Property Investment Guide – 6 Tips For Intelligent Investment In The United States
1. Never invest in a property without checking the area around it. There are plenty of websites and places where you can find information about the exact location of the property and the general characteristics of the population in the area.
2. Always look into the prices of similar properties in the area.
3. The U.S. is huge – large areas are unpopulated or have been abandoned, and it is therefore imperative to examine the neighborhood carefully and find out the percentage of empty homes.
4. Make sure the property is renovated and meets American standards for rental apartments (in some states, escrow cannot be closed without the apartment being certified by a city inspector).
5. It is important to check the infrastructure around the property (anchors), for example:
- Parks and recreational areas
- Public transportation
- Hospitals and medical clinics
- Employment options
- Shopping centers and malls
6. Take outlying and upkeep expenses into account. For this reason, it is important to be regularly in touch with the management company that is handling the property and to be aware that sometimes things don’t go smoothly. There could be delays, repairs needed, tenants who don’t pay, etc.
6 Things It’s Important To Know Before Choosing A Managment Company
In the United States, the property management company is responsible for communicating with the tenant and renting the property, including everything this may entail. Therefore, choosing a reliable and professional management company is of utmost importance when purchasing an investment property in the U.S.
What are the property management company’s responsibilities, and what is important to know before choosing a company?
1. The property management company’s responsibilities:
- Finding a suitable tenant – ensuring the tenant is qualified, thus reducing the risk of future rent collection difficulties.
- Collecting monthly rent payments from the tenant.
- Carrying out repairs on the property when necessary.
- Replacing a tenant when necessary.
2. The property management company earns money in several ways:
- Finding a tenant – 75%–100% of the first month’s rent
- A monthly fee of 6%–10% of the rent.
- Fees for making repairs when necessary.
3. How does the property management company impact investment returns?
Choosing the wrong tenant, bad property upkeep and an inflation of expenses lead to higher running expenses, which in turn decreases monthly returns and erodes the success of your U.S. investment.
4. Why is it advisable for the property manager and broker to be one and the same?
When the property management company is not associated with the broker, the company interest is to inflate running expenses and prices, thus increasing its profits. Choosing wisely and picking a company that functions as both broker and property manager lowers this risk. The goal of such a company is to sell the investor more properties, and the likelihood of this increases when investors are satisfied with property management and feel assured that it will not overcharge the investor on running expenses. This is a classic win-win situation, beneficial to both the investor and the property management company.
5. The property management company wants to know that the investor is involved and informed of the investment at all times. How is this accomplished?
- Receive an update of what needs to be done before any repairs are made.
- Get estimates.
- Ask for a photo of the repair needed.
The property management company will be authorized to make the repair only after receiving approval from the investor. This will ensure that your expenses are not inflated and your return remains high.
6. Available tools for continuously tracking your investment:
Investors receive a detailed monthly report, including rental income, running expenses (property management company fees), and any extraordinary expenses incurred (details of repairs made). The report will indicate the net profit.
How Can You Find Out About The Economic Situation In The Area Where You Consider Investing?
Since the sub-prime crisis U.S. real estate has show a steady monthly upturn, reaching a level tens of percentage points higher than its lowest point. General economic figures are also showing signs of recovery: housing costs have risen by two-digit percentages; foreclosures have dropped by tens of percentage points; unemployment is down to only 5.3%, and there is a noticeable rise in the Case-Shiller Index (consumer trust).
These facts, combined with the high rate of return possible on U.S rental properties, have attracted investors from around the world intersted in buying real estate across the ocean in the U.S.
These investors are often tempted by houses that look good on the outside, but they do not inquire about the neighborhood and the buying power of local residents. They examine the property’s Excel sheet recived from the broker, and the figures presented (buying price, renovation, rent, and return), but do not ask at all about crime in the area, unemployment, empty properties, etc. They are lured by the low buying price and high return and end up buying without doing their due diligence regarding either the property or the broker.
It is important to note that there are many properties in poor neighborhoods in the U.S. that can look luxurious: expansive villas with multiple levels, a garden, a garage, and more. To the outsider and the uninformed they can appear to be expensive homes in high-class neighborhoods, while in fact, they are not. There are millions of homes in the U.S. that are not worth even $10,000. In Detroit houses are sold for only one dollar!!!
Why is it important to know the purchasing power of local residents and how much they earn? This indicates whether the rent we charge is justified for the area and whether the tenants earn enough to pay this price. Furthermore, the lower the residents’ purchasing power and income, the higher the crime rate, the higher the risk of tenants defaulting on the rent, and accordingly, the higher the unemployment rate in the area.
Real estate in the U.S. is a very transparent business, and all data are available online. It is important to note that this information is available on many websites, and while there may be slight variations from actual data, it is not difficult to find data about the local income level.
Once you find a property of interest, input the address into a website, such as zillow.com (this is just one of numerous sites; it is important to check several). After seeing the property and reading up about it, you can see other similar properties that are for sale, or have been sold, and learn about the history of the property. To find the local incme level, click on “LOCAL INFO,” which will display information about the area – data about the residents, how many are single and how many are married, age, etc. Click on “DEMOGRAPHICS,” to see local salaries in comparison to state, national salaries, etc. It is critical to cross-reference this information with that of other sites, as well as with the broker who is well informed and knows the area inside out.
Once you know what the residents in the neighborhood earn, you can easily predict whether you will have problems with rent. For example, in an area where the average salary is $2000 per month, it will probably be difficult for someone to pay $1000 per month in rent.