Rental and Cashflow Property - Management, Strategies and More

Cap rates are a somewhat imprecise but highly common way CRE business people refer to property NOI yields and property values
Cash-on-cash return measures the property’s return to cash given leverage on the property, and obscures the inherent income-generating character of the property itself
Full interview transcript:

The goal of every real estate investor is to see their property appreciate in value and to have it generate a positive cash flow. The appreciation normally takes care of itself if the property is of good quality, in a good location, and is held over a long enough period of time. Just like the stock market, real estate has proven to go up way more than it goes down over time.

I was sitting down for dinner with a friend the other night and he said to me “Brandon, I want to buy my first property but there is so much information out there. I just want to see the whole process, neatly outlined, so I know my step by step plan.”

And I thought “Isn't’ that we all want when learning something new?

We want to see the whole picture, not just broken up parts.

Today I want to help you do just that – learn the step by step process for getting your first rental property in the next 90 days. For those of you who like something tangible to look at, at the end of this post I’ll show you where you can download a free 1-page PDF summary of this process- neat and clean, just like my buddy ordered.

Alright, let’s get started.

Learn and follow your state's landlord tenant laws. Each state has its own laws and guidelines for both landlords and tenants. The Nolo website has links to the various state laws. Also, become familiar with the federal Fair Housing Act that prohibits discrimination.

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Protect your asset. Get rental insurance to cover damages. Consider purchasing a homeowner warranty that pays for certain repairs. Set aside extra money to pay for unexpected expenses.

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A landlord’s job does not end after renting out the property to a tenant. It rather begins from there as he will now have to look after the repairs and maintenance requests that the tenants would make. Alongside, he also has to make efforts to maintain a healthy relationship with the tenant.

The multifamily sector looks to continue to remain quite healthy in 2014 based on analysis of current data from Freddie Mac and Fannie Mae. But the pair of big GSEs expect multifamily growth to moderate beyond this year as conditions return to long-run historical levels.

The Freddie Mac Multifamily Investment Index shows that multifamily should remain an attractive investment for the next few years. The Index, which measures the relative attractiveness of investing in multifamily properties over time, was at 146.3 for the third quarter of 2013, well above the historical average of 124.6.

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According to RealtyTrac Inc., house flipping is making a comeback; house flips in 2013 rose 16 percent from 2012, and increased 114 percent from 2011. Furthermore, the average gross profit for a flip was $58,081 in 2013, up from an average of $45,769 in 2012.

Hilco Real Estate Finance, a private money lender for real estate rehabbers, is experiencing the uptick in the fix and flip market first-hand. The business unit has issued over $75 million in lines of credit since its inception in July of 2013, enabling fix and flip investors and realtors to acquire, renovate, sell and lease properties at a higher volume and a faster pace. The average of all approved lines of credit is approximately $800,000.

If you have been around investment properties you have probably heard the term cap rate and NOI. The cap rate on an investment property is a measure of what the returns will be assuming you pay cash for a property. I don’t use cap rate on my investment properties, because it doesn’t factor financing costs. I prefer to use the cash on cash return on my properties, but the cap rate can still give you a basic idea of a property’s returns.

NOI is the net operating income on a rental property and does not factor in debt service. The NOI can be another indicator of rental property returns, but can also be easily manipulated.

How do you figure the cap rate on a property?

I am in the process of renting two of my rental homes; rental property number 8 and rental property number 9. When it comes time to rent one of my properties, choosing the right tenant can mean the difference in thousands of dollars. There are many steps you can take to find a great tenant and many tenants will want to rent with a pet. I have a dog that I love and there is no way I would give up that dog so I understand why tenants want to have pets. It is tricky allowing pets, because they can destroy a house, but also add revenue to a rental property.

The dangers of allowing pets in rental properties

When you've chosen to rent out your investment property there are many problems that can can evidence themselves, and you should think about tenant referencing very seriously. Most individuals who turn up will be very nicely presented, and probably privileged with immeasurable charisma and wit. Even when it comes to the advance payment, they could make it appear like money is no object.