My Second Property is officially a performing asset. Today, I got my first rental payment. With my tenant's lease starting on May 22, I received pro-rated rent for the remainder of May. That adds up to the grand total amount of $331.60.
I'll get my first full rental payment on June 1st for the amount of $995. Below is what I should expect my monthly finances to look like on this property:
As you can see, my expected monthly cash flow is $148.65 per month. That's after I set aside money for repairs ($99.50) and vacancy ($49.75) and keep them in my reserves. ALWAYS, ALWAYS, ALWAYS factor in vacancy and repairs in your numbers for future expenses!!!
Now, what do I say next...
Well, I'm really not sure. WOW. Another property in the portfolio. Another property in Indianapolis. 2,000+ miles away from my home in the San Francisco Bay Area. The property is officially rented and cash flowing! Crazy how I've now been involved in 3 real estate transactions (2 purchased + 1 sale) over the past year and a half. This all has really developed so fast.
Luckily, I was put through an experience early on that greatly contributed to my growth in the real estate world. I adjusted my strategy on this property and I'm confident in better long-term stability and returns on this one. Jumping Into a higher priced property in a better neighborhood is critical for my investing goals and I'll continue this strategy moving forward.
-It's amazing to reflect on the whole process from initial analysis, to offering, to negotiation, to marketing, to property management. There's a lot that goes into investing in out-of-state real estate, but it's all worth it once you get that first rent check.
-Just because you get that first rent check, doesn't mean everything is going to be great and dandy from there on out. Challenges will pop up, unexpected expenses will be thrown at you, but remember, buy and hold investing is a LONG-TERM play.
Acquiring My Third Property, OF COURSE! Stay Tuned!
GOT A QUESTION? Email, Call, Text, or Slide me a DM HERE! Or leave a comment below. I'd love to chat!
Happy Investing and Best of Luck!
I'll just start by saying, you really can't expect IMMEDIATE results. And that doesn't just apply to real estate investing, or marketing a property for rent...that just applies to life in general. There's your words of wisdom for the day :)
But, back to getting my property rented.
So, at the end of March, I took a little risk, and listed my property at $1,050 in hopes of getting $50 more per month than I was anticipating.
Long story short, that experiment didn't work out. Yes, I got a couple applicants, but they ended up not qualifying to rent the place according to my Property Manager's standards. At one point, I had another strong lead, but they had a dog...and going into this whole landlord business, I've always been opposed to having pets in my properties. I have nothing against animals, I just fear the worst sometimes and foresee urine stained carpets and wrecked walls. I'd like to avoid that and protect my investments.
A couple weeks go by, and I decided to drop the rent from $1,050 to $995 (my property manager felt keeping it under $1,000 would attract more renters). Kinda sucked that my decision to start with a higher rent didn't work out...but that's life.
A couple MORE weeks go by. OK, now things are getting a little worrisome. Doubt creeps into your head. It definitely crept into mine. Here we go again...should I have even bought this property in the first place? Is real estate really a great investment?? I ran through all the scenarios and plugged lower rents into my spreadsheets. What would my return be on the property if rented at $850? What about $800? Worst case scenario would be $750, right? RIGHT??
Remember, I live in the San Francisco Bay Area where properties literally go on the market in the morning and are rented by the evening. I've been trained to expect a highly competitive rental market.
Indianapolis is not San Francisco.
Today, April 27th. I GOT A SIGNED LEASE!
It took some time. It took a lot of personal patience. But, at the end of the day. I got a signed lease.
There's still a slight bummer...the tenants aren't moving in until May 22nd...so there's still some time until I start getting payments. I'll end up having to pay my first mortgage payment on May 1st without a renter, but that's why you have reserves.
Bottom line: this property is very close to becoming a performing asset. And at the end of the day, that's all that matters.
-Listing your rent at the appropriate price is very important. I'm not upset for trying to list a little higher than expected...it ultimately cost me a couple weeks...but I felt it was worth the risk. However, if you are tight for cash and need the income immediately, I wouldn't recommend taking the risk. Consult with your property manager. They're the experts.
-Patience! If you live in a competitive rental market and you invest in the midwest/out-of-state, you must recognize properties sit on the market longer. It's just the nature of it. Have reserves in place to cover vacancy and practice patience.
Next up: time to start getting cash flow!
Property management is in place. Things are looking good.
I got lucky with this property because it's in great shape. Really, all that needed to be done was general cleaning ($250) and I had to replace a broken window in the garage ($136). There are a couple additional minor repairs I'll take care of later, but they are not a major priority right now. I need to get this thing on the market ASAP and avoid a long vacancy. My first mortgage payment is due in a month!
First thing first: get a professional photographer in there. My new property management company knows how to get a house rented. And first impressions are key to potential renters. High quality photos are a basic marketing tool you need to understand.
As you can see, the property does need some interior updating, but I'm not worrying about that right now. It's clean and has great bones. Next up: setting the rent price. If you recall, the previous tenant was paying $1,000 a month. So when I decided to acquire this property, I ran my numbers based on that rate. However, there was indication from local research and data that I could get a little more. So, I'm taking a little chance.
I'm setting rent at $1,050. An extra $50 a month would be great and I feel it's smart to take this risk. If there's no traction in a week, no interest or applications, then I'll re-assess.
-Getting your property cleaned up and ready to rent ASAP is key. Vacancy is one of the largest expenses you'll have, especially if you have a mortgage.
-Excellent marketing is crucial. Post high-quality photos of your property so potential tenants get a great first-impression. You need to make sure your property is highly attractive.
-Setting the correct rent price can be difficult, but talk with local Property Managers and agents and get their thoughts.
This rental property is now officially out in the world and online! Let's get it rented!
I made a HUGE mistake.
And I found out the hard way.
In 2016, I blindly hired a property management company without vetting them at all. Never really spoke with them, definitely didn’t interview them, barely met them. And that was the downfall of My First Property.
Fool me once...well, you know the saying.
So, prior to closing on My Second Property, I already had a new property management company lined up to take over. How? I got multiple property management company leads, interviewed them, and analyzed each one of them. This process of vetting IS CRITICAL to the health of your investment. Please, please, please, learn from my mistakes and hire the right company to manage your assets. Read all about my tips here:
“How to Hire a Property Manager”
My other strategy? I have two different companies managing my two properties at the same time (one to take over and manage the cleanup/sale of My First Property and one to manage My Second Property). This allows me to further vet each company and will aid in determining the best long-term fit for my management needs.
Now, on to the terms of the property management company taking over My Second Property:
-$895 New Lease Fee (i.e. I’ll pay $895 from my first month’s rent check)
-I'll pay 9% of monthly gross rent (i.e. if my monthly rent is $1,000 – they get $90)
-Professional listing photos
-Pre-Move In Checklist, walkthrough, videos, and pictures
-Rent directly pulled from Tenant’s checking account (reduces late rent!)
-Specific tenant screening criteria
-Great property management is critical to owning a cash-flowing property
-You must thoroughly vet the property management company you want to work with. Interview multiple companies and truly analyze each one.
-Be sure to compare the specific terms of each property management company. How much do they take in monthly fees? What do they charge for a maintenance request? It's very important to know all expenses.
Will this be the best property management company in the world? Maybe. Maybe not. But, I learned from my mistakes, did proper due diligence this time around, and interviewed multiple companies. Honestly, only time will tell if this is the best company for me. Let’s see how this plays out!