4 Real Estate Investment Mistakes To Avoid

If you’re just getting started investing in the real estate world, you’ll quickly learn it takes a lot of hard work and is not something that happens overnight. You have to make sure you have the knowledge, expertise, and determination to succeed. In addition to knowing what will help you succeed, it’s helpful to know what mistakes will not.

Let’s dive into a few common real estate investment mistakes and how to avoid them.

Failing To Do Your Research & Make A Plan

It’s easy to want to dive head first into investing. You may think you know enough to start, but you’ll quickly learn you might be in over your head. Doing extensive research and making a plan are two of the most important things to do when you’re first getting started. Whether you want to flip homes or become a landlord, there are many ways to invest in real estate, and you need to look at all options before creating a plan and a strategy.

Overpaying For A Property

Going along with doing your research, if you don’t properly research your local market, you could find yourself in a situation where you overpay for a property. If you find a home that fits your exact criteria, it can be easy to write an offer immediately without thinking. It’s important to take a step back, look at what similar homes have sold for in the area, and make sure you’re getting a good deal.

Thinking You Can Do It All Alone

Building a skilled team to help you along the way is essential. Make sure you have connections with a real estate agent, lender, title company, home inspector, appraiser, and more. If you’re not going to handle landlord responsibilities yourself, you will need a landlord. Also, if you’re looking to flip a property, having the right contractors on standby (electrician, roofer, painter, lawn maintenance company, etc.) is important. Not having these people on hand will create more unnecessary stress and work you don’t need.

Focusing On One Specific Area

Many first-time investors tend to stick to one particular area or city because they’ve heard it’s a profitable area or it’s an easy commute to their home. However, sticking to one area can limit the number of possible homes that could meet your criteria in other areas. Expanding your search to include multiple cities will be better for you in the long run and make it easier to find the perfect property.

It can be easy to make mistakes if you don’t do your research, but with the right tools and people in your corner, you will be successful. If you have any questions or need recommendations, reach out to us! We are always here to help.

How Texas Is a Landlord-Friendly State

Texas consistently ranks high as a landlord-friendly state, and there’s a reason for that! The main reason is the state laws that favor the property owner/landlord, and Texas has a robust system that preserves owner rights. We’ll cover what those laws are and what it means to be a landlord-friendly state. 

What Does It Means to Be a Landlord-Friendly State?

Several factors running from laws to taxes are considered when evaluating whether a state is landlord-friendly. Texas is landlord-friendly because these factors make owning property and being a landlord easier compared to other states. 

There could be an endless discussion about what the factors should be when assessing a landlord-friendly state, but here are five universal factors found in today’s most landlord-friendly states: 

  1. Eviction Process
  2. Landlord & Tenant Rights
  3. Rent Control & Deposit
  4. Registration & Licenses
  5. Competition

Eviction Process

Evictions are the worst and most feared situation of owning property and renting it out. Luckily, Texas is one of the few states that makes the process easier. Texas takes lease violations very seriously. As long as the landlord can show that tenants are not complying with lease conditions, the eviction process is easy. Landlords seeking to evict non-paying tenants only need to issue a 3-day notice. As a landlord, they’ll receive more effortless relief, compensation, or repossession of the unit, which is reassuring to landlords.

Landlord & Tenant Rights

As mentioned above, Texas takes lease violations very seriously. Our state emphasizes the preservation of landlords’ rights in the event lease conditions are broken. This is a significant factor investors consider and what makes Texas a popular investing market for property owners. Texas is also unique because the state laws allow tenants and landlords to enter into their own agreement for repairs. This is not an option in other states. 

Rent Control & Deposit

Another unique perk to investing in Texas is the state’s no cap on rent or applicable fees like pet fees or application fees. There is also no limit on how much landlords can charge as a deposit. The last benefit is no Texas laws require landlords to provide tenants with notice of rent increases between lease terms. 

