The 12 Days of Christmas Cosmetic Fix-Ups for Landlords

The 12 Upgrades After Christmas (for frugal property owners)
(sung to the tune of the 12 Days of Christmas)
On the first day of upgrading, the cheap fix just for you
Replace all old switch covers with brand new.
On the second day of upgrading, the cheap fix just for you
Cabinet handles nice and don’t cost much too!
On the third day of upgrading, the cheap fix just for you
Hand and bath towel bars are effortless to do!
On the fourth day of upgrading, the cheap fix just for you
Classy toilet roll holders in the loo!
On the fifth day of upgrading, the cheap fix just for you
Bright shower nozzles you won’t rue!
On the sixth day of upgrading, the cheap fix just for you,
Shower curtains that won’t spread the mold and flu…
On the seventh day of upgrading, the cheap fix just for you
Mini blinds on windows you see through.
On the eight day of upgrading, the cheap fix just for you
Light fixtures that give you brightness true.
On the ninth day of upgrading the cheap fix just for you
Paint the front door over the old blue.
On the tenth day of upgrading, the cheap fix just for you
New door knobs so visitors you’ll woo.
On the eleventh day of upgrading, the cheap fix just for you
Brass kick plates to sparkle like a jewel.
On the twelth day of upgrading, the cheap fix just for you
Replace all outlet covers with new screws.

ProActive Investors: Market Analysis

We have already warned in our past blogs that real estate investing is active, and requires diligence and determined effort. Another important quality of the most successful investors is that they are cognizant of current trends and events before the crowd has recognized what is coming. Every savvy investor needs to be watching real estate related stocks and analyzing what it means in investment direction and opportunity.

For example, let’s look at a recent better-than-expected profit report from Lowes, the home improvement retailer. This report caused positive reactions from analysts, leading to suggestions of investor confidence in an economic rebound, and consequently, stocks rose about 3%. This was interesting news, particularly in light of the seemingly conflicting report that Lowes first quarter earnings of $476 million were the company’s lowest for that period since 2004.
The investor's job is to take this information, and use it in guiding investment decisions.Further delving into the Lowes situation revealed that consumers were continuing to avoid big ticket renovation projects. This was traditionally the backbone of Lowes bottom line. However, surprisingly, do-it-yourself oriented products such as paint and hardware sales increased. That, in conjunction with improving consumer confidence, and slowing home price declines suggested the economy was stabilizing. This may suggest the worst is over, and a recovery may be slowly on the way.

While home prices remain low and property owners still unsure of the future, now could be the optimal time to deal. There is hesitancy in large home renovation, suggesting that confidence is shakey, but the slowly rising tide of small improvements indicate fingers in the economic winds. When consumers are convinced housing prices have hit bottom, they tend to spend more on their homes.In conjunction with the Lowes report, the National Association of Home Builders reported rises in its housing market index. It may be carpe diem time, and the investor who scrutinizes these kinds of economic indicators will emerge most successfully.

Don't Quit your Day Job!

Keep your day job until you are consistently earning a comparable amount from investing for at least 12 months.This tip is particularly difficult to abide by when you hate your job, or you have a tremendous deal in the works, and you see a future filled with opportunity. It is unlikely that a new investor will equal the salary of a good job in the first 2 years of investing. It is frightfully common for an excited new investor to quit a job before a loan has even been completely processed. First of all, if you are not employed, it is difficult to secure loans. In general, you will need proof of 2 years of investing from a CPA to be able to get a loan, unless you have another job that insures you will be able to repay that loan. The loans that might be available to you without those prerequisites will likely be very high interest loans, reducing the potential for an income generating deal. Many investors make the mistake of calling the money made on a deal "profit" when indeed a large bulk of that money is debt, and will have to be repaid. Then the certainty of vacancies, repairs, and slow periods will quickly become death knells to the investor sitting on the margin of success. Your investing income must exceed your salary consistently for 12 months before you should consider losing the certainty of your day job's income.Some people quit their job insisting they need to close more deals, and want their success with 10 houses to be multiplied tenfold. It is important to consider that in investing in real estate, more is not necessarily better, particularly if you are a landlord. Being a landlord is fraught with difficulties and headaches. Collecting rent, repairs, unexpected vacancies, and difficult tenants may be manageable with 10 properties, but impossible with 100. Investors with large numbers of properties have to hire full time leasing agents, eating away at both profit and control. It is very common to find the owner of 50 properties making more money than the owner of a hundred because his overhead is so much less. Additionally, the more property you own, the more overhead, repair cost, vacancy rental loss, etc.- and thus, the higher reserve you must have. Cash flow is critical, particularly to the new investor. It is always preferable to have less property with a higher cash flow than more property with less cash flow.Remember, becoming a successful investor requires time, hard work, and patience. Like anything worthwhile, instant overwhelming success is not the norm. Be realistic in your expectations, and hang on to your job while building a secure reputation, knowledge base, and success rate. Ultimately, you will insure a longer more productive investing career.

Know your appraised values!

