Develop a Strategy
Before acquiring property, it’s particularly key in today’s tricky market to have a long-term strategy, says Una Elliott, a full-time real estate investor and founder of Atlanta W.I.R.E. (Women Investing in Real Estate), an investment club with a combined $1.54 million portfolio among its members. Start by assessing whether your main objective is to supplement your current income or to buy real estate in order to create an investment portfolio for long-term wealth building, she suggests.
Having this understanding can help you devise a safe investment strategy, Elliott adds. You’ll know what kinds of houses to buy,what types of neighborhoods to target, and even how many properties you will need to reach your long-term goals. Reading books, joining an investment club, and finding a mentor are also useful tools.
Elliott argues that becoming a landlord these days is a lot more complicated than it used to be. Section 8 rules have changed, for instance, and prospective landlords should make sure they know about tenant and landlord housing laws and regulations in their state and county. One popular Website, Mr-Landlord.com, offers tips to do-it-yourself landlords, rental owners, and managers. Other useful sites with a variety of resources are Landlord.com and TheLPA.com, which stands for the Landlord Protection Agency.
Advice from a Pro
Lester Zeigler, a landlord who also runs a home inspection business and owns 31 rental units in New Orleans, carefully mapped out a strategy before he began acquiring properties. During the early 1990s, the 42-year-old Brooklyn native moved to the Big Easy after visiting and seeing how affordable the rents were. Zeigler quit his job as a customer service representative for a bank and soon after purchased an $82,000 two-family home. He lived on one side and rented out the other.
Empowered by the success of his first venture,Zeigler and his wife, Yolanda, soon embarked on a quest to acquire additional homes–two-family buildings and larger.They had a clear plan of execution to help them weather good and bad markets: Keep a financial reserve of about three months of rent per unit, in case of a hardship; agree to do month-to-month leases, so they can easily get rid of problem tenants or increase or decrease the rent at their discretion; and try to maintain an 80%occupancy rate in order to turn a profit.
The Zeiglers currently own $2 million worth of real estate, which generates about $360,000 annually. Before Hurricane Katrina Zeigler held adjustable rate mortgages that were as high as 12%, but now he sticks with fixed-rate mortgages with rates of about 8.75% or less. The storm damaged all his properties, ultimately costing him$800,000 to renovate, upgrade, and redo the electricity and plumbing in all the units. Although most of his insurance costs have doubled, Zeigler has been able to pass those costs on to his tenants, since his average rents have gone from$450 to $650 or more post-storm because of housing shortages.