To gain a competitive edge, it can be invaluable to identify properties before they hit the market. This proactive approach not only places landlords ahead of competing bidders but also potentially facilitates acquisitions at lower costs, given the seller’s lack of advertising and brokerage costs.

But how does one uncover these off-market opportunities? Enter skip tracing.

Skip tracing involves identifying properties of interest and then reaching out to their owners to gauge their willingness to sell. In the realm of real estate, skip tracing essentially entails locating the individuals associated with properties.

Throughout this article, we will delve into skip tracing in greater depth, explaining its purpose and how it works, as well as the advantages and limitations it presents for landlords in their search for investment properties. We’ll also outline the skip tracing process, encompassing various methods—both free and paid—for landlords to explore.

Table Of Contents: Skip Tracing

Skip tracing can help you find homeowners eager to sell their properties and allow you to make an offer before they even put their property on the market.

• What Is Skip Tracing?
• Benefits Of Skip Tracing For Landlords
• Targeting With Skip Tracing
• Drawbacks Of Skip Tracing For Landlords
• Performing A Skip Trace: Step-By-Step Guide
  • Professional Skip Tracer
  • Skip Tracing Databases
  • DIY Skip Tracing
• FAQs About Skip Tracing In Real Estate
  • How is skip tracing different from standard property searches?
  • Is skip tracing legal?
• Leveraging Skip Tracing For Success

What Is Skip Tracing?

Skip tracing is a process of locating individuals based on available information. Many professionals, including lawyers and debt collectors, use this strategy. In the real estate industry, skip tracing is generally used to identify the owners of particular properties for potential purchase offers.

For instance, if an investor is looking for a property in a certain neighborhood, they might drive around the area, identify properties they’re interested in, and then try to track down the owners to explore potential sales.

Similarly, if a landlord is looking to obtain rental units in a certain group of apartment complexes, they might use the same type of tactics to pinpoint the property owners, who might not necessarily reside on-site.

Or, if a landlord spots a neglected property they can envision themselves refurbishing, they might use skip tracing to try to track down the owner.

Skip tracing can also be used to compile a list of potential foreclosures and abandoned homes in a given area.

The term skip tracing comes from the phrase “to skip town,” as the process was initially used to track down someone who moved away without paying their debts. Skip tracing someone is a detective-like investigation involving thorough searches through public records to ascertain an individual’s contact information.

Skip tracers might track someone down by looking at government databases, court records, voting registries, property tax records, credit reports, social media profiles, and utility registrations. In all cases, it’s imperative that searches comply with legal regulations and don’t violate a person’s privacy rights under the Fair Credit Reporting Act (FCRA) or other state and federal laws.

As you might imagine, skip tracing can be very challenging in some cases, especially if someone intentionally does not want to be found. However, locating property owners is often a relatively simple process, given the plethora of documentation linking individuals to their properties and residences, such as property tax filings, lease agreements, and utility bills.

Benefits Of Skip Tracing For Landlords

If you’re a landlord looking for property to add to your portfolio, there can be a number of benefits to doing skip tracing.

• Unique Investment Opportunities: Skip tracing allows you to uncover properties not currently listed on the market, which means you aren’t limited to real estate that might already be well into the sales pipeline.
• Potential for Better Deals: Off-market properties often present opportunities for securing purchases at lower prices due to reduced bidding competition. Sellers may be inclined to entertain lower offers, as avoiding intermediary fees minimizes their selling expenses.
• High-Reward Properties: Skip tracing opens avenues to identifying high-reward properties, particularly those in distressed conditions that can be acquired at discounted rates and subsequently renovated. Even with modest investments, such properties have the potential to appreciate significantly in value.
• Recuperating Lost Income: In addition to property acquisition, some landlords utilize skip tracing to locate former tenants who may owe outstanding debts. This enables landlords to pursue legal action, if necessary, to recover lost income through small claims court. However, it’s important to note that thorough tenant screening is the best way to avoid this kind of situation in the first place.

Targeting With Skip Tracing

When employing skip tracing for property investments, it’s advisable to focus on real estate with significant potential for sale. With this goal in mind, prioritizing the following property types can be advantageous:

• Delinquent Properties: Properties that are behind on taxes or other debts often indicate financial distress, presenting potential opportunities for acquisition.
• High Equity Properties: Targeting properties where homeowners possess at least 50% equity in their homes can signify a favorable negotiating position and potential willingness to sell.
• Absentee Homeowners: Properties owned by individuals who do not use them as their primary residence may be more inclined to entertain offers, particularly if they’re burdened by maintenance costs or have relocated.
• Vacant or Abandoned Homes: Identifying homes reported as vacant or abandoned can present opportunities for acquisition, often at discounted prices due to neglect or disuse.
• Empty Nesters: Properties owned by empty nesters, who may be looking to downsize, represent potential targets for skip tracing, as they may be motivated to sell to simplify their living arrangements.
• Old Listings: Revisiting old listings that were taken off the market without a sale can unveil properties with lingering potential and possibly more motivated sellers.
• Corporate-Owned Properties: Targeting properties owned by corporations can offer unique opportunities, as corporate entities may be more receptive to negotiations and swift transactions.
• Recently Divorced Individuals: Properties owned by individuals recently divorced may become available for sale due to changes in personal circumstances.
• Foreclosed or Mortgage-Behind Properties: Identifying properties in foreclosure or behind on mortgage payments can lead to distressed sales, potentially offering favorable terms for acquisition.

By focusing skip-tracing efforts on these targeted property types, landlords can enhance their chances of identifying lucrative investment opportunities within the real estate market.

Read our complete guide to finding off-market properties.

Drawbacks Of Skip Tracing For Landlords

While skip tracing offers numerous benefits, it’s important to also acknowledge the drawbacks associated with this approach.

• Cost Considerations: While conducting skip tracing independently may seem cost-effective and can even be free, it can consume significant amounts of time. Alternatively, opting for professional skip tracers or online databases incurs fees, which can vary depending on the complexity of the search. So, skip tracing can potentially become a costly endeavor.
• Accuracy of Information: Skip tracing relies on publicly available information, which may not always be accurate or up-to-date. This can result in wasted time and effort spent tracking down contact details that turn out to be defunct or belong to individuals no longer associated with the property.
• Uncertainty of Sale: A key challenge with skip tracing is the lack of certainty regarding a homeowner’s willingness to sell their property. Reaching out to homeowners without prior knowledge of their intentions can result in a high number of rejections, leading to wasted time and energy engaging with individuals who have no intention of selling.

While skip tracing can offer unique opportunities, it’s important to weigh the potential challenges and costs associated with the process.

Performing A Skip Trace: A Step-By-Step Guide

There are three primary approaches to skip tracing: you can do it yourself, hire a professional skip tracer, or use an online skip tracing database. Let’s look at each strategy individually.

Professional Skip Tracer

Professional skip tracers are specialists often employed by debt collectors, lawyers, and investors to locate individuals. While they typically provide highly accurate information, the results may take several days to arrive, and their services can be costly, sometimes charging up to $100 per hour.

Skip Tracing Databases

Various free skip-tracing services are available, allowing users to input addresses and retrieve associated names and contact details. While these services may not be suitable for complex skip-tracing tasks, they can be effective for tracing homeowners. Some popular free databases include Fast People Search, PeekYou, Spokeo, and True People Search, which can often yield results within minutes.

Additionally, there are paid online services that function similarly to free databases but offer access to a broader range of information and the ability to conduct batch searches. Examples of such services include Batch Leads, Dream Machine, PropStream, and Skip Genie.

DIY Skip Tracing

You can also perform skip tracing yourself. While this approach may initially be time-consuming, it can become a routine task with practice. Below is a straightforward step-by-step guide:

1. Gather Initial Information

First, gather and organize the information you already have. When it comes to real estate investment, this will probably be the property address and district. Neighbors and tenants may also have provided you with some information.

2. Search Online

It’s always worth doing an initial online search, as the information you need may be more readily available than you think. Social media and directories such as YellowPages.com, 411.com, and AnyWho.com can be good places to start.

3. Consult Public Records

If you don’t find anything in your initial sweep, or you want to confirm information, it’s time to explore the public records. Start with the county assessor’s website, as they hold a variety of documentation related to property ownership.

4. Consult Other Records

If needed, delve deeper by contacting local utility companies or perhaps the post office for additional information. You can also look at obituaries and genealogy websites. Whether these sources will provide you with this information will depend on their own privacy policies.

There are a lot of options out there, but you sometimes need to be creative.

5. Engage The Lead

If you find the information you need, it’s time to engage your lead. This can begin with entering the data in your CRM software or a similar system so you can keep track of all your engagements and push the lead through your established pipeline.

Approach contacts with empathy and awareness of their situation, as they may not have listed their property for sale and may be surprised by your inquiry. Effective communication tends to yield better results than a hard-sell approach.

FAQs About Skip Tracing In Real Estate

Below are answers to some of the most frequently asked questions landlords have about skip tracing.

How is skip tracing different from standard property searches?

Skip tracing differs from standard property searches in that it goes beyond listings on real estate platforms or MLS databases. Instead, skip tracing involves a deeper investigation to uncover properties that are not listed or are owned by individuals who may not have considered selling until approached. This process often requires utilizing various databases, public records, and sometimes even social media to locate property owners.

Is skip tracing legal?

Yes, skip tracing is legal as long as it’s done within the boundaries of the law. This means respecting privacy laws, refraining from using information for illegal purposes, and adhering to federal and state regulations such as the Fair Credit Reporting Act (FCRA) when utilizing credit information.

It’s crucial to employ reputable sources and methods when performing skip tracing to ensure compliance with legal standards.

Leveraging Skip Tracing For Success

Expanding your rental property portfolio with valuable investments may involve finding off-market properties in desirable locations and securing favorable deals. Skip tracing serves as a crucial step in this process, facilitating the identification and contact of homeowners who may not have listed their properties for sale through conventional channels. By leveraging skip tracing effectively, landlords can enhance their chances of success in acquiring lucrative investment properties.

Note: RentPrep does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, or accounting advisors.

The post Unlocking Real Estate Opportunities: A Landlord’s Guide To Skip Tracing appeared first on RentPrep.

Key Takeaways:

• Clear Communication: Keeping tenants informed with a notice of intent to sell is crucial.
• Tenant Rights: Understand and respect tenant rights during the sales process.
• Incentives for Cooperation: Offering tenants incentives can facilitate a smoother sale.
• Preparation is Key: Detailed planning and adherence to legal requirements ensure success.

Deciding to sell your rental property requires careful consideration, especially when tenants occupy it. Whether you’re drafting a notice of intent to sell the property or navigating the complexities of California landlord-tenant laws, it’s crucial to approach this transition with clarity and respect for your tenants’ rights.

Can you sell a rental property with tenants living in it?

Yes, you can sell a rental property with tenants in residence, but it requires clear communication, adherence to tenant rights, and possibly offering incentives for cooperation. It’s known as selling with a tenant in residence, and there are many things for landlords to consider before listing the home. Ensuring a transparent and respectful process is essential for a smooth transition.

Does this mean selling a rental house with tenants living there is impossible? No, but you must be organized and clear with the tenants to avoid potential anger or legal complications.

In this guide, we’ll cover everything landlords need to know about the process, from providing notice to tenants about the sale of the property to understanding the implications of a 120-day notice to sell in California. Plus, we’ll include a template for a notice of intent to sell, simplifying this crucial step. With these tools, you can make a successful, smooth sale!

A Table of Contents for Selling a Rental House with Tenants

• Tips on Selling a Rental House with Tenants
• Free Sample Letter to Notify Tenant of Sale of Property
• Rights of Tenants When a Landlord Sells a House
• Who Might Be Buying?
• Occupied vs. Empty
• Communicating with Tenants
• Incentive Ideas for Tenants
• Selling My House with Tenants: Don’t Be Afraid!

Tips on selling a rental with tenants

We host a weekly video series called “Ask A Property Manager,” and in episode #44 below, Eric and Andrew discuss selling an occupied rental property.

The audio is a little rougher on this one, but the content is good. Feel free to skip to the 1:00 mark to hear them discuss this topic.

You can also find many great resources on selling a rental property at RealEstateInvesting.com. Just check out their Resources section.