This next tip is one of the most critical in real estate success- be sure you get a good and accurate appraisal!Now, the best investors take classes on appraising, so that they do not have to accept blindly whatever an appraiser says, but there are multiple variables that are assessed and weighed. Like we have encouraged in other tips, don't trust any numbers tossed at you without your own verification of the facts. Educate yourself on some appraisal basics, and apply them diligently to the property in question.There are some basic things you should be sure to know. First of all, don't expect that the appraisal will remain the same or rise over time. It well may not. Appraisals can change dramatically based on the economy, new development near a property, and fluctuations in consumer needs and wants. Whenever an appraisal is bumped up against comparable property, be sure those comps are recent. Also be sure that the appraised property is similar to live in conditions, compared to the comps. Find out how many days a property has been on the market, and what is the average period property in that area is on the market? Be sure to analyze what adjustments were made on the appraisal, both gross and net. It is preferable if very few adjustments, either negative or positive are made. An adjustment is made when comparing features with comp homes, for example number of bathrooms. The property with one less bathroom will have a negative adjustment. Also, be sure the property being appraised is bracketed- that is compared with a house both larger and smaller. It should be bracketed by properties within 3 miles and ideally, in the same neighborhood. You do not want the worst house in the neighborhood, even at a steal. While developers love to keep appraisal values high, if you find your target home is appraised the same as homes you would rather live in, you are likely looking at an inflated appraisal, and you will not be likely to reclaim the full value, and of course, risk foreclosure if you are investing on a slim reserve margin. Go over every detail on the appraisal with a fine toothed comb. Notice things such as other foreclosures in the area. This is a red flag. Be sure you find out why those properties are being foreclosed. If there are foreclosures in the area and the appraiser did not list them, ask him why. If he can explain satisfactorily, it may not be an issue. The important lesson in all this is to be vigilant, educate yourself, ask questions, and analyze carefully why a property is assessed as it is. Be an active consumer of information, and you decrease your margin of error.

Estimate Rents Conservatively!

Our tip today relates to one of our earlier tips about being careful to consider worst case scenarios before you make a deal. This tip is don't overestimate rent! However, don't be afraid to look for rental property deals now either.
In a soft economy, it is very possible that the rent you received 2 years ago will not be what you may receive today. If you purchase property with overly optimistic assumptions on rental return, you may find yourself unable to repay loans or have that important reserve we mentioned before, needed for repairs and vacancies. Now it is true that with increasing foreclosures, the demand for rental property is likely to increase. Additionally, those landowners who are in over their head may be unable to rent their property at a level able to keep up with their purchase obligation, and there may be some good rental distress deals to be had.
There are some interesting subtle clues out there that you can pay attention to discern if the rental market is going to be supporting rental price increases. Watch commercial lenders- are they heating up for multiple family units? If not, this may be an indicator that they believe there are going to be more vacancies. This is currently the case in many markets today. Obviously increased demand with decreased availability will translate to higher rent potential, and vice versa.

Just be cautious. Make your deals based on what the immediate area is likely to rent for now, by analyzing similar properties in the neighborhood. Keep an eye open for the signs of an opening up of the rental potential. If those early signs seem promising, make the deal based on the income you are fairly certain you will get now, knowing you are more likely setting yourself up for a much better return in the future. If you are careful with your expenses now, and cautiously pessimistic regarding rental return, there are definitely deals out there now in the medium to larger rental properties.

Don't Go It Alone!

Our next tip is NO man, or woman is an island. Don't try to go it alone!There are all kinds of professional organizations and groups that an investor can join to network, gain free and valuable advice from others who have been in the field, and educate herself without spending a cent on expensive seminars. The local REA group is a huge resource that should never be overlooked. Amazingly, investors and realtors are usually more than happy to share ideas. A good investor recognizes that there is more than enough business to go around. In fact the best investor recognizes that great deals are created, not just available. The wise investor will surround himself with talented and proven investors. He should seek information and guidance continually. And he should learn to listen and ask questions. The most successful investors are the ones who generate a lot of business, and do so with integrity. Associating with these types have a positive affect on one's reputation, and provide mutual accountability. Successful investors can be very encouraging, especially to the new people, just starting to get their feet wet. Listen to their advice regarding the traps to avoid, and the opportunities to seize. Attend REA group meetings at every opportunity, even if the topic under discussion is not one you would normally be interested in. NOt only will you be likely to make valuable contacts, but you may learn something completely unexpected that may be of value at an unexpected time. No one will be more involved in and knowledgeable about a local real estate community than the local REA. The expensive, albeit often good national seminars are not the place to find the pulse of a local community.So be involved in the local groups, and act like a sponge soaking in every drop of advice and wisdom you can. And remember to pay forward by doing the same for the new investors you meet when you are one of the millionaire success stories someday.

Apprentices and Partners Wanted!

Real Estate is not a passive investmentThere is no real passive investment scenario in the real estate business. Even loaning someone money, and just collecting the returns should involve some activity on the loaner's part- can he trust the borrower, has he analyzed the expected return and risk, what is the equity position, etc. Some investors like to work with a "silent partner"- the one who puts up collateral, and then backs off to let the borrower do all the work. In the end, they split the profits. This is not necessarily bad, but be careful to recognize that a danger of passive involvement is also loss of control, and if the one trusted to carry out the specifics is not skilled, knowledgeable, or trustworthy, the whole investment could backfire.It can be a very good partnership, however, especially for the new borrower who may not be able to qualify for a loan on their own. It is also a good way for a less experienced investor to learn by observing a more seasoned investor go through all the steps that took her years to learn. Possibly the most important benefit for the worker bee is it helps develop a credible track record. This will help her in marketing herself for deals down the road, and also in securing loans for future deals. Investors and venture capitalists are more inclined to fund a known commodity. Even small successful ventures build a reputation.So the important thing to remember is whether in the role of investor or rehabber doing the leg work, property rehab, and eventual sale/rental, to recognize that it is to everyone's benefit to be actively educating oneself, attending to specifics, and be involved as much as possible in the process. That said, I am always looking for apprentices, interested in learning more about investment and willing to offer either time or money to their investing apprenticeship. Please call me at 206-355-1706 to learn more.