yields, return on investment, leveraged investing, and common terms associated with properties. investment. Compounding this fact, most investors are initially similarly inexperienced and lack the proper experience to locate and purchase a high yield investment property. No one needs to look past this question: Why would an owner sell a high-yielding investment property? That question should be the first of many asked by both the broker and the investor. One problem is that some investors are so excited to get into a property that they look beyond the truth and the numbers and just want to gain control of the property. This is often a flawed approach because most agents will be hesitant to stop the enthusiastic buyer for fear of missing out on a good commission.
The property management profession is an equalizer
After an investor has closed escrow, if the inexperienced agent hasn’t offered to ‘manage’ the property for them, many of them decide to manage the property themselves (only licensed realtors can manage properties). rental). When these unsuspecting landlords are faced with the subtleties of Fair Housing laws, Equal Opportunity issues, civil rights issues, anti-discrimination issues, bad tenant screening issues, default notice issues, eviction issues, and, finally, collection issues, many times they turn to a professional property manager or property management company to help rescue their sinking boat.
If bailed out in time, a professional property manager can turn an investment property around and help the investor’s decision pay dividends. With a competent property manager, the return on investment can be realized and the owner can have time to enjoy the investment, not get excited or worry about it. The property management company will take care of the investment, maintenance, tenants and all matters related to the property.
Property Management Education Course
Educating both inexperienced realtors and novice investment property owners on prudent property management is critical to maximizing an investor’s return on investment. It is rare for an owner to successfully manage his property(ies) and make the most of it possible in that particular market. The reason it’s rare is because the typical owner-manager isn’t using the latest and greatest property management techniques, software, screening procedures, and most importantly, not keeping up with the laws on a constant basis. exchange between landlords and tenants. Every January, several laws are enacted that favor tenants and debtors and that most people are not aware of. When a new law goes into effect, it’s another potential trap for the Lone Ranger owner to violate and end up on the wrong side of the lawsuit.
The sure way to avoid this potential problem is to hire a property management company to manage and protect the owner’s investment and, more importantly, maximize the return on investment. Another way around this problem is to have every landlord take a property management course and learn the profession from scratch without going through the heavy blows of experiencing tenant problems firsthand.
Finally, a homeowner could hire a property management company that, in addition to all the typical staff, also has a real estate attorney on staff who can sort out and answer all the legal questions that seemingly end up front and center. This would be a truly educated and easy decision for the owner to make.