For more information on how to sell a rental, especially if it’s occupied, check out this video:

Free Sample Letter to Notify Tenant of Sale of Property

Our sample letter to notify tenants of the sale of the property is crafted to help you communicate effectively, ensuring tenants are well-informed about the upcoming changes and any incentives you’re offering for their cooperation.

Date

Address

Dear ______,

This letter is to officially notify you of my intent to sell the property at the address of __________.

I intend to sell the property occupied, so the next owner will assume your lease. To make this process as smooth as possible, I’d like to try to answer any questions in this letter.

In the state of ______, it is required that I provide ___ hours of notice before showing the rental property to any prospective buyers. This will allow you time to have your residence clean and presentable.

I will do my best to exceed those minimum requirements to give you additional time before a showing. I will (email, text, call, or send a letter) to notify you of these showings.

These will be guided showings so prospective buyers will not be alone in the rental. That being said, before showings, it’s a good idea not to have any small valuable items lying around.

I appreciate your cooperation through this process, and upon the sale of the rental property, I will transfer the lease and security deposits to the new owner. At this time, I’d like to provide you with a ____ bonus for your cooperation through the sale of the property once closing is complete.

Please let me know if you have any questions.

Sincerely,

_________

Date

The Notice: What Must Be Included?

As you can see, this notice is relatively straightforward, but it gives the tenant a great deal of information that they are sure to be curious about. What exactly, then, is the information that you should include when writing up your notification?

When selling a property with tenants in it, you should always include the following breakdown of information:

Basic Identifying Information

Start with the date, the tenants’ names, and the property address. This identifying information is necessary to ensure the tenant gets the proper form specifically created for them and their property.

What Will Be Happening

Next, let the tenant know what will be happening. Will there be showings? When will the property go on the market? Is there anything they will be responsible for doing while the property is on the market?

The tenant will likely have many questions about the process from this point forward, so it’s best to give as much detailed information about how you will handle showings and marketing upfront.

Of course, the tenant can contact you with more questions if need be, but it is better to give them as much information as you can as soon as possible so that they do not become stressed or overwhelmed when receiving this notice.

Showing Notice

Let the tenant know how much notice you are legally required to give them when you schedule a property showing. This will give them an idea of what type of notices and situations they can expect through the sale process.

Bonus Incentives

Including a bonus for your tenants throughout this process is far from a requirement, but some landlords find that giving some additional relief to the tenant throughout the sale process helps ease the transition.

In one of the more thorough explanation sections later in today’s interview, we’ll introduce some example bonuses you may want to try out during your next tenant-occupied property sale.

For more tips on how to sell your tenant-occupied rental property, check out this video:

Rights of Tenants When a Landlord Sells a House

Understanding tenants’ rights is fundamental when planning to sell a property they reside in. This includes recognizing their position upon receiving a notice of sale of property and adhering to specific regulations, such as the required notice period and tenants’ security deposit handling.

As you know, state and federal laws often put restrictions in place to protect tenants.

When it comes time to sell a tenant-occupied property, there are some tenant rights you need to keep in mind to ensure that you are not breaking the law at any point.

Know Your Local Laws

Let’s start by reminding you that every piece of information we give in today’s article is subject to local laws and restrictions. While we aim to provide information that can be helpful to landlords in any area, there are always some variations in the law.

Before taking action, familiarize yourself with local and state laws regarding tenant-occupied property sales. It is up to you to ensure that you know what the current codes are.

In California, for example, a “120-day notice to sell” is a legal requirement for landlords intending to sell their property, ensuring tenants have ample time to seek alternative housing. This regulation is part of tenant protection laws to prevent abrupt eviction due to property sales. However, its application may vary based on local laws, tenancy types, and lease agreements. Landlords must comply with this and all other notice requirements by thoroughly understanding both state and local ordinances and may benefit from legal consultation to navigate these legalities effectively.

Tenants Don’t Have to Move Out

Some tenants will assume they must move out because you are selling the property. In most cases, that is not the case, and you may not be legally allowed to ask them to move out. If a tenant is in a long-term lease and you are selling during the lease, finding a buyer who will take over the lease may be necessary.

The exact lease and sale situation will determine whether or not the tenant will need to move out.

For example, tenants on a year-long lease can only be forced to move out early if the property is going to be moved into by you, the owner, or by a direct family member who is purchasing the property. Even in this case, local laws may require you to allow the tenant to finish their lease.

If, however, the tenant is on a month-by-month lease, the lease can be ended with property notice of the upcoming. Depending on how long the tenant has rented the property, this can range anywhere from 60 to 120 days.

Leases permit tenants to stay on a property, not to rent from a specific owner. Even if the house sells quickly, legal tenants do not have to move out immediately.

Exception: Sale Termination Clauses

If you are considering selling your property soon, consider adding a sale termination clause to the lease. In this case, the tenant is made aware of your desire to sell, and you can ensure that you can sell the property without a tenant if the new buyer is not interested in keeping a tenant.

Don’t Change Utilities

While you are marketing the property, you cannot change the utilities. This means no cutting off the water or electricity while you make the sale. Remember: You still have to keep up with your landlord responsibilities during the sale process!

As long as you are the property owner and the tenants are living on your property, it is your job to follow the letter of the law and ensure that the space is in livable condition.

Schedule Fixes & Showings

State and local governments have created laws about how much notice you must give a tenant before a property showing or a repair technician comes to work on the property.

Since you are marketing the property, you will likely need to be scheduling both of these things. As such, it is essential that you give proper notice to your tenant about them.

For showings, giving notice is not only required by law, but it can also help ensure that the property looks great during the showing. Tenants will have a chance to clean up any big messes and put personal belongings away. Additionally, it allows the tenant to go out during the showing if they prefer not to be present.

For repairs, you must notify the tenant according to local law. This is for tenant convenience and safety, but it will also help you. If the repair man is scheduled to work on the washer, but the tenant is in the middle of folding laundry when he arrives, there might be a problem.

Open and transparent communication with the tenant throughout the process is part of their legal right, so be sure to follow through.

Security Deposit

Remember that you are responsible for returning the tenant’s security deposit if they move out during the sale. If they will be staying with the new owner, you must hand over that money to the new owner, including any accrued interest.

You must transfer security deposits, prorated rent, and any other fees you collected to protect the property during the lease to the new owner.

Lease Terms

When a new landlord takes over the property from you, the tenant can keep the same lease terms you agreed upon. Some tenants will worry about this during the process.

For example, you and the tenant may have agreed on a simple pet addendum for the lease that allows them to keep two dogs. The tenant may worry that the new landlord will require them to remove their dogs. That, however, would be illegal.

If your original lease terms are intact, the tenant can legally keep their pet(s). At the end of the lease period, however, the new owner could require lease changes before a new lease is signed.

Be sure to explain this to your tenants when you let them know you will be marketing the property. If they understand that their current lease will still be valid for however long is left on the lease, they are much more likely to be amenable to the idea of a sale.

Who Might Be Buying?

Several different types of buyers might be interested in purchasing a tenant-occupied property. The first is the tenants themselves, and many landlords work out creative financing, like rent to own, with tenants already in place. Other buyers might be people who want to live in the property as their primary residence. In that case, landlords will have to follow their state’s laws for notifying tenants of the intent to sell and, in most cases, wait for the lease agreement to expire and choose not to renew. Another potential buyer would be another real estate investor who keeps existing tenants in place.

No matter what, landlords must check out the laws and regulations that govern their state and follow the process to the letter to ensure that they are in compliance with every rule. Selling an investment property with a tenant in residence comes with a unique set of steps, and landlords would do well to do their research first. There are specific notification timelines as well as the right-to-enter requirements that often differ from more standard processes.

For example, in California, a landlord must deliver a written notice of intent to sell the property 120 days before showings begin. Then, landlords can give tenants a 24-hour written or oral notice before a showing. Showings can only occur during reasonable business hours, and landlords must always leave written evidence of entry, like leaving a business card on the counter.

No matter who landlords think might be buying a property, they are beholden to the laws governing that transaction with a tenant in residence.

Occupied vs. Empty

Many landlords wait until the tenant’s lease is about to expire, then list the empty property. Others try to sell the property while the tenant is still in residence. There are pros and cons to each approach.

Ideally, landlords would have the property vacant while trying to sell it. It’s always easier to get buyers more excited about an empty house or one that has been professionally staged. There also can be a negative association between a home that has been used for rentals versus one that is more neutral, and generally, occupied rental homes are considered less valuable. An empty home can be fixed up properly and listed in its best condition possible. With a renter in place, the property might not appear at its best to prospective buyers.

However, most landlords can’t afford to empty their rental property for a few months to make it look better to buyers. Keeping the tenant in place until a transaction is imminent ensures that the property generates income. However, tenants may not take care of the place very well, which would turn off prospective buyers.

If tenants wanted to, they could probably figure out plenty of ways to discourage most buyers from making any offer.

For example, tenants might purposely fail to notify the landlord about needed repairs or to alert them to any negative cosmetic issues. Or, when tenants don’t care for the property or even clean up regularly, it can further diminish its appeal to potential buyers.

Communicating with Tenants

Effective communication is key to a smooth transition. This starts with a well-crafted notice to the tenant of your intent to sell the property, setting the stage for an open dialogue and cooperative environment throughout the sale process. From keeping the property occupied to putting it in the best light during showings, tenants play a big part when landlords sell an investment property. The tenant must agree to cooperate, or the landlord will have difficulty showing the property properly.

Notify Tenant Of Sale Of Property Letter:

1. In writing, landlords should explain to the tenants a summary of their intent to sell.
2. Landlords should remind tenants about their state laws concerning proper procedures for showing an occupied property for sale.
3. Set up a considerate yet firm process by which landlords will notify tenants when the property is to be shown.
4. Assure tenants that the landlord won’t allow dozens of unknown strangers to parade through the occupied property and that their safety and possessions are of utmost consideration.
5. Offer an incentive to the tenants if they assist in the process, such as keeping the place cleaner than average.

When landlords communicate well with tenants in residence, they are more likely to cooperate throughout the entire process and contribute to a successful sale.

Incentive Ideas for Tenants

Many landlords understand that it is a big shock for tenants to discover that their rental home will be sold. The fear of the unknown will always worry some tenants, and landlords can do their best to help tenants feel like they are not being kept in the dark.

Consider offering incentives to your tenants to encourage cooperation and ease the sale process. Whether it’s a rental discount or assistance with moving expenses, clear communication about these benefits can be outlined in your intent to sell letter to the tenant.

Here are just a few ideas for tenant incentives when they are in residence:

• A percentage off the monthly rent.
• Rent rebate when the property sells.
• A free weekend in an upscale hotel during an open house.
• Gift certificates after every positive showing.
• Gift certificates for every month the property is showing.
• Agreeing to pay moving expenses upon the sale of the property.

All in all, landlords should have an ally in the tenants rather than an enemy because a messy, uncooperative tenant can quickly thwart the interest of prospective buyers.

Landlords who want to sell their investment property while the tenant is in residence are embarking on a process that may or may not be successful. However, with the right approach and incentives, you can conduct the sale legally, thoughtfully, and profitably.

Selling My House with Tenants: Don’t Be Afraid!

Selling a rental property doesn’t have to be daunting. Landlords can navigate this process by prioritizing transparent communication, understanding tenant rights, and preparing a clear notice of intent to sell rental property template. Remember, a well-informed tenant is more likely to cooperate, making the sale smoother for everyone involved.

Every aspect of managing a rental property can be overwhelming at first. When you signed your first lease with tenants, you were probably worried that you forgot something! Even if you were, it all worked out in the end.

The key to selling a house with tenants successfully is to keep everything clear and transparent between yourself and the tenant. By keeping them up-to-date with the marketing and ongoing sale, you’ll find that the process runs much smoother.

Know your rights and know the tenant’s rights. By keeping them in mind throughout the sale process, you can sell your tenant-occupied property successfully in no time!

The post Selling Your Tenant-Occupied Property: A Landlord’s Comprehensive Guide appeared first on RentPrep.

The most significant barrier to investing in a rental property is coming up with the large down payment needed to make the purchase. When you buy to rent, you often need to put down a larger deposit, and you can’t benefit from the many resources designed to help first-time buyers purchase their first home.

So, how can you buy a rental property if you have no money or limited funds to commit to a down payment? In this article, we’ll share several methods that have worked for other property investors and might also work for you.

