All investors have heard horror stories from single and multi-family investing: bad tenants, rehabs gone wrong. Often these stories result in investors paying much more in out-of-pocket capital than was accounted for. This remains a major contributing factor preventing would-be investors from making the leap. Though there are successful strategies one can adopt to deal with bad tenants or to facilitate successful rehabs, many investors are still wary of residential asset classes.
However, there are ways to earn cashflow without having traditional tenants or making unneeded rehabs to the property.
Larry Goins is one investor that does not rely on having traditional tenants or doing property rehabs.
Listeners may remember Larry from Episode 106 where he discussed finding creative ways to make money in rising markets. Larry is a 30 year investor and investment mentor. He is an author, speaker and educator sharing his wealth of investment experience with beginner investors. This episode, Larry discusses his strategy of offering lease options instead of traditional tenant leasing.
Earning Cashflow through Lease Options
Homeowners in Training
Prospective tenants are given lease with option to own
Tenants have stated intent to purchase property
Tenants put up non-refundable down-payment stating consideration to purcahse
For Dodd-Frank compliance, tenant’s down-payment only goes to closing costs; no rent credits can be given during lease agreement
Make sure tenant is responsible for minor repairs and maintenance for “x” amount per occurance
No matter the size or experience of the investor, this is a widely-held belief. However, it is not simply about risk, but rather smart risks.
Diversifying risk is a key strategy for real estate investors looking to expand their bottom line.
Increasing the Bottom Line
We are pleased to welcome back to the show, Elysia Stobbe, NMLS# 146751. Listeners will remember Elysia from Episode 108, in which she discussed updates to SFR investor mortgages.
In addition to being a branch manager with NFM Lending, Elysia is a successful investor with over 30 property deals under her belt, doing deals in and around Jacksonville, FL. She is also a published author. Her best selling book, How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye helps single family investors in obtaining secure, prime mortgages.
This episode of Landlord Tales, Elysia discusses her transition to multifamily investing and diversifying risk with geography and asset class. Through expanding focus into the multifamily asset class and remaining open-mined about market areas, Elysia learned that diversifying risk is a great way to increase returns.
Multifamily offers greater cashflow potential than single family while minimizing tenant turnover risk
Multifamily cap rates typically 2-4% higher than single family
Remain open-minded about potential market areas
Distressed properties can be made rentable
Networking with wholesalers is great way to find distressed multifamily properties
This man is Bijan Gorji, a real estate investor based in Sarasota, FL. Bijan is a special kind of investor though. Bijan invests solely in one asset class–one often overlooked by other real estate investors–residential condos.
Bijan believes that residential condos as an investment asset class have been an unfairly neglected market for too long. Where others see problems, Bijan sees potential… and it is paying off well for him. Since moving to Sarasota from California in 2012, Bijan and his wife have acquired a portfolio of over 35 residential condos with plans to continue investing in more residential condos. This episode, Bijan will discuss why he settled on residential condos as his chosen asset class and why it should appeal to investors from a financial standpoint along with providing a brief overview of Sarasota’s real estate investment market.
Pros of Investing in Residential Condos
Easy property-management compared with single-family
Low upkeep costs
Ability to self manage properties
Tenant profile allows fluid leasing
1-2 bedroom units to working professionals or grad students; no families
Tenant turnaround quicker
Buy-and-hold investment w/ monthly cashflow
Hands-on investing allows oversight over all facets of investment
Check HOA regulations for condo before investing
Find properties within driving distance if self-managing
Finding tenants is biggest issue with residential condos: list on Craigslist, Zillow, Hotpads, etc.
Huge amounts of construction (Multi-family and Single-family)
Rents steadily increasing across all sub-markets
Residential condos offered stable investment asset class