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3 Important Trades Where Licensed Professionals Should Be Used

Filed Under : Real Estate by admin

Nov.3,2011

Having bought and sold residential investment properties full-time for over six years now, there are certain lessons that I have learned that have made me a better investor. When I was starting out in the renovation business, I managed my renovation costs very closely and unfortunately erred on the side of cutting corners in an effort to bolster my profit margins. Over time, I began to learn that cutting corners or using sub-par contractors to do the work ended up costing more in the long run.

For those investors that are just starting out in the rehab business, it is very tempting to use sub-contractors who will get the job done for the lowest price. It’s understandable; we are in this business to make money. If you have an opportunity to use a contractor who happens to have some experience in a certain area and is willing to do the job for less – it’s very tempting to use them rather than a licensed professional who may charge more. However, you’ll quickly learn that this approach to rehabs will eventually catch up with you. Whether it’s through faulty workmanship, unprofessional behavior, or just sloppy work, the benefits of saving a few dollars typically doesn’t outweigh the cost.

At the very least, I would recommend that investors use licensed professionals in these 3 areas:

Electrical: Almost every house that I’ve renovated over the last few years has had some amount of electrical work to be done. With all of the dangers associated with improper electrical work, this is probably the most important aspect of a renovation that should be done correctly. It’s simply not worth the risk to allow an unlicensed electrician to repair or rewire electrical lines in an effort to save a few bucks.

HVAC: The heating and cooling system in a house can be a major expense. I know first-hand how tempting it can be to use Joe Blow working out of the back of his van who can install a used unit for half of the price of a new one. Aside from the fact that most used units sold in this manor are probably stolen, an improperly installed HVAC system can have a huge impact on utility bills for the next owner or tenant. In addition, the maintenance costs associated with an older unit will eventually catch up with you.

Plumbing: There are many handymen out there who know how to solder copper or glue pvc pipes, but most unlicensed plumbers do not understand the mechanics behind proper plumbing (i.e. venting, pressure, siphonage, etc). As an investor, the last thing you want to do is cut open a wall to fix plumbing issues; or worse yet, deal with flooding as a result of poor workmanship.

Most investors don’t realize the extent that a good or poor renovation contributes to their reputation in a local market. The longer you are in this business, the more you begin to rub shoulders with the same industry professionals. The last thing you want to do is sabotage your future business by developing a reputation for cutting corners on your rehabs. Spending a few extra dollars to work with knowledgeable, professional contractors may cost money in the short run, but will ultimately pay off in the way of referrals and a solid reputation.

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3 Important Trades Where Licensed Professionals Should Be Used

Real Estate Investing For Real | A BiggerPockets Investment Property Blog

Tags : Important, Licensed, Professionals, Should, Trades, Used

3 Important Factors When Considering A Market for Real Estate Investment

Filed Under : Real Estate by admin

Aug.25,2011

Between the rise of the internet and the availability of inexpensive airline travel, real estate investors are increasingly investing in markets outside of their own. This is especially true when it comes to markets like Southern California where the price to rent ratios simply don’t make sense for real estate investors interested in cash flow. As a result, many of these investors end up researching markets in other states to determine where to buy and hold real estate.

Having worked with a number of out-of-state investors over the years, I have begun to formulate a list of the most import criteria to consider when investing in another market. Understanding that most of the investors I work with are interested in cash flow as well as long-term growth, I would rank these 3 factors as the most important when considering a particular market:

Factors to Consider when Choosing a Market for Real Estate Investment

1.) Employment and Job Growth. In my opinion, monthly cash flow is great, but I would only invest in a market if there is an opportunity for long term growth as well. Historically, the markets with steady appreciation and population growth do so as a result of strong job growth. I look for markets that have a friendly corporate environment, strong employment centers and data that indicates continued job creation in the years to come. This is typically a great indicator that the population will continue to increase, the demand for real estate will be strong and that prices will steadily rise as a result.

2.) Price to Rent Ratio. Some people call this statistic the “Gross Rent Multiplier” which is essentially just the price of a property divided be the gross income. This is by no means a detailed analysis of a particular property, but a high-level approach to begin to understand a market by analyzing average price to rent ratios.

For example, if you were to look at a market in Southern California where a typical investment property would cost approximately $ 300,000 with rents around $ 1,500/mo, you would calculate the GRM to be around 200. Contrast this with a market like Atlanta, GA where an investment property could be purchased for $ 80,000 with rent of about $ 1,000/mo. The average GRM in Atlanta would look much stronger at 80 compared to 200 in Southern California.

3.) Legal Climate. Thirdly, I would want to invest in a market that was not unfriendly to landlords and investors. Every state and local municipality is going to have differences that relate to interpretation of contracts, time-frame for evictions, lawsuits against landlords, etc. I think it is critically important to invest in jurisdictions that allow investors to evict tenants in a reasonable amount of time. Putting yourself in a situation where a tenant could live rent free for a long period of time while you deal with a cumbersome legal process is a quick way to an unprofitable investment.

Choosing a market and understanding the factors that should contribute to this decision is critically important for any investor. Whether you are considering an out-of-state investment or simply looking at different sub-markets in your city, it is imperative that you put in the time and do the research. The more knowledge you have before investing, the more likely your investment will be a profitable one.