Of course, each approach comes with its benefits and risks. We’ll also discuss the risks and rewards of no-down-payment property investments, especially when buying to rent.

Table Of Contents: No-Down Payment Rental Purchases

The down payment is often the biggest obstacle when buying a home to rent out and building your property portfolio. Below, you will find ideas for how to overcome this challenge.

• Financing Rental Properties – The Basics
• Affordable Options For Purchasing A Rental Property
  • 1. Get A HELOC On Your Existing Home
  • 2. Get An FHA Loan For A Multi-Unit Property
  • 3. Convert Your Current Residence Into A Rental Property
  • 4. Seller Financing Or Rent To Buy
  • 5. Partnerships
• Rewards Of No-Money-Down Rental Properties
• Risks Of No-Money-Down Investments
  • It Increases Your Debt
  • Negative Equity
  • Slow Equity Accumulation
  • Limited Property Choices
  • Legal And Tax Implications
• FAQs – No-Down-Payment Rental Purchases
  • Is it really possible to invest in a rental property with no down payment?
  • How do I find properties suitable for no-money-down investments?
  • What risks should I be aware of with no-money-down investments?
  • How can I ensure a positive cash flow in a no-money-down rental property?
• Buy Your First Rental Property

Financing Rental Properties – The Basics

Investing in rental property is not just a great way to develop an additional line of regular income through tenant rental payments. You also gain an asset that should appreciate over time and yield substantial financial gain when sold.

But few people have the money to buy a house outright, so you need financing from a lender. But in most cases, lenders require a significant down payment on the property. This reduces their risk and ensures the borrower has a substantial stake in the investment. 

Often, the lender requires a higher down payment if you want to buy a property to rent out rather than to live in. This is because lenders assume, based on experience, that you have less personal investment in the property and, therefore, represent a higher risk of default.

You can find financing to buy a rental property without a big down payment. But these loans aren’t always easy to come by, and while they have the benefit that you can start expanding your property portfolio without access to significant savings, they all also come with risks.

Affordable Options For Purchasing A Rental Property

Below are some ways you can purchase a rental property when you don’t have the funds for a standard deposit. These have worked for property investors in the past, but they all depend on specific circumstances. 

Most of these methods assume you already own a home as your primary residence, but they may also work for you if you are not yet on the property ladder.

1. Get A HELOC On Your Existing Home

If you already own a home or other properties, you can leverage these assets to cover the deposit on a new property. This is called a home equity line of credit (HELOC), where the equity you have in your home can be used in place of a deposit.

The equity in your home is the value of your home minus what you still owe on mortgages and other loans. This can fluctuate, and lenders tend to estimate conservatively for that reason. Therefore, you may be able to borrow less against your home’s equity than you might imagine.

Also, HELOC loans come with a risk: If something does go wrong with your rental property loan, your other property can also be at risk as collateral.

2. Get An FHA Loan For A Multi-Unit Property

FHA loans are backed by the Federal Housing Administration and are designed to help people who can’t get a big deposit together or have a low credit score to buy a home. They offer very low deposit rates depending on your credit score. For example, if you have a score of 580 or higher, you often only need a 3.5% deposit.

However, you can only get an FHA loan to buy a property you intend to live in and will move into within the next 60 days. So, how does that help you break into the rental market? You can use the loan to buy a multi-unit property on the condition that you will live in one of the units. But you can start renting out the rest of the units right away.

Listen to our podcast on investing in multi-family properties here.

3. Convert Your Current Residence Into A Rental Property

This approach doesn’t come with zero down payment but a much lower down payment requirement than purchasing a property specifically to rent. 

Usually, when you purchase a property to rent rather than as your primary residence, lenders require a large down payment. This could be as high as 30%, as opposed to 10-15% for a house you will live in. This is because the risk is theoretically higher, as trends suggest that you are more likely to default on payments for a home you don’t live in.

Assuming you already purchased your primary home with a lower deposit, you can convert it into a rental. You can then buy a new home as your primary residence and benefit from the lower deposit rate again.

Interest rates also tend to be higher when you borrow to buy a house to rent. So, while it can be inconvenient to move out of your home, the savings can add up when building your property portfolio.

4. Seller Financing Or Rent To Buy

If you’re buying from a private seller, they may have systems in place to finance the purchase. This is often the case with big real estate developers selling hundreds or thousands of units. They may agree to purchase financing that does not require a deposit.

Similarly, you may locate a property available to purchase via a rent-to-buy scheme, which again requires no deposit but builds up your equity over time through regular rental payments.

Aside from finding opportunities, the challenge with these approaches is that rental payments tend to be much higher, at least initially. This is because you need to build up your equity in the property to a reasonable level quickly. Therefore, finding tenants willing to pay sufficient rent to cover your full monthly mortgage payment may initially be challenging.

5. Partnerships

While you may have the time and energy to invest in property and manage a rental but no money for a deposit, there are investors with hard cash to invest in property but no time to invest in the process. These can make great partners. They can fund the down payment, at least partially, and you can manage the property.

Of course, finding a good real estate investment partner can be challenging. It often requires extensive networking within real estate circles. If you don’t already know someone personally, it can be hard work. You also need to do your research and have detailed contracts in place. You will be in a financial arrangement with this person for years to come.

If you are dealing with family or friends, you might arrange a private loan instead of seeking a partnership. This type of loan can have more flexible terms and conditions than a bank loan, perhaps with a longer period before you have to start paying it back.

Read our complete guide to managing joint ventures in real estate here.

Rewards Of No-Money-Down Rental Properties

If you can find ways to purchase a rental property without the burden of having to come up with a down payment, there are many benefits:

• You can break into the rental property market without the need to save a significant amount of money in advance.
• You can diversify your investment portfolio by spreading your capital across multiple properties, which can help protect you against some market fluctuations.
• You can increase the value of your investments through things such as property improvements.
• You can generate a steady cash flow to support other investments.
• You can benefit from a greater return on investment over time as rent tends to increase while loan repayments can decrease.
• You can deduct property-related investments such as mortgage interest, insurance, and maintenance from your taxes.

Risks Of No-Money-Down Investments

While adding a rental property to your portfolio without having to get together a big deposit for a down payment sounds like nothing but a boon, there are serious risks to consider before deciding whether this is the right path for you.

It Increases Your Debt

When you aren’t putting money down at the start of the investment, you dramatically increase the debt you’re taking on. This can strain your finances greatly, especially if you end up owing more each month than you can generate through rent. 

Periods of vacancy will also become a major risk. You need to consider whether you have the financial security and safety nets to take on this level of debt.

Negative Equity

While we anticipate that our properties will increase in value over time, housing markets are unpredictable, and this is not always the case. If your property decreases in value, you can find yourself with negative equity. This means you can end up paying more than the property is worth.

Slow Equity Accumulation

When you don’t put down a deposit, you initially own very little equity in your investment. This greatly reduces your flexibility in selling, refinancing, or leveraging that particular property for further investments.

Limited Property Choices

Depending on the path you choose, when you purchase a no-down-payment property, you’re often limiting your choices as the property must often be in a specific location. This means you may find yourself saddled with a property you don’t really want and, in retrospect, may wish you had found the money to invest in a more desirable property.

Legal And Tax Implications

No-money-down deals often come with complex terms and conditions that can affect both your legal status in an agreement and your tax liability. It’s important to read contracts and documents and fully understand the implications before committing.

FAQs – No-Down-Payment Rental Purchases

Below are answers to some of the most frequently asked questions about buying rental properties without money for a deposit.

Is it really possible to invest in a rental property with no down payment?

Yes, it is possible, though it’s uncommon in traditional real estate transactions. Investors typically use creative financing strategies such as seller financing, lease options, partnerships, or qualifying for certain government loan programs that require little to no down payment.

How do I find properties suitable for no-money-down investments?

Look for properties where sellers are open to creative financing. Networking with real estate agents, joining real estate investment groups, and attending property auctions can be good strategies. Properties in less competitive markets or those needing repairs might be more amenable to creative financing terms.

What risks should I be aware of with no-money-down investments?

Answer: high financial risk due to increased debt, potential negative equity, higher interest rates and loan fees, dependence on rental income, market volatility, slow equity building, and possible compromises on property quality and location.

How can I ensure a positive cash flow in a no-money-down rental property?

Carefully analyze the property’s potential rental income, ensure it exceeds all expenses (mortgage, taxes, insurance, maintenance, etc.), consider its location and condition, and prepare for contingencies like vacancies or unexpected repairs.

Buy Your First Rental Property

Buying your first rental property can be a challenging but rewarding experience both in terms of expanding your financial portfolio and learning about the property market. Since building a big enough deposit to purchase a rental property is often the most significant barrier to access, getting a rental property with no down payment can be a great way to get started.

But keep in mind that when you don’t have the money to put down a deposit on a rental property, you also increase your risk. You need to have contingency plans to protect yourself in case the unexpected happens.

Read next: Benefits of Property Management vs Self-Managing.

Note: RentPrep does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, or accounting advisors.

The post How To Buy A Rental Property With No (Or Little) Money Down appeared first on RentPrep.

This legal document specifies the approved uses of the property, such as residency or commercial activity, and confirms that the building is suitable and safe for those purposes. As a landlord, it’s essential to have a valid certificate of occupancy for each property you own.

But who is responsible for obtaining a certificate of occupancy, and how do you get one? How much does it cost, and how often do you need a new one?

Whether you’re an established landlord, a first-time property buyer, or merely curious about the ins and outs of real estate, our comprehensive guide dives deep into the world of certificates of occupancy.

We’ve broken down its importance and nuances for you. Let’s guide you through the steps to ensure your property’s safety and compliance with regulations.

Table Of Contents On Certificates Of Occupancy

A certificate of occupancy is legally required for all properties that you own or manage. Find out more with our guide to this important document.

• What Is A Certificate Of Occupancy?
• When Do You Need To Obtain A Certificate Of Occupancy?
  • New Construction
  • Selling A Building
  • Changing How A Property Is Used
  • Majorly Renovating A Property
• How Do You Obtain An Existing Certificate Of Occupancy?
• How Much Does It Cost To Obtain A New Certificate Of Occupancy?
• Certificates Of Occupancy And Landlords
• Certificate Of Occupancy FAQs
  • Are certificates of occupancy transferable?
  • Do I need a certificate of occupancy for a commercial property?
  • What information is included in a certificate of occupancy?
  • Can I appeal if my application for a certificate of occupancy is denied?
  • What is a temporary certificate of occupancy?
  • What is a certificate of rental property occupancy?
• Obtain A Certificate Of Occupancy

What Is A Certificate Of Occupancy?

A certificate of occupancy is a legal document issued by local building or zoning departments authorizing what purpose a property can be used for and that it’s safe to use for that purpose. This certificate is issued for all types of buildings, including residential, commercial, and industrial.

It will also include the occupancy limit for that building.

The sections below will focus principally on certificates of occupancy for residential properties, but the same general rules apply to all types of real estate.

When Do You Need To Obtain A Certificate Of Occupancy?

Certificates of occupancy should be obtained during the construction of a new property.

Once the document has been issued, it does not expire, so there is no need to obtain a new one unless the use of the property changes—for example, from commercial to residential—or there are major renovations.

But let’s take a closer look at when you may need to obtain or present a certificate of occupancy.

New Construction

The original certificate of occupancy for any new building should be obtained during the construction process. There are usually several phases of inspections required during construction that will eventually result in a certificate of occupancy being issued.

For example, in Chicago, during the foundational construction phase, you will need to have inspections done of the underground plumbing and structural fittings, including rebar, structural steel, and concrete pours.

During construction, the carpentry, electrical system, plumbing, and ventilation will be inspected, among other things When the construction is complete, final inspections will be required, and a fire-prevention bureau inspection is needed to issue the final certificate of occupancy.

Selling A Building

When you’re buying a property, you’ll need a copy of the certificate of occupancy to finalize financing and legally take ownership. However, it’s the responsibility of the seller to provide a copy of the certificate. If there is no certificate, the seller must cover the cost of obtaining one.

Changing How A Property Is Used

If you want to change how a property is used, you will need to apply for a new certificate of occupancy. For example, if you want to convert what was a commercial storage facility into residential apartments, you’ll need a new certificate that authorizes the new use and states new occupancy limits.

Majorly Renovating A Property

If you make major renovations that change a building’s fundamental structure, you will need to apply for a new certificate of occupancy. Obtaining the document should begin when you apply for a permit.

