Hard money is used by many investors as a short-term solution to fund real estate deals. Hard money can be used to fund fix and flips or buy rental properties until long-term financing can be put in place. I fix and flip homes as well as invest in long-term rentals, but personally, do not use hard money. When you use hard money it is usually more expensive than traditional financing and I have other short-term financing in place. Hard money is still a great option for many investors, but I will also discuss other short-term financing options. There is also a way to use hard money or private money to buy rentals with no money down using a conventional loan refinance.
What is a hard money loan?
Hard money is a type of financing used to finance properties for a very short-term like 6 months or a year. Hard money-lenders use different terms than a traditional bank. The first thing you will notice when you finance with hard money lenders is they charge a very high-interest rate. Most hard money-lenders are charging 10 to 16 percent and points for their money. Points are a percentage of the total loan and can add costs quickly when a hard money-lender is charging 2, 3 or even 4 points on a loan. Hard money loans are typically used for fix and flips because they usually have a one year term.
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Why would investors use hard money to finance a rental property?
The advantage of a hard money-lender is they may loan the entire amount of money you will need to complete a deal. Most hard money lenders base the amount of the loan on the after repaired value or ARV. You may hear they will loan 65 or 70 percent of ARV; that is not the purchase price, that is how much the house will be worth once you fix up the home. With a hard money loan, a rental property could be financed with much less money down.
How can a hard money loan be refinanced on a rental property with no money down?
Here is an example of how one hard money-lender structures a deal. You buy a home for $60,000, the ARV is $130,000 and the lender says they will go up to 70 percent ARV on the property. The hard money-lender will loan up to $91,000 on the house based on the ARV. The hard money-lender will need bids or estimates for repairs, and they will pay out the money for the repairs like a construction loan. They will pay 25% of the repairs needed at closing, and the other payment will come in 25 percent increments as the repairs are completed. The lender won’t charge you any interest or points until you sell the home and then you pay them one large payment for the loan principal, interest and points. This particular hard money-lender charges 15% interest and 4 points, but they will reduce the points paid after you do a few deals with them.
The cost to do this deal with a hard money-lender can add up very quickly. On this deal, the interest will cost you $6,825, and the points will cost you $3,640 if you use the money for 6 months. There are also hard money-lenders that will charge lower interest and points but will want a split of your profits. I don’t use hard money-lenders myself, because of how much they charge, but for investors who have no other options it can work out well. Hard money-lenders can help you secure a property below market value when you do not have other options.
Where can you find hard money-lenders?
There are many hard money-lenders out there. Many only lend in specific states, while some lend nationwide. The best way to find a hard money-lender is to search for one in your state on any search engine. If you want a few companies to talk to, I have listed some hard money-lenders below.
Lima Capital Hard Money
Fund that Flip
Can you refinance a private money loan on a rental with no money down?
Private money is money that comes from a private person. The person loaning the money is not a bank, mortgage company, hard money-lender or portfolio lender, they are just a person. Regular people will lend money on real estate because interest rates on other secured investments are really, really low now. Have you looked at what the rate is on a CD? For a five-year CD, the average is less than 1 percent! You can’t even come close to keeping up with inflation with that rate. Many wealthy people are looking for a higher yield investment that is still secured. Loaning on real estate may be the perfect answer for them to increase returns and create great opportunities for investors. A private money loan can be used in the same way a hard money loan is used.
How do you find private money for a rental property?
The biggest problem with private money is finding the person to lend you private money! There are many websites that claim to have private money lenders they can connect you with for a small fee. In my experience, those websites take your money and connect you with a hard money-lender at best. A real private money-lender wants to lend their money to someone they know and trust. They don’t want to lend money to a complete stranger who may or may not be trustworthy and do not have a clue what they are doing. I am still trying to find a source for good private lenders, but I think I am limited to one option; people I know. I use private money from many sources who want a better return on their money.
How to buy a rental property with no money down using hard money
It is possible to buy a rental property with no money down using hard money. If you were to finance with a hard money loan and finance repairs as well, you can refinance the hard money loan with no seasoning period according to Fannie guidelines. Fannie guidelines do not allow a cash-out refinance without a seasoning period, but the home has a higher loan than the original purchase price because the repairs were financed. You can get a long-term loan to replace the hard money loan without waiting a year like you would with a cash-out refinance.