Registration and Licenses

Depending on your property, you might have to register your property with the city. Multifamily rental units need to be registered to the city, and it only costs a small annual fee of $10 to $25 per unit. Once the tenant submits a simple form identifying basic information about the property, the city will inspect it. The city does inspections once every three to five years to check for significant code violations and life-threatening conditions. If a tenant is renting a single-family property, they can usually skip this step. 

Competition

Population growth will determine how competitive the market will be for your property. Austin and the Austin area are multiplying as more businesses and companies are relocating, creating new jobs, and requiring their current employees to transfer. Texas has a high-demand rental market, so it’s wise to tap into this market as an investor. 

Are you thinking of investing in or buying an investment property? Contact us today! Reach out to TALK Property Management– We are here to help: (512) 721-1094 or dbrown@talkpropertymanagement.com.

Part Two: Should I Rent Out My Home Instead of Selling?

Continuing our previous blog, we’ll discuss the pros and cons of renting or selling your home. I’ll cover the cost of renting vs selling and what costs are included in each option.

Costs

Both selling and renting have their unique costs. A key consideration is whether your rental income is enough to cover the mortgage and upkeep. To determine how much rental income you can expect to earn, compare what other similar properties are charging and subtract the cost of mortgage payments, maintenance, repairs, taxes, hiring a property manager, and additional related expenses. The answer should help you answer whether there will be a positive cash flow or not. Rental income is an opportunity for long-term cash flow, but only when it’s positive. If it’s a loss, it’s worth considering selling.

 

The costs to rent a home should include mortgage, home maintenance and repairs, property taxes, advertising, background and credit checks, property management fees, tax filing and accounting fees, HOA fees, landlord insurance, and vacancies. Now let’s break down each of those. 

 

Mortgage: While someone else is living in your property, it is still your responsibility to pay the mortgage. To find average rent prices, you can research what other properties are advertising. This can be done through online research or by your real estate agent. 

Home maintenance and repairs: You have to keep up with routine maintenance, so it’s liveable for tenants. The rule of thumb is to save at least 1 percent of the home’s value every year to pay for maintenance. You’ll also need to budget for extra repairs and replacements of essential home parts like appliances, doors, windows, and the roof. 

Property taxes: Taxes will vary on the property’s location, but expect the rate to increase as your home value increases too. Any income you make from your rental property is subject to rental income taxes. You’ll be taxed at your ordinary tax rate but can write off certain expenses. If you rent your property for three years or more, it is no longer your primary residence. This means any profit made before selling is subject to a capital gains tax. Consult your tax advisor for recommendations regarding your specific situation.

Advertising: You need to get the word out about your property to find tenants. Advertising costs vary depending on what source you use. Advertising can range from social media ads and websites to working with a real estate agent to market the property. 

 

Background and credit checks: To ensure you have a reliable future tenant, you’ll need to screen them. This means running a credit and rental history report. Sometimes you can pass this expense onto the tenant, but if not, the cost ranges from $15 to $40. 

Property management fees: If you choose to hire a property manager, they usually charge a percentage of the rent price. Read my investor resources, “Why Should You Hire a Property Manager for Your Austin Investments”, “When is it Time to Hire an Austin Property Manager?”, and “Property Management During COVID-19”.

Tax filing and accounting fees: Taxes become more complicated when you own property (or several), so it’s best to hire someone to file your taxes for you.

HOA fees: If your home has a homeowner’s association, you’ll be responsible for the HOA fees too. Depending on what type of property you have, the costs can range from $25 to $1,000 or even more a month.

Landlord insurance: Landlord insurance will cover specific costs like damage to the home or if someone is injured on the property. This will usually cost about 25% more than your typical homeowner’s insurance policy. 

Vacancies: You’ll have to plan for the times when your home isn’t occupied. This will be income you’re losing. 

 

Now let’s discuss the cost of selling a home. The costs to factor in should be home improvement, real estate commission, home staging, utilities, home loan payoff, and closing fees. 

Home improvement: Home improvements should be made if it will increase the home’s value and fix any repairs needed. This can range from enhancing the curb appeal or removing a whole wall. It’s helpful to get a home inspection before listing to find out what you’ll need to fix beforehand. 