What constitutes a major renovation versus a mainly aesthetic remodel? Consider the following examples of major renovations:

• A change in floor plan, such as dividing a unit into two dwellings or combining two units to create a larger dwelling
• Removing any load-bearing walls or adding new floors, as these may change the structural foundations of the building
• Significant plumbing or electrical changes, such as installing new HVAC systems or upgrading electrical panels
• Exterior changes to the building’s facade or roof structure

Your architect and builders should be able to advise you when your planned changes are likely to trigger the need to apply for a new certificate of occupancy.

How Do You Obtain An Existing Certificate Of Occupancy?

If you need a copy of an existing certificate of occupancy, you can get one from the local building authority. For example, New York City has an online database where you can search for existing certificates of occupancy.

In most cases, you will need to pay a small fee to get a copy of the certificate. However, in New York City, you can export the document directly from the database as a pdf.

How Much Does It Cost To Obtain A New Certificate Of Occupancy?

The cost of obtaining a certificate of occupancy for a new build or a major renovation varies greatly depending on where your property is located, local laws, and the type of property.

While you may only pay a one-off permit fee, which includes inspections, for renovations to a single family home, or for larger properties such as apartment complexes, you can expect to pay for several different inspections conducted by different local departments.

For a new block of units, you will need to pay for inspections of the building structure, for a fire inspection, plus electrical and plumbing inspections. In certain jurisdictions, you may also need to pay impact fees to help cover the cost of the new occupancy on local services.

For a single residential property, you are more likely to pay a one-off fee that includes both the inspections and the certificates. Rates vary depending on where you live and the type of property. For example, in Tamarac, Florida, it costs $260 for a safety certificate, plus $89 and $3 for every 1,000 square feet of building space. In West Chicago, it costs around $100 plus an additional $0.12 per square foot of property.

You should check local regulations and fees at the start of your building or renovation project to ensure that you are compliant.

Certificates Of Occupancy And Landlords

Landlords should ensure they have certificates of occupancy for all their properties before tenants are allowed to move in. They should also ensure that the property continues to be in a habitable condition.

Tenants can issue complaints if they feel the property is not up to standard. Common complaints include:

• Insufficient heat: Areas of the country have different regulations, but as a general rule, if the outside temperature falls below 60 degrees Fahrenheit, a minimum indoor temperature of 68 degrees Fahrenheit should be maintained. Read more about the tenant’s right to climate control here.
• Insufficient smoke and carbon monoxide detection: Districts have specific rules about the minimum number of smoke and carbon monoxide detectors that should be in a home based on its size and layout. Read more about smoke alarm requirements here.

When these types of complaints are made, you may be issued a violation and given a maximum number of days to correct the problem —for example, 21 days. However, unless there are major structural issues, these do not undermine the general certificate of occupancy for the building.

If a tenant asks to see a certificate of occupancy, you must provide it. In some cases, it will need to be displayed at the property. See our guide to landlord disclosure requirements, including certificates of occupancy, here.

In some jurisdictions, landlords will need additional documents to demonstrate that their property is habitable and can be rented to tenants. These can include:

• A rental license that registered the property with local authorities and often includes an inspection to ensure the property meets habitability standards
• Completion of a habitability checklist, provided in some jurisdictions, that covers things such as heating, plumbing, and safety features.
• A lead-based paint exposure for properties built before 1978 that disclose the presence of lead paint and the associated dangers
• Property inspection reports that detail the condition of the property and any maintenance issues that need to be addressed
• Maintenance and repair records to demonstrate that the property is being kept in a habitable state
• Documentation demonstrating the installation of smoke and carbon monoxide alarms according to requirements
• Evidence of compliance with health and safety regulations as it relates to things such as waste disposal and pest control

The legally required documentation depends on your local jurisdiction, so check local government websites for specific details.

Certificate Of Occupancy FAQs

Below are answers to some of the most frequently asked questions about certificates of occupancy.

Are certificates of occupancy transferable?

Certificates of occupancy are issued for individual properties and have no expiration date. While the owner who built the property is responsible for obtaining the first certificate of occupancy, they should pass this certificate to anyone who later buys the property.

The certificate remains valid as long as subsequent owners do not make any major renovations.

Do I need a certificate of occupancy for a commercial property?

Yes, certificates of occupancy are required for commercial properties, and there may be additional requirements based on the proposed use and occupancy limit.

What information is included in a certificate of occupancy?

A certificate of occupancy typically states the property address, a description of the approved use, the maximum occupancy, and the date that the certificate was issued.

Can I appeal if my application for a certificate of occupancy is denied?

Yes, you can appeal if your certificate of occupancy is denied. Usually, you will be given a time window following specific inspections to fix problems and schedule a re-inspection.

What is a temporary certificate of occupancy?

Temporary certificates of occupancy will sometimes be issued when a building is substantially complete and can be occupied but there are still unfinished things to be completed before a full certificate of occupancy can be issued. These issues must not adversely affect the health or safety of the occupants.

What is a certificate of rental property occupancy?

Certificates of rental property occupancy are not common in U.S. law, but they do exist in some jurisdictions. For example, in Ohio, landlords need to apply for a certificate of rental property occupancy on an annual basis. The required inspection will not consider structural features, which are already covered by a certificate of inspection, but rather habitability.

Obtain A Certificate Of Occupancy

As a landlord, you should have certificates of occupancy for your all properties to demonstrate that they are safe and fit for their intended purpose. These are usually obtained at construction and do not expire unless major changes are made to the property. You should obtain a certificate of occupancy as part of any real estate purchase.

Certificates of occupancy confirm that the overall structure of a building is safe and fit for purpose but does not cover elements that make a rental property “habitable.” Landlords are separately responsible for ensuring that homes are fit to live in, with appropriate heat and smoke detectors, no dangerous mold, and so forth.

The post What Is A Certificate Of Occupancy? Landlord 101 appeared first on RentPrep.

The best cities for Airbnb may surprise you as you begin to research expanding your investment portfolio. While popular tourist destinations like Florida remain on the list, cities with less obvious tourist appeal are also considered some of the best places for Airbnb investment.

Do you know how to consider which cities are the best places for Airbnb investing for your specific business portfolio? Learning about short-term rentals is different from traditional property management. Getting the right foundational knowledge to succeed with this new venture is important.

Today, follow along in our complete guide to the best Airbnb cities for your investment portfolio.

A Table Of Contents On The Best Cities For Airbnb

Ready to expand your investment portfolio to include Airbnb investment properties? Here’s what you need to know about the best Airbnb cities:

• The Best Cities For Airbnb Investing
  • #1: The Poconos, Pennsylvania
  • #2: San Francisco, California
  • #3: Branson, Missouri
  • #4: Bend, Oregon
  • #5: Miami, Florida
  • #6: Fairbanks, Alaska
  • #7: Ellsworth, Maine
• How To Add The Best Cities For Airbnb Investing To Your Portfolio
  • #1: Choose The “Best” City For Your Portfolio
  • #2: What To Research For Specific Cities
  • #3: Choose The Right Location
  • #4: Learn About Excelling In Airbnb Investing
• FAQs On The Best Airbnb Cities
  • What is the most profitable city for Airbnb investors?
  • Where is the highest demand for Airbnb?
  • Is Airbnb still profitable?
  • What percentage of income does Airbnb take?
  • What makes a good location for Airbnb?
• The Best Places For Airbnb Investment For Your Portfolio

The Best Cities For Airbnb Investing

What are some of the best cities for Airbnb investors to look at right now?

This isn’t an exhaustive list, but it does include some of the most interesting (and profitable) areas where Airbnb investors are excited about future growth. Find out if any of these locations will suit your business plans.

#1: The Poconos, Pennsylvania

The Poconos is a popular retreat destination for people living in Pennsylvania, New York, Maryland, West Virginia, Washington D.C., New Jersey, and other nearby states. Due to its proximity to these various states, the occupancy rates in the Poconos are relatively high year-round.

In particular, December sees very high daily rental rates, often soaring over $500. This leaves room for big profits if you have the right property and location. Entire home rentals are popular with families, wedding parties, and friends looking for somewhere peaceful. More significant properties demand higher prices and bigger profits.

The average monthly revenue for short-term rental owners in the Poconos is between $5,000 and $6,000.

#2: San Francisco, California

If you want to invest in a city with high occupancy rates, look no further than San Francisco. Throughout the summer, occupancy rates are typically over 90%, and rates don’t usually drop below 60% during the off-peak season. This means you can profit year-round, with increased profits and daily average rates during peak periods.

It’s worth noting that upfront investment costs can be high depending on the location, especially if you want to do full-house rentals. One-bedroom rentals are also very popular, so they can be an option for investors with more limited budgets.

#3: Branson, Missouri

The Midwest has increasingly popular tourist destinations that are growing hotspots on Airbnb. One such place is Branson, Missouri. This family-friendly vacation destination offers live music, outdoor recreation, history experiences, great food, and much more.

Visitors voted Branson one of the best destinations in 2021, showcasing that its popularity is just getting started. Most visitors to Branson drive as it is incredibly accessible to many midwestern states.

The occupancy rate during peak season in Branson is over 80%, with an average monthly revenue of over $4,000.

#4: Bend, Oregon

Bend is a beautiful area known for outdoor recreation, mountain views, and a fabulous glass of beer. With such activities to pursue, more than 4 million visitors come to this area of Oregon each year to experience everything the Cascades have to offer.

More than 80% of summer visitors to Bend stay overnight, meaning there is high demand for short-term rentals. Most visitors stayed for at least four nights, regardless of the season. This shows positive potential for occupancy rates year-round.

The average monthly revenue for Airbnb investors in Bend is over $6,000 during peak season, with occupancy rates soaring over 90%. The majority of short-term rentals in this region are entire home rentals.

#5: Miami, Florida

It’s probably no surprise that the second largest city in Florida, Miami, makes the list as one of the best cities for Airbnb investing. Offering ocean activities, a festive lifestyle, sunshine, and so much more, investors are drawn to Miami for good reason when researching short-term rental options.

Occupancy rates in Miami are over 50% year-round, with peak season rates reaching nearly 90%. This paves the way for investors to make between $4,000 and $6,000 monthly, depending on their rental rates.

#6: Fairbanks, Alaska

Massive demand for short-term rental places in Fairbanks makes investors consider Alaska their next frontier. Vacationers flock to this region to explore national parks, see the Northern Lights, and partake in other experiences that aren’t found in many other areas.

The average daily rates in Fairbanks on short-term rentals are just under $200, with an average annual occupancy rate of around 60%. Investors with suitable properties and locations stand to make significant profits in Fairbanks for years to come.

#7: Ellsworth, Maine

The last city on our list of the best cities for Airbnb investing is in the great state of Maine. Ellsworth, Maine, is located very close to the entrance of Acadia National Park. This park draws in millions of visitors annually, and many choose to stay in Ellsworth.

The high investment cost in other cities nearby is too risky for most Airbnb investors. Instead, turning to the more affordable and still convenient Ellsworth makes more sense. It’s a wise choice when you can still achieve occupancy rates over 70% and daily average rental rates over $230. Profitability is highest from May to October as tourism soars for the peak season.

How To Add The Best Cities For Airbnb Investing To Your Portfolio

The top seven cities listed above are some of the best places for Airbnb investment right now, but does that mean they’re the proper cities for you to purchase a short-term rental property?

Ultimately, that depends on your situation. No single city is a one-size-fits-all solution when it comes to Airbnb investing. There will always be external factors that influence where your best investment options are located. It’s up to you to research this, but these tips will help along the way.

#1: Choose The “Best” City For Your Portfolio

If you want to invest in one of the cities listed above, ensure you don’t look only at the occupancy and potential profit numbers we shared. Instead, look at it through your portfolio’s lens.

Which city has affordable properties? Which city boasts properties that fit your expertise? Which city has reasonable short-term rental regulations that won’t prevent your business from thriving?

The investment potential of short-term rentals in any city varies from investor to investor. Too much competition feels detrimental to some, while high demand levels can help others flourish. It’s important to consider what makes the most sense for your personal portfolio.

