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Quickfire Tips For First Timer Landlords
Real estate investment is so main stream these days that it seems like there are more real estate gurus than financial freedom gurus. This is a blow to financial freedom extremists as real estate is supposed to be just a subset of it. You will know that properties are hot money makers when even wealth gurus are setting up seminars centered around properties only.
If you have in fact jumped in on the property investment bus and closing in on your first property, you have to pick things up fast so that you do not get played out by sellers or tenants. Every player in the property market is looking out for his own interest. And if you play the jolly role of a newbie, the odds are that you are going to be played out on your very first property. You do not have the luxury of slowly learning the ropes in this game. Complacency is going to knock you out of the game before you even know it. Before listing down quickfire tips for you to absorb, it is first important to learn a little more about the advantages and disadvantages of real estate investments.
Cash inflow. The blood of your investment is the rental cash flow. The whole concept of investing in properties centers around this. If the money you collect is able to pay off the mortgage and other miscellaneous expenses, good for you. If not, you are losing money each month. But there is growing number of investors who are willing to accept a negative cash flow and bet on returns from capital appreciation. This will still be a winning strategy if Singapore property values continue to rise at a breathtaking velocity.
Appreciation. As briefly explained earlier, a lot of buyers are betting on appreciation rather than cash flow income. Real estate values do tend to appreciate over time. And with the limited land in Singapore coupled with rising population, there is a good basis to determine that prices are going to continue rising. Look at it this way, even new launches in Punggol are selling at prices you cannot imagine 5 years ago.
Leverage. A big factor that makes properties so attractive is the use of leverage. For 20% down, you can get 80% loan. This mathematically means that you get 4 times the leverage of your cash. Your cash portion will be even lower if we factor in the use of CPF. Even credit cards only provide you 2 times your salary as a credit limit. And mortgage rates are way lower than other forms of credit facilities like personal loans, cash lines, etc. In addition to that the equity in the property will grow as it appreciates in value.
Tax matters. You should check with your accountant regarding tax matters. But this benefit centers around owning more of your property with money that is not taxed.
Responsibility. Do you know what are your responsibilities should a bad accident happen in your apartment to to your negligence? As soon as you become a landlord you are obligated to assume certain responsibilities and potential liabilities. Being at the end of a nasty lawsuit from a disgruntled tenants can give you sleepless nights.
Adhoc problems and expenses. Dealing with adhoc issues is part and parcel of being a landlord. If you want a hands-free investment, try treasury bonds with 1% returns. On the slowest of days, a major leak can breakout in your property or the air-conditioning stops working. These are things you have to deal with and costs that you have to bear. There isn’t a tenant who will be happy when their landlords do not give immediate attention to their living conditions. Tenants after all are paying you rent to live in a proper home. Not one that is infested with pests or dripping from the ceiling.
Bad tenants. If you think that tenants will follow every term in your drafted agreement religiously, you will be making a big newbie mistake. Real estating deals with human beings and people are unpredictable and emotional. Sure your have all the terms stated in your agreement, but nobody is going to flow all your rules like a robot. Late payments, damages, and constantly being given the run-around are just some of the things you can expect. Good tenants are not always the one willing to pay the most. But they often the ones that will respect your terms.
No tenants. It is so easy to calculate that you are going to profit from rental income before you buy a property. So excited were you that you might have forgotten that your calculations are based on the assumption that you will be able to find tenants as soon as you get control of the property. A month of vacancy can set your profits back by a few months. Renting to a tenant at below market rates will also negatively affect your incomes statement.
Now that we have gone through the main advantages and disadvantages of real estating, here are some quick tips to help you hit the ground running as a first timer landlord.
Manage your expectations. Yes you heard stories about investors killing it with properties. But that does not mean that you can fully expect to do the same. Don’t expect to be able to double or triple your property assets within 6 months like some gurus claim. Raising your rentals every year so that you can keep your holiday targets on track can chase out good tenants. Be down to earth with what you expect to get for your investment.
Manage your time. It is an irony that a lot of people invest in properties so as to achieve more freedom but instead found themselves busier than ever managing their properties. They have little free time and have to constantly keep up with what is happening with their apartments. If you find yourself in this situation, consider outsourcing these work to free up yourself. You are striving to be an investor. Not a property manager.
Keep up to date with the law. There are different laws that you have to adhere to just like a driver will have traffic laws to abide to. Since you are investing now, start making friends with lawyers. They will provide you with their service on one hand, and also be able to give you friendly advice on the other. Negligence is not an excuse to get out of trouble with the law.
Inspection. Don’t be embarrassed about meticulously inspecting the property for defects. People will give you that look that you are going overboard. But a lot of times, you will find defects that a seller did not disclose to you because he felt that it was just a “minor” defect. Remember to follow that up by getting a professional to inspect the property before finalize a purchase.
Tenancy agreement. You could be acting like a kid in a candy store by being able to set terms that people have to abide to. But before you sign off on it, get a lawyer to inspect it to ensure that everything is legal. Failing which, you will find problems in enforcement when tenants violate your terms. Just a change in wording can make a huge difference. That’s why lawyers are paid top money.
Checks on tenants. It is not too exaggerating to make reference and credit checks on your potential tenant. What you find in these information could reveal a picture of a tenant that you least expected.
Join landlord networks. Joining clubs and masterminds can give you access to a wealth of experience that can take you decades if you were to learn them yourself. Members can help each other out and learn from each other. You can also get into partnerships for bigger investments.
Link up with other professionals. Investing in properties is not something you can do yourself. You need the help of professionals no matter how well-versed you are. Some of the professionals to link up with include bankers, real estate agents, lawyers, insurance agents, mortgage brokers, accountants, property managers, etc.
Insurance. You need to protect yourself and your investment. There are many types of insurance policies that serve the different needs of landlords. It is recommended that you talk to your insurance agent to see what is best for you.
Cash buffer. Always keep a cash reserve of funds in case something happens that gravely affects your cash flow. Mortgage rates can explode, tenants could be retrenched, and property bubbles can burst. You really cannot predict the future. Only history can serve as a guide to the future. And history has showed that these things can happen.
Properties can be great investments. Just remember to take charge of your success instead of leaving it to chance.