Buying Investment PropertyPurchase of investment properties
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Which I wish I knew before I bought rentals.
Having bought around for a few month, we opted for a 1,300 m² house with three double rooms, an open plan galley, a lounge and a courtyard. Only a few month after purchasing our own house, we parked 10 per cent on a near-by tile farm and converted it into our first letting.
Soon after we changed our "Starterheim" into a second rent and bought a bigger house for us. Most of what we learnt was about searching and checking renters, drafting and concluding lease agreements and administering our real estate on the web. Everybody we knew thought we were insane until they eventually realised that, despite our limited landlord expertise, we had somehow made it.
Almost ten years in advance, and our real estate remains stagnant and as profitable as ever. Our property has been fully serviced for about a year, the other has a small loan that will pay off in 2-3 years. As soon as our two real estate units are fully disbursed, we have at least $2,000 per months in some passively earned money on a flat rate per months only.
Our lessees actually pay for the property with their own cash - not ours. Unfortunately, it is the case that some things have to be learnt the tough way. The first lesson we learnt about renting came as a giant, frightening shock and ended with a nights full of crying and week-long commotion.
I will never ever forget when I opened our property bill for our first rent and found that our property rates had risen by 300 per cent over night. In fact, I knew that our property rates would rise a little - my state offered a landlord waiver for your main home, and I knew that it would not hold for real estate where we do not reside.
Still, I was not aware that property taxation ceilings on leased property were a full percent higher than those on farmsteads and your main home. Trouble was, I had the rents on our old mortgages bill base - not the new one. Luckily, we were able to adjust and increase the rents after the end of the first year of the tenancy to take into consideration the higher property rates.
The lesson was learnt there, but it was definitely learnt the tough way. When you speak to someone who owns rented property, you've probably listened to some nightmare tales about the kind of harm they can do. As I appeared at the home to make the last tour of the estate, I could frankly not believe what I saw.
It had been in excellent condition during our last visit, which took place only eight month earlier. Unfortunately, I later learned that the family's Mother had grabbed her things and gone a few month earlier, which led the Dad and the children to take care of things themselves.
In the end, we repaired and repaired everything in the house and even got the renters to pay us back most of the damages. Nevertheless, my experiences have taught me a precious lesson: Lots of harm can come in a hurry if you allow it, and the only way to avoid it is to frequent your property.
The $6,000 spent on repairing our rented properties has shown us that we need to be more diligent in our choice of renters. Those who are decorating for the holiday and are proud of their renting, as if it were their own home. The property is always flawless inside and out, and we only visit it once every six month or so.
Cause they are such good leaseholders, I have promised never to increase the lease as long as they are there. And even though we lose on some income by not lifting rental, we get the peace of minds that comes with having a leaseholder who will take care of our property excellently.
For me, this sense is more valuable than the increase in rents that we could calculate over the years. This is because outstanding renters like them have a tendency to need fewer repair jobs and cause significantly less abrasion when they move out. For a new swamp dispenser and an underground drainage system in one of our creep rooms we payed.
That doesn't even take into account the $6,000 we spend on fixing the property that our tenants virtually wrecked for a year. As our two homes make a decent monthly income, we can use the surplus to cover things like repair and upgrade and everything else.
However, some of the cash has come directly from our own pocket, and these surprising reparations always seem to come at the most surprising (and worst) moment. Things have always worked well, but over the years I realised that we had to put aside some resources for what we knew.
Rather than being controlled by the stranger, over the years we have learnt to take complete command of the situations themselves. Our tenants were always five to ten at a time too late to pay their rents for two years at a time. Although the rental agreement says that I can ask for a $10 per night delay penalty, I never did.
Everything began with the first few weeks they were overdue. Because I had talked so casually about it in the first few weeks, it became more difficult over the years to set your feet. Consequently, they came too late renting for two years and I was spending innumerable hours stressfully because of the situtation.
I' ve learnt since then that it's okay to adhere to the conditions in the rental agreement - even if those conditions cost someone else at the end of the day. Indeed, establishing solid basic principles is the best way to let the tenant know that the regulations are important and that there are implications for delayed rental payment, damage or anything else.
Even though we were far from expert at the beginning, I firmly believe that the purchase of rented property is one of the best measures we have taken. First, we purchased our real estate near the bottom of the trough of the markets, which means that it has already experienced an enormous increase in value. Though our real estate makes a month's income, we currently use this amount for repair and upkeep.
We are currently renting our homes for just under $2,000, but I anticipate that they will be renting significantly more in the next 10 years. As soon as they are payed out, all the funds are used to help our young women afford to go to school, to pay our way to school and to fund part of our early pension dream.
In addition, due to our preference for property, we are planning to buy at least two further leased objects in the next few years. Although I'm not quite prepared to push the button yet, I think we could profit from having a few more paying homes in our portfolios before retirement.
The purchase of the right rented property is a real challange, but the act of the lessor is by far the most difficult part. Possessing rented property, however, can be the keys to too much gain and too much economic liberty if you do things right from the beginning - or at least learning from your own faults.
When you are considering buying rented property, I sincerely believe that you can make the most of my errors instead of having to study things the tough way. Check your renters thoroughly and keep an overview of your property at all time. Don't be scared to legislate when you need to, but be aware of your renters and their family - especially the most dependable.