#2: What To Research For Specific Cities

Anytime you’re considering investing in a short-term rental in a particular city, research the following information about that city before proceeding:

• Occupancy rate: What is the percentage of occupied rooms in the region during peak season, off-peak season, and on average?
• Average daily rate: What are other investors charging, on average, for similar short-term rentals?
• Regulations: Are there any local rules or regulations on short-term rentals that will affect your risk levels?
• Property taxes: Are high property taxes a concern for your profitability?

#3: Choose The Right Location

Simply buying an investment property in one of the best cities for Airbnb isn’t enough to find success. You must also ensure the property is in a desirable, profitable location.

The ideal short-term rental property includes the following:

• Easy access to highways and/or public transportation
• Attractive, local tourist activities
• Area attractions including great restaurants, bars, and parks
• Low crime rates
• Easy parking options for guests driving into town

#4: Learn About Excelling In Airbnb Investing

If you’re an experienced landlord expanding into Airbnb property management, you already know a lot about how to maintain and upkeep properties. Some aspects of landlord and investment property management overlap, but there are also some important differences.

Here at RentPrep, our tenant screening packages are primarily used by landlords to choose the best tenant for their rental properties. However, we also want to help you manage your investments. Our blog regularly includes updates focused on Airbnb property management. Stay up-to-date with the latest advice by signing up for our newsletter today.

FAQs On The Best Airbnb Cities

What else is there to know about investing in short-term rental properties? Keep reading to learn more.

What is the most profitable city for Airbnb investors?

The most profitable city for Airbnb investors isn’t simple to define due to the wide variety of factors that come into play, including investment costs, occupancy rates, interest rates, and so much more.

Nashville, Indiana, was listed as one of the most profitable cities in recent years, as the startup costs are low, but the average daily short-term rental rates are relatively high at over $250.

Overall, the most profitable cities are those with incoming visitors and tourism year-round. Additionally, tourist destinations with limited numbers of hotels and rental properties boast higher demand and, consequently, higher profits.

If you’re interested in discovering the most profitable cities on Airbnb in your state, check out this complete state-by-state list.

Where is the highest demand for Airbnb?

Judging demand for Airbnb properties by occupancy rates in each city, the most in-demand cities on Airbnb are as follows:

1. New York City, NY
2. Los Angeles, CA
3. Kissimmee, FL
4. Atlanta, GA
5. Houston, TX
6. Las Vegas, NV
7. Austin, TX
8. San Diego, CA
9. Miami, FL
10. Washington, DC
11. Philadelphia, PA
12. Chicago, IL
13. Davenport, FL
14. Orlando, FL
15. Dallas, TX
16. Panama City Beach, Florida
17. Seattle, WA
18. San Francisco, California
19. Nashville, TN
20. Paradise, NV

Remember, the best cities for new Airbnb investment aren’t necessarily those with the highest demand. Investment requires a balance of risk and reward, so keep this in mind as you research your options.

Is Airbnb still profitable?

While investors often worry that Airbnb investing has passed its peak, investing in short-term rental properties is still incredibly profitable. Gradually lowering house prices also offers room for more significant profits. Acquiring properties is getting more affordable and this can lead to stronger profit margins down the line.

What percentage of income does Airbnb take?

The final fee charged to hosts by Airbnb depends on your property’s location and which plan you follow. You can expect fees to range from 3% to 15%. If you are renting properties in North America, you will be subject to a 3% fee of the total booking cost, and guests will pay between 5% and 20% to cover reservation-specific costs.

What makes a good location for Airbnb?

The biggest thing you should look for when choosing an Airbnb location is proximity to attractions. Consider why people visit this city. Is it to go to the museums, to visit large convention centers, or for outdoor recreation? Regardless of the answer, ensure that your short-term rental properties are conveniently located in regard to any and all popular attractions.

The Best Places For Airbnb Investment For Your Portfolio

Today, we’ve covered the top Airbnb cities for investment opportunities. Remember, that doesn’t mean these cities will be the best opportunities for you. Every individual investor has their own budget, location, goals, and portfolio to consider. Review the following when determining the best cities for Airbnb properties for your business:

• Budget: What is the expected cost of your ideal property type?
• Location: Can your budget afford properties in the ideal areas of town?
• Occupancy: What occupancy rate will you need to be profitable, and is it achievable in this city?
• Regulations: Will changing regulations on short-term rentals make it difficult or impossible to continue property investment in this area?

Specialize your portfolio to suit your business goals and personal strengths. Trying to replicate someone else’s success by following their steps exactly isn’t practical. Instead, learn from their reasons for taking each step and apply them to your decision-making. With this process, you’ll be ready to invest in the best Airbnb cities in no time.

The post What Are The Best Places For Airbnb Investing? (Guide) appeared first on RentPrep.

Joint ventures bring together multiple investors, project managers, landlords, and other parties to work together to manage a new investment project. From commercial rentals to large residential properties, working with other businesses to complete your dream project balances risk and reward.

Are you missing out on great opportunities because you’re not working with other parties? Bringing in complementary skills to balance out your expertise, or investors to back your ideas, is a great way to enhance your investment portfolio and complete your next project.

What is a joint venture in real estate, and how will joining in JV investing change the future of your portfolio? Learn more in our explanatory guide today.

A Table Of Contents On Real Estate Joint Ventures

Looking for a new type of investment as you continue to grow your expertise in the real estate world? Learn more about joint ventures to determine if this is a good choice for you:

• What Is A Joint Venture In Real Estate?
  • Common JV Structures
• Why Investors Seek Joint Ventures In Real Estate
  • Credibility
  • Land
  • Construction And Project Management
  • Lacking Expertise
• Planning For The Future: JV Agreement Terms
  • Profit Distribution
  • Management And Decision-Making
  • Contributions
  • Exits And Dissolution
  • Rental Essentials: Invest In The Basics
• FAQs On Joint Venture Real Estate
  • Can a joint venture purchase property?
  • What are the benefits of joint ventures in real estate?
  • How can I find joint venture partners?
  • Are partnerships and joint ventures the same thing?
  • Who owns property in joint ventures?
  • Are joint ventures always divided 50/50?
• What Can A Joint Venture In Real Estate Do For You?

What Is A Joint Venture In Real Estate?

Joint ventures are investment projects and developments managed by two or more investors. These investors bring together their resources, expertise, and connections to ensure the successful completion of the project. Rather than officially incorporating into one business, both parties remain unique entities. They are working together, but they are not becoming one partnership.

In a partnership, on the other hand, investors join to form a single entity that then does business together. Joint ventures (JVs) operate independently but work together according to the terms of their joint venture agreement.

Typically, joint ventures are created to fill needs symbiotically. Investors lacking cash, experience, or local contacts may connect with another investor to get these things while contributing their own expertise and management experience to complete a project.

Large development projects, such as commercial rentals or large residential apartment buildings, are typically managed by joint ventures. These projects are often the result of an experienced real estate operator (landlords, project managers, property managers, etc.) obtaining financial support from real estate capital investors.

Common JV Structures

Joint ventures are not one-size-fits-all. There are many different structures used to operate a joint venture. The joint venture agreement determines the exact structure and depends on the parties involved in the project.

These are some of the most common structures used in joint ventures.

Limited Liability Company

LLCs, or limited liability companies, are incredibly common in joint venture investing. LLCs are easy and inexpensive to set up. Every member of an LLC owns a specific percentage, all of which is determined when the LLC is set up. The terms of the joint venture are listed within the LLC agreement.

Corporation

Corporations are more complex than LLCs and cost more to set up. Still, joint ventures structured as corporations appear with complex deals. The more money involved in a joint venture, the more likely it is to have an associated C-corp or S-corp set up to offer projects and structure to the investment project.

The bylaws in the corporation’s agreements detail the structure, pricing, fees, obligations, and other essential aspects of the joint venture operation.

Partnerships

This is the least common type of structure used in joint ventures. As partnerships are simple and flexible, quick venture deals may be done as a partnership.

Though general partnerships are also used, most JVs use limited partnerships. Limited partnerships provide liability protection for passive investors not involved in the daily operations of the venture project.

Why Investors Seek Joint Ventures In Real Estate

Why do real estate investors enter joint ventures as they expand their projects?

Some might believe that staying solo ensures the biggest profits but forget that it also brings the biggest risks. There are many reasons to get involved with joint ventures as an investor; here are some of the most common ones.

Credibility

If an investor is interested in a project but lacks experience in the sector, capital investors are unlikely to feel confident getting involved. However, a joint venture including a project manager or construction manager with ample expertise would be more likely to get funded to successful completion.

Land

Investors who own land but don’t have the capital, experience, or if time to develop it may set up a joint venture—joining a venture with someone with the expertise to develop the land benefits both parties.

Construction And Project Management

Real estate projects that need to be started from the ground up are often outside the wheelhouse of the common real estate investor. Setting up a joint venture with a construction or project management group ensures that the development is successful from start to finish.

Lacking Expertise

Just as you wouldn’t consider hiring an inexperienced property manager, investors aren’t likely to consider investing in a project lacking experienced partners.

The bottom line is that joint ventures are sought by individuals lacking the expertise necessary for successful development. Whether they lack local knowledge, construction management experience, connections, or something else, joint ventures provide complementary skill sets for a more robust overall project.

Planning For The Future: JV Agreement Terms

To successfully plan a joint venture, the JV agreement must cover essential factors like structure, responsibilities, and profit distribution. Getting into your first joint venture can be overwhelming; review the following list to ensure you don’t forget any key aspects when putting together your first JV agreement.

Profit Distribution

How will the profits be distributed? When will they be distributed? Compensation doesn’t necessarily need to be split equally among all parties, so joint venture agreements must clearly express how this distribution will occur.

Management And Decision-Making

All joint venture agreements specify the exact responsibilities of each JV party. From daily management to decision-making, the precise terms of who will do what must be agreed upon. If this section doesn’t have enough clarity, it is very easy for disagreements and roadblocks to arise.

Contributions

How much capital will each joint venture member contribute?

Joint venture agreements should cover how much capital each party will contribute, when that will be contributed, and what terms are connected to that contribution. These terms vary wildly from contract to contract, only making it even more important to be as transparent as possible.

Exits And Dissolution

Joint ventures aren’t meant to be permanent partnerships. All JV agreements should cover how and when the JV will end. The dissolutions can be set up to occur at a specific point in time. Still, there should be terms included for premature dissolution should one or more parties no longer be able to participate in the venture.

These terms should be as detailed as possible and cover all potential situations that you can think of. It’s always possible for things to go sour or in an unexpected direction while dealing with a joint venture, so all parties should have ample protections written into this part of the agreement.

Rental Essentials: Invest In The Basics

No matter how you proceed with acquiring your next rental properties, it’s important to remember that the basics remain incredibly important. From selecting the right tenants to choosing the right team members to support your vision, there are many tasks to keep on top of. Tenant screening is one of them.

Utilize our high-volume tenant screening services to reduce the growing pains of your business. Learn more about these packages and pricing today.

FAQs On Joint Venture Real Estate

Ready to dive into the world of joint ventures in real estate? Review the answers to commonly asked questions as you get your footing.

Can a joint venture purchase property?

Yes, joint ventures can purchase properties. The agreement in place between the members of the joint venture sets them up as a temporary entity that can pool resources to purchase real estate. The exact terms of how the property will be bought and titled will depend on each joint venture contract.

What are the benefits of joint ventures in real estate?

Joint ventures make it possible to combine complementary assets and knowledge to build a stronger investment. Instead of limiting your project size due to a lack of capital or management power, joint ventures allow you to maximize your investments.

Joint venture parties share both resources and risks. This appeals to participants as it reduces the overall stress of growing their investment portfolio.

Many individuals also find joint ventures appealing when looking to work on a project outside their usual market. Learning how to invest in a new market is easier with an experienced local entity on your side. They bring better access, connections, and knowledge to the project.

How can I find joint venture partners?

There’s no simple step-by-step guide for finding venture partners. Working with someone in a joint venture requires a high degree of trust and confidence, which can be hard to find without first building up a strong relationship.

Still, that doesn’t make finding a suitable joint venture partner impossible. Here are some ways to get started in your search:

1. Ask reliable friends if they know anyone looking to expand into a joint venture.
2. Join investing groups and forums to build connections with similar-minded individuals.
3. Let your clients and current business networks know you want to expand with a joint venture; you never know who may be interested.

The goal is to ensure that the right people find out you’re interested in working with investors and experienced project managers to create your next project. Your chances of meeting the right joint venture partner expand exponentially by talking in forums and expanding your network.

