Looking to Become a Landlord? Follow These Tips for Success
Looking to become a landlord and invest in Kailua Kona homes for rent? You may be daunted by all that lies ahead—calculating rentals rates, mortgage rates, and profit margins, managing tenants, financing emergency expenses, and the like. We’ve been there. Some prospective investors hesitate to make their first purchase, terrified of landing a bad deal and losing their money. Others, motivated by greed, plunge head first into rental investment without carefully calculating their facts and figures. Both fear and impulsivity have brought down many a novice investor. But don’t despair! With the right perspective, confidence, and know-how, you can expect great success. Below are a few things that all prospective landlords should consider before purchasing Kailua Kona homes for rent.
Stop Seeking the Perfect Deal
New investors might believe that the way to the top is to search long and hard for the perfect deal. These prospective investors spend hours digging through the MLS for Kailua Kona homes for rent, driving around their local market, networking, and looking at foreclosures, and still refrain from making their first purchase because they haven’t found a perfect deal.
Experienced investors, on the other hand, understand that there is no perfect deal. Every property will have some sort of risk or drawback, and experts have learned that becoming a successful investor largely revolves around risk calculation.
Today’s markets are competitive. Even though the housing shortage will not be as acute in 2018 as it was in 2017, many properties are still priced at 110%-120% of the value they were a year ago. It’s not easy to find a good deal, and it’s not possible to find a perfect one. Don’t feel discouraged, though; there are good deals out there.
To find a good deal, you must first calculate your monthly cash flow and your desired return on investment. Once you know these figures, you will be able to zero in on the types of properties that will fulfill your criteria. Establish a few good neighborhoods as your primary focus. If you find a deal that doesn’t completely meet your criteria, don’t give up or settle for a bad deal. Negotiate. The ability to negotiate is one of the most critical elements of real estate, for a good negotiator can turn a bad deal into a good one in just a few minutes of conversation.
Calculate Cash Flow
Oftentimes novices assume that generating a return on Kailua Kona homes for rent is easy and lucrative. You simply subtract the cost of your mortgage from what you receive in rent and pocket the rest as profit. Simple as that, right?
Not so fast.
Many new investors underestimate the amount of money that goes into maintaining a rental property. While most months you may simply be able to put a portion of rent earnings towards the mortgage and then pocket the rest, incidental expenses in other months will increase your average monthly expenditures on the property. It is critical that novice investors understand that your monthly cash flow should be calculated as an average and include unanticipated, emergency expenses.
In an ideal month you might receive $2,000 dollars in rent, pay $1,000 on a mortgage, and pocket $1,000. A novice investor might therefore believe he or she is guaranteed a $12,000 annual return on their investment. However, without fail, there will always be additional expenses to incorporate into your cash flow calculations. One month you might have a $3,000 repair. And then the next month you have to fix the plumbing. And then the next two months your tenants fail to pay the rent because they’re in a financial bind. By the end of the year, this investor may find that their profit is only half of what they anticipated.
New investors might be inclined to assume that these events are exceptions to the rule, but there will always be unanticipated expenses. Novice investors should build repairs, maintenance, vacancy rates, CapEx, property taxes, and housing insurance into their monthly expenditures to obtain a more realistic prediction of how much they will profit on their investment.
Be A Good Manager
Finding a good deal is only half the battle. The other half is learning how to effectively manage Kailua Kona homes for rent. If you don’t regularly inspect the conditions of your property and make necessary repairs, your return on investment will fall short of your predictions. Additionally, if you don’t do the work necessary to add value to your property, you will lose your competitive edge and, by extension, your profits.
Property management also has a lot to do with how you manage your tenants. First and foremost, you want to thoroughly screen your prospective renters. Run background checks on them. Have long conversations with them about their family, their careers, and their current living situations. Keep a sharp eye for red flags—anything that would indicate that a tenant would fail to meet their payments or damage the property.
Once you obtain good tenants, you want to do everything in your power to keep them. Having a good relationship with your tenants requires that you are highly responsive to their needs. If you ignore repair requests, increase the rent without warning, or have an unpleasant disposition, you’ll lose good tenants.
Hold Onto Cash Reserves
As previously mentioned, landlords can, without fail, expect the unexpected. In order to be prepared to cover surprise expenses, it is essential for landlords to hold onto cash reserves.
Experts suggest that you should keep 6 months worth of living expenses on hand. However, most of us don’t earn enough to keep several thousand dollars in reserves. It is more realistic to keep just four or five thousand dollars in cash. Because, of course, it’s unwise to hold thousands of dollars in actual cash, we suggest keeping credit cards without any balance and a few reliable, easy-to-liquidate investments.