For example, if you buy a home for $100,000 with hard-money loaning 100 percent of the purchase price and financing $35,000 in repairs. The total loan is now $135,000, you fix up the home and refinance using a Fannie loan, which will loan up to 75 percent of the new appraised value. If the appraisal comes in at $185,000 then you could finance up to $138,750, but Fannie guidelines will not allow a cash-out refinance. You would be able to refinance the full $135,000 that was loaned to you by the hard-money lender. This technique can be rather expensive because you have to pay the higher interest rate on the hard-money loan, the initial points and then the refinance costs with Fannie Mae. However, you just bought a long-term rental and fixed it up with almost no out-of-pocket costs!
Using traditional banks to finance short-term loans on rental properties
There are some banks who do short-term loans for investors. They are very hard to find and usually, you must have a great relationship with the bank. We use a portfolio lender to finance many of our short-term investments. They charge around 5.25 percent interest and 1.5 points on our loans. They will only give us 75 percent loan to value on our original purchase price and can complete the loan in two weeks. In the past, banks would finance 100 percent loan to value and fund us the same day. I am afraid those days are gone forever.
Traditional banks can offer another short-term option in the form of lines of credit. Most banks will want collateral in the form of real estate to issue a line of credit. If you have a house with equity in it, you should be able to get a line of credit from your bank. My bank charges a 5 percent interest rate and will go up to 90 percent loan to value on my personal residence or 80 percent on an investment property.
Conclusion
I use a mix of traditional banks, lines of credit and private money to fund my deals. I am lucky that I have private money available and cash to complete a lot of deals. I will usually get the bank loan for 75 percent of the purchase price, use private money for the rest of the down payment and my own money for repairs. Don’t be afraid to finance real estate with hard money if that is your only option.
I am a big believer in making big goals and one of my goals is to purchase 100 rental properties by 2023. I have been a real estate agent and investor for more than 15 years, and I love the income my rental properties provide. Buying 100 rental properties will allow me to retire with more than enough money to reach my current dreams and goals. I do not want to buy 100 properties quickly without concern for the returns or risk. It takes a lot of money, time, and effort to buy 100 properties in the right way. I only buy houses that are well below market value and have great cash flow.
I first wrote this article in 2013, but have tried to update it frequently. I now have 20 rentals that make me over $10,000 a month after expenses. I am way behind on my goal, but many things happened that I could not have predicted like our housing market going crazy. I have bought commercial properties in the last few years instead of residential because they have been better money makers in my market.
Why I made a more challenging goal
In 2010, my original goal was to buy 30 rental properties in ten years. I based that goal on what I thought I could realistically achieve when I started buying rentals. A couple of years ago, I realized my goal was too easy because I knew I could buy 30 houses in ten years. I had given myself no room for improvement in my investing strategies or real estate business! At the start of 2013, I reworked all my goals including my rental property purchase schedule. My new goal was to buy 100 rental properties by January 2023 because it challenged me and would make me work hard. I had no idea when I first made this goal how I could buy 100 rental properties, but that is why we make big goals; to challenge us to do more and to change the way we do things.
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Why real estate?
I want to buy 100 rental properties because of the income and freedom that 100 houses will give me. I make over 15 percent cash on cash returns on my rentals because I purchase them below market value with great rent to value ratios. If I can buy 100 rental properties with the current cash flow requirements I have, I will make a lot of money. According to my calculations, I will be making over $900,000 a year in cash flow, have at least 60 houses paid off, and have over 11 million in equity in my rental properties. Those figures are not adjusted for inflation and assume no appreciation or rent increases. That kind of income should allow me to afford whatever my family and I want and allow us to do whatever we like. We only live once and I want to get everything that I can out of life.
The first part of this article discusses the philosophy behind buying 100 rental properties, why it is important to have big goals, and why it is important to think big. The second half of the article discusses the numbers and a detailed purchase schedule.
Is it possible to purchase 100 rental properties?