Are partnerships and joint ventures the same thing?

In most situations, partnerships and joint ventures are not the same. Joint ventures bring together multiple parties, as separate entities, to work together on a project. These parties may be involved in numerous projects together or just one.

Partnerships, on the other hand, are business entities formed by multiple people. These individuals are doing business together as a single entity. This differs from joint ventures, where each party is its own entity and only works together for specific projects.

Who owns property in joint ventures?

All parties involved in a joint venture have some ownership over the venture’s assets, but the exact allotment depends on the terms of the JV agreement. If the project is set up with a 50/50 split, both parties share the ownership rights equally. An agreement may also specify which parties own which assets, but this is less common than a straight split.

Are joint ventures always divided 50/50?

In most situations, joint venture splits are either 50/50 or 60/40. Many joint ventures are built on the sharing of resources in a relatively equal way, and this leads to these equal or nearly equal splits.

The exact allocation of profits, resources, ownership, and control in joint venture projects is decided by the actual agreements put in place by involved parties. If one party has a larger share in the split, they may also have more influence on decision-making.

What Can A Joint Venture In Real Estate Do For You?

Joint ventures offer a unique opportunity to expand into new projects without taking on the entirety of the risk alone. When you’re interested in an investment beyond your means or expertise, consider starting a joint venture to handle the work without more support.

Keep the following in mind as you set up your joint venture agreements:

• Only enter a JV agreement with a trusted party who provides complementary support to the project.
• Ensure that compensation, investment costs, fees, management division, and other structural elements are all clearly addressed in the agreement.
• Don’t forget to include clear instructions on how to exit the partnership and how shared assets will be dissolved and distributed.

Every joint venture is different, so you must structure yours with the suitable projects in place. The flexibility of JV agreements is also part of their draw: You and your future venture partners all get what they need in the project. You can determine what exactly this means for your investment group.

What will joint ventures in real estate do for you?

The post What Is A Joint Venture In Real Estate? (Investment Guide) appeared first on RentPrep.

There are also substantial potential profits in buying commercial properties. On average, returns are higher than in residential real estate. Buying a business property might be the next investment opportunity that you’ve been looking for.

But how do you buy a commercial property for the first time? Today, learn with RentPrep about purchasing a commercial property, commercial investing, and more.

A Table Of Contents On Purchasing Commercial Property

Ready for returns that you can’t dream of with a residential property? It’s time to decide if commercial investing could be more up your lane. Start with the basics: learn how to purchase a commercial property with us today:

• What Is Considered Commercial Real Estate?
  • Types Of Properties
• How To Buy Commercial Properties: A Step-By-Step Guide
  • #1: Business Development, Investing, And More: Why Are You Buying?
  • #2: How Will You Fund The Purchase?
  • #3: Who Will Help You?
  • #4: What Do The Numbers Look Like?
  • #5: What Type Of Deal Will You Offer?
  • #6: Keep Learning!
• How To Buy Commercial Properties FAQs
  • How do I know more about commercial property investing?
  • How can I calculate the value of potential commercial deals?
  • What is underwriting in commercial real estate?
• Buying A Business Property: Start Your Next Steps Now

What Is Considered Commercial Real Estate?

Commercial real estate (CRE) is a large and varied industry. It includes spaces used for business purposes and properties such as office space and industrial buildings.

Apartment buildings that contain more than four units are also considered commercial properties. Keep in mind that the lease between the unit owner and the unit tenant will still be a residential lease, while the lease between the property owner and the building owner will be a commercial agreement.

Types Of Properties

There are five main types of commercial properties on the market today:

• Multifamily residential properties (i.e., apartment buildings, duplexes)
• Office spaces (i.e., high rises, medical offices)
• Retail spaces (i.e., stores, services)
• Industrial properties (i.e., warehouses, packing facilities)
• Hospitality properties (i.e., hotels, short-term rentals)

You can invest in multiple types of commercial properties or focus on a single type..

How To Buy Commercial Properties: A Step-By-Step Guide

Now that you know more about commercial properties and what qualifies as commercial, it’s time to get into buying commercial real estate. This type of real estate investing is confusing for the inexperienced, so don’t get overwhelmed if you don’t know much yet. We’re here to help.

#1: Business Development, Investing, And More: Why Are You Buying?

Why are you getting into commercial real estate? Why do you want to buy a commercial property? What are your investment goals in this sector?

Bank of America data show that commercial properties more than double the average returns on residential property investments. This motivates many to get into commercial real estate, but there needs to be more to your business plan.

It’s essential to develop your business ideas before you buy any property. Knowing your goals upfront helps you make better decisions throughout the buying process. Before moving forward, take time to determine, research, and develop your ideas.

There are several types of commercial property investment used by investors and landlords:

• Land banking: purchasing land to tie money to a fixed asset
• Development: purchasing raw land to develop and grow value
• Flip: purchasing property, renovating it, and reselling or renting for a profit
• Wholesaling: purchasing property at below-market value to sell to a buyer
• BRRRR: buying, rehabbing, renting, refinancing, and repeating
• Passive investing: investing in real estate through more active investors
• Owner-occupied: purchasing a multi-unit commercial property and utilizing some of the space for your business

Investors often start by purchasing commercial property for personal use. The purchased property is used to run their business and becomes owner-occupied. Owning this property starts building equity as you plan future purchases, and you can utilize specific tax advantages in the process. You can begin renting those out while continuing to use the building if it has multiple units.

Investors often start their commercial property business with this type of project because it sets them up for future success as they gain experience.

#2: How Will You Fund The Purchase?

Next, determine what lender you will use for your property purchase. Compare lenders as you work to secure financing. You’ll need to ensure you have a good credit score to secure a reasonable rate, and you’ll want to carefully read over terms on fees and penalties with all lenders.

The most popular loan types used by commercial investors are:

• Permanent loans
• FHA loans
• SBA loans
• Bridge loans
• Hard money loans

To secure business loans, you will need to provide a variety of documentation that covers your financial background and assets on hand, and touches on your plans for the property. These plans show the pros and cons of the investment so the lender can fully grasp any risks they are taking in the process.

#3: Who Will Help You?

Unlike residential investment, which can sometimes be managed as a solo entrepreneur, most commercial investors have a team they work with. Finding people who can help you accomplish your goals is essential even if these relationships are not contractual.

The types of individuals who will be essential to finding success as a commercial investor and landlord include:

• Real estate agent, preferably one with a degree in business or finance
• Attorney familiar with contract law and commercial leases
• Accountant well-versed in commercial account management
• Mortgage broker with good lender connections
• Reliable contractor specializing in commercial properties
• Property manager to assist with management, rent collection, and other essentials tasks

#4: What Do The Numbers Look Like?

Analyzing every property that you consider investing in is essential. The numbers matter and you need to see the property value through those numbers.

As you research industry trends in your area, zoning laws, property design, growth trends, and more, you will become more familiar with what success in the commercial rental field looks like.

Every property needs to be evaluated and compared to similar properties. A commercial contract should accompany you to analyze the property and the cost of any necessary repair work. Whether you are building from scratch or improving, having these figures will help you make better investment choices.

Consider the cost of investment, potential income, number of units, the ratio of growth to cost, and industry trends when running the number of potential investment properties.

#5: What Type Of Deal Will You Offer?

Making an offer on your first commercial property will be stressful, and that’s okay! Practice makes perfect on this front, and all you can do is try. Working with an experienced attorney, broker, and real estate agent will help the process go smoothly.

To offer to purchase a property, you typically write a letter of intent and provide specific terms through a purchase and sale agreement. Once your team reviews your copy, it will be submitted to the seller. After negotiation and readjustment, the seller may accept and finalize the sale.

#6: Keep Learning

No matter how you approach buying commercial properties, it’s vital to keep educating yourself. Stay up-to-date on the latest industry news, guides for landlords like you, and other exciting investment information with our newsletter and resources at RentPrep.

We’ve created these resources to educate the community and facilitate the spread of valuable information for landlords. The rental industry is an ever-evolving market, and we know it can be hard to keep up. With our resources and your ingenuity, you’ll be able to stay on top of your game and manage exponential growth.

How To Buy Commercial Properties FAQs

While our above guide covers many key points of buying a commercial property, there’s always more to learn. Here are answers to some of the most frequently asked questions:

How do I know more about commercial property investing?

The best way to learn anything is through experience, but that’s not to say that you should jump straight into commercial investing without knowing anything about it. You’re already on the right track by reading this complete guide, which gives you an ideal outline of the process of buying commercial property.

Keep researching, utilizing the following types of resources to ensure you find the most important information:

• Listen to real estate investment podcasts
• Read real estate books written by successful investors
• Watch YouTube videos about commercial investing
• Meet other investors, online or in your area, and discuss the work
• Find investor groups
• Try working at an investment group to familiarize yourself with the process

These are just some of the easiest ways to access more information about commercial investing and what it looks like. Once you feel confident that you have an excellent foundational knowledge of the commercial industry, moving forward with viewing properties, underwriting deals, and then actually purchasing a property is the best way to keep learning.

Remember, if you have a good team consisting of a broker, agent, attorney, and accountant on your side, they’ll be able to keep you on the right path as you proceed with your first few deals. Every deal will make you more skilled, which will be the path to generating expertise in the commercial rental industry.

How can I calculate the value of potential commercial deals?

Calculating the value of a commercial property is a massive part of finding success in this type of investing. It’s also one of the most challenging things to do, and many investors spend years working on discovering the correct equation for their investment preferences.

Many investors find or develop a spreadsheet where they can input specific data (such as the property value and predicted rent) to determine if it makes sense as an investment. By inputting particular numbers in this living document, you can quickly discover if a property is worth considering.

It’s also helpful to have a quick and easy formula to evaluate potential properties on the fly. Again, this should be a personalized formula for your financial needs and profit preferences. Some investors compare the asking price per square foot to the potential rental price per square foot.

What is underwriting in commercial real estate?

Underwriters are financial industry professionals who analyze your financial assets to determine whether or not they’re willing to take on the risk of giving you a loan.

Practicing underwriting will help you to determine whether or not an investment makes sense. Underwriting for commercial properties involves reviewing property pros and cons, which allows investors to decide if properties are worth the risk even before a lender does.

If you know your investment criteria, taking time to underwrite deals regularly will help you figure out what types of properties are suitable investments to maintain your preferred profit margins.

Buying A Business Property: Start Your Next Steps Now

Even if you’re feeling unsure at first, you now have the information to consider buying a commercial property and becoming a commercial investor.

While it might take some time to get to the actual purchase point, you can get going right now:

1. Read more about each type of commercial investment property and strategy to determine what style suits your investment interests.
2. Contact your future team. Meet attorneys, agents, property managers, bankers, and other individuals that will be essential to your process.
3. Study underwriting, investment strategy, and your local commercial market.

Starting with these three steps will ensure you know what is necessary to make intelligent decisions from day one of buying commercial properties. As your information bank grows, you’ll be ready to purchase sooner than you might imagine.

The post How To Purchase Commercial Property (RentPrep Guide) appeared first on RentPrep.

Unlike improvements in a primary residence, rental property improvements need to achieve a balance between investing enough to boost the value of the property and attract top tenants, and spending too much money on all the wrong things without seeing a return on the investment. The best rental property investments will increase the property value without over-improving it.

Why Upgrade A Rental?

Let’s state the obvious, higher rent. When you begin to make improvements to increase property value, you’re also giving yourself an opportunity for an argument to increase rent. With newer appliances, nicer floors, fixtures etc. people are willing to pay more for nicer things. A few other things to keep in mind when renovating your rental:

• Your Property Will Stand Out: When you renovate your property, you’re showing potential renters that you care enough to make it attractive to renters. Renovate to make your property as attractive as possible to potential tenants.
• Possible Improvement Of Energy Efficiency: By adding things like new appliances, changing up the windows, or thermostat setup, you can help reduce the cost of utilities. So, if you’re the one paying utilities for the property, it’s a big benefit to you.
• Overall Increase In Property Value: Improving the overall features of the rental property will increase the potential resale value.
• Major Tax Deductions: A lot of what you spend could be tax deductible from the property’s taxable income.

Best Upgrades For Rental Property

So, you’ve put your budget together and you’re ready to invest in your property a bit more to help increase its value. Great! Here are the Top 10 things to start to help increase your rental value.