Real estate commission: Up to 6% of your home sales price could go to your agent. This is typically split 50/50 between the listing real estate brokerage (your agent’s brokerage) and the buyer’s agent’s real estate brokerage. The commission could be your most significant expense when selling your home. 

Home staging: Home staging isn’t always necessary, but it increases your home’s desirability and helps your house sell faster and potentially for more money. Staging costs range depending on the size and your specific needs, and it can cost anywhere from $1,000 to $8,000 or more. 

Utilities: Remember that you’ll be paying for your utility bills until the closing date. 

Home loan payoff: Once sold, you’ll need to pay off the rest of your mortgage.

Closing fees: Depending on your agreement with the buyer, you may take on some of the closing costs. Expect closing costs to be a loss of 10% of the selling price. 

 

Choosing an option comes down to finances, your long-term investment goals, and the real estate market. If you’re ready to sell, rent, or need professional advice regarding property management or real estate, TALK Property Management is here to help (512) 721-1094 or dbrown@talkpropertymanagement.com

 

Investing in Duplexes in Austin – Is It Right for You?

If you’re considering investing in Austin area real estate, you may want to consider purchasing a duplex. In today’s blog post, we’ll examine the pros and cons of investing in duplexes in the greater Austin area.

Pros of Investing in Duplexes

  1. Affordability. When you purchase a duplex, you get two units in a single transaction. While they are typically (but not always) more expensive than a single-family home, the fact that you will receive two rental payments may make them a wise long-term investment. Additionally, duplexes are often located in more affordable neighborhoods, which can increase your tenant pool.
  1. Several Financing Options. The most common methods of financing a duplex are cash, conventional loans, FHA loans, VA loans, and 203k loans. A 203k loan may be a particularly good fit for your investment position. This type of loan is considered part of the FHA loan family, but it has some unique advantages, including the cost of repairs into the loan. 203k loans require the owner to live in the property for at least one year and a 3.5% down payment.
  1. Strong Cash Flow Potential. Some real estate investors choose to live on one side of the duplex, making it a more affordable living option. Others opt to find tenants for both units, which improves an investor’s cash flow position. If you’ve used a Deal Calculator to figure your return on investment (ROI), your rents may cover your PITI (payment, interest, taxes, and insurance) and then some. This can make owning a duplex more lucrative than other investment options.
  1. Relatively Easy to Lease. Potential tenants often prefer more space and a more “at home” feeling, and duplexes usually fit the bill. Additionally, tenants only have to share a single wall with one other tenant, which reduces noise and other potential disturbances. Last but not least, if you’re living on one side of the duplex, tenants will often find comfort in knowing that their landlord is near in case of emergency repairs or issues.
  1. Tax Deductions. Because duplexes are considered investment property, they can come with specific tax deductions that aren’t available with single-family homes. For instance, duplex owners can deduct most of their expenses from ongoing maintenance, yard work, and repairs. Check with your CPA to determine your specific tax situation.

Cons of Investing in Duplexes

  1. Rental Income Isn’t Guaranteed. As with any investment, consistent rental income isn’t guaranteed. Before investing in any real estate, be sure to use a Deal Calculator to run the numbers so that you have proper expectations concerning vacancies and your duplex’s vacancy rate. Remember, it’s essential to take the time to find the right tenant. Quality tenants are worth every minute and dollar spent to find them.
  1. Repairs and Maintenance are on Your Dime. When you buy a duplex as an investment property and don’t plan to hire a property management company, you’re essentially signing up to be a landlord. While that comes with reaping the benefits of rental income, it also means that you are responsible for maintenance and repairs. Make sure that you’re ready and willing to invest the extra time and attention a rental property requires.
  1. Sharing a Wall With Your Tenants. While it will often save you money, sharing a wall (or a structure) with a tenant isn’t always the most comfortable situation. The remedy? Commit to finding and screening the right tenant.

The moral of the story? Be sure to do your homework and be diligent about selecting the right duplex investment for your particular situation.

Have a real estate investor or property management question? Reach out to TALK Property Management anytime. We’re always here to help.