Real Estate Investing Archives - Ms. Financial Literacy

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Not Knowing the State Landlord/Tenant Laws Almost Caused Us a Potential Eviction Case

Landlord and Tenant Laws

As a real estate investor doing buy and hold, you need to fully educate yourself on the state landlord/tenant laws where you are investing. Skipping this step or doing incomplete homework can be costly and messy. This almost happened to my husband and I. I’m glad we were being extra cautious (not giving into our emotions) and took the time to perform due diligence.

landlord tenant laws

Having lived in two states, I noticed that the landlord/tenant laws vary from state to state. To further complicate things, these real estate laws can also vary from county to county. Once we narrowed down the locations where we want to do buy & hold, I spent hours on the web researching landlord/tenant laws applicable to those particular areas. I also had my husband read those laws. We only proceeded to make offers after we’ve decided that the areas we’re interested in are landlord-friendly. Yet, we soon learned that despite having put in 10 plus hours of research on the web reading and familiarizing ourselves with the laws, we still didn’t get the complete picture.

The Story

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Financial Planning, Real Estate Investing

Cash on Cash Return on Investment

When analyzing real estate deals, one of your biggest concerns should be the rate of return (also known as return on investment or ROI). What is the percentage return on the capital invested? One metric many real estate investors like to use is Cash on Cash Return on Investment (CoCRoI). It is the amount of cash flow you receive relative to the amount of money you pay out-of-pocket for the property.

CoCRoI = Pretax Annual Cash Flow / Cash Out-of-Pocket

cash on cash return on investment

If you have had an interest savings account and/or investing in the stock market (such as holding dividend yielding stocks and interest yielding bonds), you might be familiar with CoCRoI. For instance, if you invest $1,000 in a stock that pays out $30 in annual dividends, your CoCRoI on that $1,000 is 3% of your capital invested. Likewise, if you pay $1,000 cash out-of-pocket to acquire a property that generates $50 in cash flow annually, your CoCRoI yield is 5%.

Being able to draw this parallel across different investments (or asset classes) is pretty cool, right? You can easily compare rates of return on rental property investing to lending and investing in the stock market. Knowing that the stock market historically returns 7% to 8% annually, is a Cash on Cash Return yield of 6% on an investment property a good return (keep in mind that different asset classes have different levels of risk and CoCRoI doesn’t account for relative risk factors)? As a newbie real estate investor (but a somewhat seasoned stock market investor), I certainly appreciate this familiarity.

Factors that Can Influence the Cash on Cash Return Yield

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Real Estate Investing

Building Your Team: Real Estate Agent

One of the first things I learned about real estate investing is having a business plan. In a previous article, I wrote about narrowing down on niches and strategies. Today, I’m sharing another component of the business plan—building your team. More specifically, this post is on finding a real estate agent (your realtor).

real estate agent

Your Working Relationship with a Real Estate Agent

Having a real estate agent who goes above and beyond to represent and advocate for you can greatly affect your investing experience. This is especially true if you are doing out-of-state investing (as it is the case for my husband and I). You should expect much more from your realtor than just getting you set up on auto searches, providing you comparisons and signing the necessary documents. If you aren’t familiar with the landlord/tenant laws in the area you’re looking to invest in, turn to your realtor for insights and resources. If your realtor happens to live in the same area or neighborhood you are doing your searches, ask them questions about growth (e.g., jobs in the area and area amenities), ease of commute and rental potentials. In other words, turn to them as your resource guide.

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Real Estate Investing

Using the 50% and 1% Screening Rules to Quickly Sift Through Real Estate Potential Deals

Rules of Thumb

In an older article, I wrote extensively sharing my views on conventional financial rules of thumb. In general, these rules are shortcuts allowing you to quickly analyze a situation (with an anchoring point) and determine if that particular situation merits further consideration. They should not replace the need to do research, do math, or evaluate if a short-term financial decision aligns with your long-term financial goals.

As I started learning about real estate investing, it turns out that many real estate investors use a number of rules of thumb to help them narrow down the number of potential deals and determine which ones they should spend more of their time focusing on. To give you an idea, the numbers showing up on our auto searches for one county are 182 (2 bedroom single family homes), 315 (3 bedroom sfh), 48 (4+ bedroom sfh) and 31 (small multifamily properties). That’s a lot of potential properties to go through! As our time is a limited resource, we will spend it on potential deals that can bring in the most profits. In addition, with the ‘buy & hold’ strategy, even putting 20% down on the cost of a property can be a lot of money. Thus, my husband and I definitely want to do our due diligence. During my research, such a process is very time and labor intensive.

In this article, I’m sharing two rules of thumb real estate investors use to sift through hundreds of potential deals. Just like other conventional financial rules of thumb, these guidelines are not “rules” per se. We use them only as screening rules to help us narrow (filter) our search. Even if a property meets one or both of these rules, it doesn’t mean we hurry to make an offer. This simply means that particular property merits further consideration (I’m currently learning about the more advanced and detailed strategies, and will be sharing them on the blog soon).

As aforementioned (and stated in the previous article), my husband and I are only interested in the buy & hold strategy at this point. So the focus here is on screening rules for investors who use the buy & hold strategy to build wealth.

The 50% Rule

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Financial Planning, Investment, Real Estate Investing

Real Estate Niches and Strategies

Year 2016 was a year full of financial learning for both my husband and I. Early this year, we learned the importance of financial planning (which I talked about in this article). Towards the close of the year, we learned about the importance of having a business plan when investing in real estate. Part of getting started on real estate investing is to first decide on a niche (or two) to get into and which strategy to use to build wealth.

real estate niches and strategies

Real Estate Niches

When I started researching on real estate investing, I was only interested in single family homes. I was aware of other investors buying up small and large apartments, commercial real estates and notes (the buying and selling of paper mortgages). However, my husband and I never paid much attention to those kinds of real estate investing. These types are only for investors who have lots of money. Even if we have the cash or leverage (securing loans), my husband and I aren’t interested in venturing into that kind of large scale risks or work. We’re looking for something much smaller in scale and more manageable. As I wrote in the previous article, we aren’t looking to become multimillionaires through real estate investing. We are interested in portfolio diversification and additional stable monthly cash flow.

Small Multifamily Properties and Their Appeal To Us

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