Plumbing Fixtures

Kitchen and bathroom fixtures like faucets, sinks and sprayers can get old and dingy very quickly, not to mention looking out of date. For fixtures that are around 10 years old, no matter what condition, landlords should consider changing them out.

A shiny chrome finish is currently associated with standard grade, so moving up to more refined finishes like oil-rubbed bronze or brushed nickel will boost the look of the rental property. Whatever landlords choose, they should make sure that all the fixtures are the same to bring harmony and unity to the home’s décor.

Of course, if you’re looking to do an overall renovation of something like a bathroom, you have to check out this video on how to do so on a budget.

Countertops

The lowest quality countertops are the plastic laminate ones that don’t stay nice for long as they are subject to discoloration from liquids and burns. Over time, laminate countertops just don’t hold up.

Installing countertops made of granite, slate, quartz, or other solid surface material will boost the look of any kitchen and bathroom. Stone alternatives for countertops include acrylic/polyester composites, ceramic tile and stained concrete that are durable and beautiful.

Floor

Putting in a new floor in certain areas or throughout the rental property is an excellent way to boost property values. Replacing standard-grade carpet and linoleum with higher-end materials like laminate, tile, stone or even hardwood will not only add value, but it will make caring for, cleaning and repairing the floor so much easier for tenants and landlords. Here’s a handy guide on flooring options for rental properties.

Storage

Storage is one of the top priorities for renters, so landlords can really make their property shine by increasing storage options. Some small and simple ideas for boosting storage include adding hooks to key areas like entryways and bathrooms, installing closet organizing systems, and adding additional shelving in a pantry.

More involved storage rental property upgrades include installing permanent shelving in the garage, creating built-in shelves or in-wall storage, framing a new closet and adding a shed on the property.

Windows

Depending on the age of the rental property, it may be time to install new windows. Not only do windows contribute to keeping a property light and bright, but they are a critical part of keeping heat and cold at bay.

Landlords should consider upgrading to double-pane windows to provide better insulation and to muffle outside sounds. Other upgrade options include windows with blinds inside the panes or insulated windows.

Roof

When a roof reaches approximately fifteen years old, it’s time to consider getting it replaced. Neglecting the roof can lead to serious damage in severe weather. Who wants that call in the middle of the night that there is a leak in the roof and it’s currently damaging the inside of your property?

Landlords should have a roofing inspector check out the roof regularly and make arrangements to replace it on their recommendation. A quality roof not only looks good, but protects the investment beneath it.

Cabinets

Think about it, old dingy cabinets give off a vibe that they shouldn’t be well taken care of. Sometimes, the wood is so old that it gives off an awkward smell, or sometimes, it could be so cheaply put together that they fall apart within a matter of a few years. So, let’s break this down a bit more. If the cabinets are falling apart and cannot be repaired, it’s time to get new ones. Cabinets can be expensive, but are definitely worth the investment.

If the cabinets are old, but are structurally still intact and look good, maybe it’s time to get your DIY juices going and get out the paint or hire a contractor to do so. But, fair warning, make sure that you invest in good paint and take your time getting the project done; a bad paint job will only add more fuel to the fire on why you should now just get new cabinets in general.

Paint

What a good intro into one of the most underestimated things when it comes to increasing rental property value. Paint is super important! Picture: A renter walks into your apartment, the walls are painted burgundy and yellow and you want to charge $1500 a month. Now imagine that same renter walking in and the walls are painted a very simple cream or gray color.

It’s up to the latest design trends, as much as it can be, and you’re still charging that $1500. Which scenario seems like the best bet for that renter to sign the lease? My point is, paint can make all the difference and can create a lasting first impression, especially for someone who’s looking and ready to move into an apartment.

Curb Appeal

We’ll imagine the same scenario as above, but this time with curb appeal in mind. As mentioned, first impressions can mean so much, especially to a renter that’s ready and willing to sign a lease agreement. When a property looks as if it’s constantly being maintained because it has something like nice shrubs or grass that’s cut and trimmed, the renter is likely to feel that the landlord cares enough about the property to not let it go. And, with that in mind, cares enough about the property to check in on the tenant to make sure that they have everything that they need to make sure that the property stays intact how they left it.

Appliances

Oh, the age-old question — do you supply appliances in a rental or leave it up to the tenant? For one, we know that appliances are going to up that monthly rent because it’s going to be attractive to tenants that they do not have to purchase their own. Secondly, if you were going to sell the property, appliances always add a nice touch to the seller’s description for the same reason it would be attractive to a renter.

Ready To Update Your Rental?

If landlords are going to be spending money on improving their rental property to attract higher-quality tenants and boost property values, it’s important to focus on the right things. A fancy kitchen won’t do much if the roof is leaking or the basement has mold.

Landlords should always start with taking care of the basics and then tackle the more cosmetic improvements down the road. Landlords should also avoid doing too much with the upgrades and over-improve. Putting in top-of-the-line flooring material, for example, isn’t a wise idea in a rental where the landlord has little control over how tenants will treat the home.

Landlords need to find that fine line between investing in their property and doing so much that they won’t ever benefit from the fruits of their hard work.

The post Top 10 Rental Property Upgrades appeared first on RentPrep.

Does this also mean that creating a smart home for rental property purposes makes sense?

As with many things in the real estate business, that depends on your property management style. However, not exploring this option would be a big miss for any landlord. Installing smart devices is often easier than you may imagine, and the return on that relatively small investment could be huge.

Don’t miss out on a chance to grow your business with simple yet innovative solutions. Learn more about smart home rental property options today.

A Table Of Contents On Smart Home Rentals

Ready to find out what making your rental a smart rental is all about? Dive into this exciting opportunity with us:

• What Is A Smart Home?
• Smart Home Rentals: Why They Make Sense
• Smart Homes For Rent: Key Features To Include
  • Keyless Door Locks
  • Smart Lighting
  • Utility Devices
  • Smart Appliances
  • Looking For More Landlord Resources?
• FAQs On Smart Homes For Rent
  • What is a smart home in rental property?
  • What is the ROI of installing smart technology in rental units?
  • What are the risks of using smart technology in rental properties?
  • Should I allow smart home technology to be installed in my rental properties?
  • What smart devices do renters most commonly use?
• Start Prepping A Smart Home For A Rental Property Today

What Is A Smart Home?

A smart home is a property strategically fitted with smart technology that allows for greater control over the home’s functionality. Door locks, security cameras, thermostats, and more may all be controlled from a single operating device, depending on the setup.

The complexity of a smart home system varies immensely from property to property. Large, high-end properties are likely to be outfitted with the complete works, including a central security system, while many rental apartments won’t have much more than keyless door locks.

There are even smart devices for everyday tasks like brewing coffee and grocery shopping: Smart coffee machines brew at a specific set time; smart refrigerators keep a running list of what you have inside, and you can access that list while at the store.

The critical point is interconnectedness. Apps on your smartphone or laptop control how the smart devices function. This creates a simple, convenient system that can be used both at home and away to control lights, temperature, and more.

Smart Home Rentals: Why They Make Sense

What’s the point of installing these systems in rental properties?

It’s true that smart devices won’t be a good investment for every property, but the benefits may be more significant than you might expect. Many landlords who install these systems claim that the biggest bonus is how the devices improve overall maintenance and building upkeep.

Smart home rentals:

• Attract a new type of tenant
• Improve security for tenants and the property itself
• Prevent property damage
• Make managing unoccupied properties from a distance more feasible
• Increase rent

Utilizing smart devices becomes more common every day. Soon, it’s likely that more than 50 percent of tenants will expect to see some sort of smart technology used to ensure their safety and convenience when renting a property. Are you prepared for this change?

Smart Homes For Rent: Key Features To Include

As previously mentioned, smart home devices come in many shapes and sizes. Some improve safety, while others just make life easier. Which features will most likely enhance ROI through rent increases and more rentals?

Consider these categories as you plan to utilize smart technology in rental properties.

Keyless Door Locks

The #1 reason most tenants are interested in smart home technology is to enhance the safety of the property. Security is important to renters, and investing in this area can pay off.

Smart locks, such as keyless doors, unlock via pin codes, Bluetooth, or smartphones. These locks don’t need to be replaced when changing tenants, and it’s possible to wipe previous data relatively quickly.

These locks are a great way to protect both tenants and the property. There are many levels of keyless locks available, so consider what makes the most sense for your budget, tenants, and property type.

Smart Lighting

Another area attractive to tenants and landlords is lighting. Smart lighting combines convenience and safety for an intelligent solution that just makes sense.

Outside, you can install motion-activated lighting that includes remote monitoring options. This is key for common areas such as parking lots where you want to keep tenants feeling safe. Cameras deter thieves and protect tenants; smart cameras increase their effectiveness.

Inside, smart lighting options vary from complicated installation of controllable lights or temporary installation of smart plugs. Smart plugs are the preferred option for many due to their simplicity, and landlords find them to be the best of both worlds. They can be installed without damaging any walls while providing safe effectiveness.

For our top recommendations and a review of smart bulbs for your rental home, check out this video:

Utility Devices

Another category that tenants appreciate in smart homes is utility monitoring and control. Utility costs, such as water and electricity, can get expensive. Tenants often cover these costs directly, so they are likely to be interested in ways to improve their efficiency.

Smart plugs that remotely control electronics and smart thermostats that improve HVAC efficiency are just two of the many ways utility monitoring and control devices can be a financial lifesaver for tenants.

Smart thermostats require a more extensive installation, but it’s still economical for most properties. Considering that more than half of the energy used by a household each year is for heating and cooling, finding ways to reduce this energy burden is essential. These devices measure energy use and even learn behaviors for more efficient heating and cooling.

Smart Appliances

Landlords providing appliances in high-end properties often install smart appliances. They are a bit more expensive, but their technology balances out the cost. Connecting from your phone or tablet enables  control of each appliance, monitoring, and energy improvement. Tenants are often willing to pay for the upgrade when negotiating rent.

Looking For More Landlord Resources?

The increasing desire for smart home technology in modern rentals is just one of the many things landlords need to keep up with. It’s nearly impossible to know everything about the rental community, and it’s even harder to find the time to research all of it yourself.

Stay updated with the latest rental news by signing up for our newsletter today. In addition to access to various free landlord form templates, you’ll also get updates about crucial policy changes and market trends that affect your business daily.

FAQs On Smart Homes For Rent

Smart home technology is modern and cool, but how exactly does it fit in with your rental business? The answers to these frequently asked questions can help you gain a new perspective on smart homes.

What is a smart home in rental property?

Smart homes for rental properties are the same as other smart homes: They are outfitted with home automation systems and smart technology devices. These devices are intended to simplify control of specific features in the house. Supplementing locks, thermostats, and lighting with advanced technology creates a pleasing, efficient, and easy-to-manage atmosphere.

Smart rental properties may involve challenging installation for things like smart keyless door locks or package lockers, or they may be incorporated on a smaller scale with voice automation devices and smart plugs, for example. Regardless, incorporating smart technology into the rental market is becoming increasingly popular.

What is the ROI of installing smart technology in rental units?

Calculating ROI, or return on investment, is a key practice for landlords when completing upgrades. The same goes for installing smart technology. It’s key to identify what works and what doesn’t as you consider implementing smart devices on a broader scale.

Your goals when installing smart technology may include the following:

• Finding more quality tenants
• Increasing rent and property value
• Saving time and money on certain management aspects
• Improving tenant comfort to reduce turnover

To calculate ROI, create a list of what benefit is generated by each smart improvement and what costs are reduced by the installation. For example, smart locks are easy to reprogram between tenants, so turnover costs decrease while a tenant’s ease-of-access increases.

You’ll also want to look at comparable properties nearby that do not offer smart technology. What is the rent difference, and how much has your rental property’s value increased over similar properties in the area? This data shows the ROI of your smart investments.

Usually, the ROI on smart home upgrades will happen over the span of months or years. The time needed for a substantial return will depend on the cost of the upgrade. Smart locks are a relatively small expense, while a smart HVAC system is not.

What are the risks of using smart technology in rental properties?

