Last of a four-part series
Investors either hold properties for monthly cash flow and long-term appreciation, or they can “flip,” or immediately resale property for a quick profit.
While flipping has its own challenges, owning and renting rental property also has definitive challenges:
Cash flow ~ Vacancies ~ Management
Cash flow can be positive or negative. Investors seek out properties with positive cash flow. Positive cash flow occurs after all monthly expenses — such as mortgage payments, insurance, amortized property taxes, and management fees — are paid and there are funds left from the monthly rental income.
Ideally, positive cash flow allows an investor have tenants pay for his investment, while the property hopefully appreciates.
Negative cash flow occurs when at the end of the month, there is not enough rental income to service expenses.
Investors “run the numbers” before purchasing a property to determine with a property will have positive or negative cash flow. Not even running the numbers can predict unforeseen expenses such as a leaky roof, a broken air conditioner or a deadbeat tenant.
Vacancies, from a deadbeat tenant or economic conditions, can be devastating to a property owner. Positive cash flow suddenly is now negative.
Northern San Joaquin Valley rental properties are in the middle an economic downturn that has rents down, vacancies up and values down. It’s a renters’ market, with landlords competing for a shrinking pool of renters.
In these tough times, the Stanislaus County unemployment rate is approaching 20 percent, renters double up, moving in with family or friends.
“That’s where you get into the creative side of marketing,” he said.
He makes his properties standout from the competition by offering rent incentives that include a low initial monthly payment that progressively escalates to market rate. He also seeks out a competitive advantage when purchasing investment property.
“All my units have a garage and laundry hookups,” said Abell. “I put in washer and dryers as part of the package.”
Some investors manage their own properties, while others hire professional property managers. The first time a tenant calls you to fix a plugged toilet in the middle of the night, professional management sounds like a good idea.
For a fee typically ranging from 5 to 8 percent, a management firm takes care of collecting the rent and order any needed maintenance and repairs. There can be additional charges, such as interviewing and placing new tenants and evicting problem renters.
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