No matter how beneficial using smart technology in rentals can be, risks also come with these installations. Landlords experiencing the following disadvantages agree:

• Security concerns: All smart systems have the potential for security risks and bugs. Preventing these will need to be part of your plans, and you may want to include network encryption for the best protection.
• Installation costs: The upfront cost of larger smart home installations, such as keyless locks and package lockers, is an investment. This investment doesn’t make sense for every property and should be considered with that in mind.
• Connectivity issues: Without high-quality internet, many smart devices will encounter errors and problems. Ensure that the internet (and associated devices) are supported with the necessary tech.
• Different experiences: Young renters learned about smart devices from their youth, but not all renters have had that experience. Some tenants may have a learning curve in utilizing their smart devices, so keep this in mind and share clear instructions to prevent issues.
  
• Reliable suppliers: Finally, landlords should research all tech suppliers to ensure they are safe, reliable companies before moving forward with smart installation. As these systems protect your properties’ security and tenants’ safety, it’s vital to prioritize this step so you don’t introduce additional risk factors.

Should I allow smart home technology to be installed in my rental properties?

A lot of smart technology can be installed without any alteration or damage to the  rental unit, so there is no reason (or cause) for preventing tenants from using these devices.

Smart plugs, for example, control attached electronics by simply using a special plug. Smart appliances can be supplied by the tenant, and voice command systems are often standalone devices.

If you are open to tenants installing their own smart technology systems, communicate the extent of that allowance and your expectations when the tenancy period ends. For example, allowing a smart lock installation may be OK with you if the tenant reinstalls the original lock at the end of their rental period.

What smart devices do renters most commonly use?

An important part of your research into what smart home technology to install is first to consider what’s already popular. Knowing what smart devices attract potential renters enables you to create the perfect smart rental yourself.

Currently, the most commonly used home smart devices include:

• Voice control systems
• Smart appliances
• Smart thermostats
• Smart outlets
• Smart locks
• Keyless entry systems
• Smart package lockers

Installing some of these devices when upgrading to include smart technology is sure to attract more renters.

Start Prepping A Smart Home For A Rental Property Today

The best way to find out how profitable a smart home can be in your area is to start with research and then put that research into action. In particular, look into installing the most popular smart tech for renters:

• Smart door security and locking technology
• Advanced, intelligent temperature control management
• Smart plugs and lighting options

In addition to being some of the most coveted at-home smart devices, they are all affordable. Envision the potential of a new property type by testing out the return on investment for yourself. Start with one or two properties, investigate the analytics, and determine if it’s time to revolutionize your business (and your profits).

The post Smart Home Rentals: Should You Explore This Rental Niche? appeared first on RentPrep.

Real estate accelerated depreciation enables landlords and investors to pay less in taxes in the earlier years of owning a property rather than dividing the entire depreciation amount over nearly 30 years. Doing this can free up cash flow early on, but the process is not without its drawbacks.

Get a complete grasp of how accelerated depreciation works in today’s guide.

A Table Of Contents On Accelerated Depreciation

Tax accounting methods confuse many landlords even after years of experience. Have you considered accelerated depreciation on your properties? Find out more about this type of depreciation and how it may be beneficial for evaluating your assets:

• What Is Accelerated Depreciation?
  • Accelerated Depreciation In Real Estate
• The Benefits Of Accelerated Depreciation In Real Estate
  • #1: Reduce Early Investment Costs
  • #2: Take Higher Deductions
  • #3: Tax Deferral Potential
  • The Downside: Depreciation Recapture
• Types Of Accelerated Depreciation In Real Estate
  • Double-Declining Balance (DDB) Method
  • Sum Of The Years’ Digits (SYD) Method
  • Cost Segregation Analysis
  • Protecting Your Profits
• FAQs On Accelerated Depreciation Of Rental Property
  • How does accelerated depreciation work?
  • How fast can you depreciate real estate?
  • What is the best depreciation method for real estate?
  • How does depreciation recapture work when you sell a property?
• Real Estate And Accelerated Depreciation: A Choice That Matters

What Is Accelerated Depreciation?

Accelerated depreciation is a faster depreciation method used to increase the value that can be deducted in the first few years an asset is in service. Often used as a tax-reduction strategy, this depreciation method can adjust when and where deductions are made on annual taxes.

Accelerated Depreciation In Real Estate

When it comes to rental properties, investors utilize accelerated depreciation to depreciate items with shorter lifetimes than the property’s structure. The flooring in a house, for example, will wear out faster than the building itself. This means that flooring can be depreciated more quickly, allowing you to take a larger depreciation deduction in the early years it’s in service.

Investment properties must undergo a cost segregation study before this type of accelerated depreciation can occur. Any component of the rental property with a shorter useful lifetime can then be depreciated over its IRS-assigned useful life. Lighting fixtures and stoves, for example, can be fully depreciated in five to seven years. The property itself would typically be depreciated for over 27.5 years.

Working with a CPA or accountant will ensure you have clear and accurate information about the latest tax code regarding depreciation rules, values, and timelines.

The Benefits Of Accelerated Depreciation In Real Estate

#1: Reduce Early Investment Costs

Landlords looking to lower setup costs as they get their rental business off the ground may benefit from a short-term accelerated depreciation strategy. The first few years of owning a property will see more substantial profits thanks to increased deductions, which can help you lay the foundation for future success.

#2: Take Higher Deductions

Maximizing your early deductions after making a significant property investment will reduce how much you owe on taxes each year. The money saved on taxes can then be reinvested into your business, allowing for greater focus on growth.

#3: Tax Deferral Potential

Though the money offset by depreciation will eventually be recaptured and taxed by the IRS, it is possible to defer when that tax collection occurs. A 1031 exchange allows property owners to transfer tax liability from one property to another when the properties are used for the same purpose. This can extend how long accelerated depreciation benefits help your business find its footing.

The Downside: Depreciation Recapture

Depreciation recapture is the most important thing to consider about accelerated depreciation.

Depreciation recapture is an IRS policy that applies to all depreciation deductions regardless of the period over which they are spread. However, the implications of this policy can be more severe on accelerated depreciation assets.

The IRS considers depreciation an actual decrease in the rental property’s value. This means that, in the eyes of the IRS, the property will be deemed to have a lower adjusted value when sold. All depreciated value will be subtracted from the purchase price for this adjustment.

Then, any profit made when selling the property will be calculated from this lower adjusted value. Capital gains tax and other relevant taxes will need to be paid on the total profits.

What does this mean for investors taking accelerated depreciation?

Depreciating a property faster means that the IRS-appointed value of the property will be lower than if you took straight deductions. When selling the property, this depreciation leads you to pay higher taxes since the total taxable gains will be higher than if you had taken a standard deduction.

In either case, you will need to pay capital gains tax on the profits. The differences lie in the size of the gain and how it varies due to accelerated depreciation.

Types Of Accelerated Depreciation In Real Estate

Investors have options when it comes to accelerated depreciation. Rental real estate properties can be approached with a few different taxation methods. The best strategy for your business, properties, and tax plans will vary from other investors, so pay close attention to how each type of accelerated depreciation works.

Double-Declining Balance (DDB) Method

In the DDB method, the asset’s value depreciates twice as fast as it would under straight-line depreciation. This is a popular method of depreciation on eligible assets, and it helps reduce pretax income in a big way for many investors.

DDB is calculated by first looking up the useful life of the property. Let’s say the asset has a useful life of 10 years. Then, double the reciprocal number of this lifetime. The reciprocal, 1/10, is equal to one-tenth or 10 percent. Doubling this number gives you 20 percent. This amount will be applied to the total value remaining each tax period.

Sum Of The Years’ Digits (SYD) Method

Another accelerated depreciation method is known as the sum of the years’ digits.

This method’s name accurately describes how it’s calculated. The sum of each years’ digits is added up and this is used to generate the deduction.

Let’s once again consider an asset with a 10-year usable lifetime. Adding up each digit one through 10 gives us 55. This is a combination of all the digits of its lifetime.

From here, it’s easy to figure out the yearly depreciation of the base amount. In year 1, 10/55 would be depreciated. The following year, 9/55 would be depreciated. This will continue through year 10 when 1/55 will be depreciated.

Cost Segregation Analysis

A cost segregation analysis is typically required to set up accelerated depreciation in real estate.

The usable lifetime of a rental property is 27.5 years. The depreciable value of the property is typically deducted evenly over that period. Investors have learned, however, that it is possible to use accelerated depreciation on some parts of the property.

Completing a cost segregation study will separate fixtures, structures, and elements with different lifetime usability values than the whole property. Each asset with a shorter lifetime can then be depreciated with accelerated depreciation as the IRS allows.

Maximizing cash flow by using accelerated depreciation on assets separated in this way increases the amount of money available for your business to function and grow in the early years. However, it also complicates your taxes. Every item depreciated will need its own schedule, and you will need to keep track of these items over the next few years.

Protecting Your Profits

Handling your depreciation options while doing annual taxes is just one way you can ensure your cash flow. Another key factor is to be sure to fill your rentals with reliable tenants who make timely payments.

The key to finding these tenants is thorough and high-quality tenant screening. If cash flow is stunted and this has led you to consider accelerated depreciation, remember that it isn’t your only option. Improving your screening process can improve cash flow by increasing on-time rent payments.

Consider your options with RentPrep’s complete tenant screening packages today.

FAQs On Accelerated Depreciation Of Rental Property

How does accelerated depreciation work?

Accelerated depreciation is a type of asset depreciation that reduces the value of assets at a faster rate than otherwise achieved through standard depreciations. This method is often used by investors, landlords, and other individuals as a way to reduce taxes owed and free up capital for other purposes.

Essentially, an asset being processed with accelerated depreciation will have a higher depreciation value early on in that asset’s life. As time goes on, the amount deducted for depreciation will get smaller.

There are a few different methods for calculating accelerated depreciation. The best type to use will depend on the circumstances, but all real estate properties will need a cost segregation study to qualify for accelerated depreciation. This is because real estate properties, as a whole, are not considered eligible for accelerated depreciation by the IRS.

How fast can you depreciate real estate?

The standard depreciation period for rental property is 27.5 years. Depreciation is spread out evenly over those years. Accelerated depreciation allows the taxpayer to depreciate certain rental property assets, such as flooring or fencing, more quickly. This reduces the pretax income accredited to the individual and their overall tax burden in those early years.

The entire property, however, cannot be depreciated faster than 27.5 years without completing the necessary steps for accelerated depreciation. Faster depreciation only applies to specific parts of rental assets.

What is the best depreciation method for real estate?

As you learn more about how real estate depreciation works, you may become curious about which type of depreciation calculation is best for rental real estate. There isn’t a clear answer. Real estate depreciation methods vary, and the best method will depend on your business goals, current tax burden, and ability to handle the negatives of accelerated depreciation.

Straight-line depreciation is the most popular type of depreciation used in real estate. It is the most straightforward type of depreciation. Even when considering other types of depreciation, there often aren’t huge differences in the final financial impact when you consider the long-term tax picture.

However, that may not be the case for your property or portfolio. Work with a qualified tax accountant to get an idea of which method of depreciation will be best for your real estate properties.

How does depreciation recapture work when you sell a property?

When you sell a property on which you’ve been claiming a depreciation deduction, you will need to consider depreciation recapture as implemented by the IRS. This policy requires that income tax is paid on the profits generated from an asset that has been depreciated.

For example, imagine that you’ve been claiming a deduction on your rental property for 10 years. You sell the property and profit from the sale. During your next tax filing, you must calculate how much income you owe on the sale profits and pay the appropriate taxes to the IRS.

Keep in mind that if the property sells for less than its current adjusted value, you will not need to do this calculation.

Real Estate And Accelerated Depreciation: A Choice That Matters

When it comes to accelerated depreciation, landlords must consider it as one of their options but should do so carefully. Accelerated depreciation is a great choice when early cash flow is needed or the tax benefits will otherwise benefit the business. However, that depreciation will reduce tax credit in later years and play into the depreciation recapture if you sell early.

Work through the numbers before making a decision:

• How much benefit will your business get now by depreciating assets faster?
• Do you know when you will sell the property in question? Will the depreciation recapture cause problems at that time?
• Is there a significant difference in how much credit will be received between the different depreciation methods?

Working with a financial analyst or tax consultant on these numbers can be beneficial if you aren’t familiar with the tax code. They will be able to provide the best options for your situation so you can move forward with your business planning without regrets about how you handled accelerated depreciation on your real estate.

The post What Is Accelerated Depreciation In Real Estate? (Guide) appeared first on RentPrep.