To be completely honest, I do not know how I am going to buy 100 rental properties by January 2023. I do not make nearly enough money to buy 9 or 10 houses a year. I have barely been able to buy three houses a year. I bought my first rental property in December 2010, and I started my rental property purchase goal on that day. I should have had three by December 2011, six by December 2012, and nine by December 2013. I started out very slow buying only one rental in my first year. I have picked up speed and as of March 2016, I own 16 rentals, still behind where I had hoped to be. That does not mean I will not reach my goal. The reason I have not purchased as many rentals lately is they are much harder to find in our market. Our prices have increased significantly making it harder to cash flow. I have been buying many more fix and flips since I cannot find rentals.
Why do I think I can purchase 100 rental properties by January 2023 if I am so far away? After reading and listening to books on how to become wealthy I started reworking my life goals. A couple of ideas are repeated in books and audio tapes beginning with Think and Grow Rich by Napoleon Hill. Think and Grow Rich was published in the early 20th century after Napoleon Hill followed Andrew Carnegie for decades. Carnegie was one of the richest men in the history of the world and wanted someone to study rich people in the world and write a book about how and why they became rich. Because Carnegie was one of the richest people in the world, he was able to grant Hill access to most of the world’s wealthiest people. Think and Grow Rich is now known as one of the first self-help books, and many of its basic ideas are still taught today by the world’s most famous life coaches and teachers.
How will my attitude affect my success?
Being positive is a theme that is repeated in every self-help book and audio recording I have ever listened too. I am a strong believer that our attitude has a huge influence on our success in life. The books range from slightly crazy to extremely scientific reasons for how being positive can greatly affect the success we have in our lives. You may have heard of the law of attraction, which states that the universe will return to us whatever we put out. If we are positive and happy, we will get positive and happy things back. If we are negative and sad, negative and sad things will come our way. I am a very logical and scientific person and was not sold on this idea right away. I had to know why this would happen. How could being positive magically bring positive things into our lives?
I started doing research on the brain and on how the law of attraction theory worked. I found out that it is not all magic, there are scientific reasons why the law of attraction works. It is based on the subconscious part of our brain and on how it operates our bodies. We know that our conscious mind is only a fraction of what our brain is responsible for. Our subconscious mind is constantly working to keep us alive by telling our heart, lungs, muscles and the rest of our bodies what to do. Most of our movements and actions are performed by our subconscious, not our conscious mind. We do not have to think about walking, talking, driving, writing, or even most of our daily tasks. By doing those things repeatedly, we have programmed our minds on how to do them.
Tying this back into the positive thinking idea, if we are always thinking positively, our subconscious will think positively, too. If our subconscious thinks we are happy all the time, it will do what it can to make us happy. Why do we care what our subconscious thinks? It is much smarter than our conscious mind. The subconscious is responsible for handling millions of tasks at once, while our conscious mind can only handle a handful of ideas at once. If we let our subconscious know what we want it will help guide our lives and help us to get what we want. Whether it is love, happiness, money, or material items our subconscious has much more power than we think. The theory also states that you must think about what you want, not what you do not want because our subconscious cannot tell the difference. If you are constantly thinking about not having money, then your subconscious will do its best to make that come true as well. If you are constantly thinking of not getting sick, our subconscious will do its best to get you sick. Think of being healthy, think of being rich, and think of the good things, not the negatives.
Why such a big goal?
Almost every self-help book will tell you goals are extremely important. Without goals, we have no direction, no path, and no idea of what we really want in life. There are varying ideas of how our goals should be constructed. Some say we just need broad wide-open goals such as being as happy as possible all the time to make whatever is best for you to come to you. Others say to be as specific and detailed as possible with your goals, break your goals into smaller goals, and then have a period for when those goals will be accomplished. Eventually, you will have a detailed blueprint for how you will get to where you need to go.
Some people say you need realistic goals and others say you need outrageous goals. As you have probably guessed, I like outrageous goals! The reason I like outrageous goals is that they are challenging! If I know that I can reach a goal and if I know exactly how to reach it, where is the motivation for me to push myself? I want goals that make me think and reach for new ideas and systems. I have no idea what opportunities or challenges will face me in the future, so why should I limit my future goals to what I can do now? I may have a huge increase in income or find a new system that allows me to buy houses cheaper. I have such a lofty goal because I have no idea what could happen.
Who will I need help from?
Many of the self-help books also talk about how we all need friends, co-workers, or acquaintances to help us reach our potential. Some use the term mastermind to describe groups of like-minded people who meet to help each other succeed by offering advice and motivation. The idea is that the more people to brainstorm ideas, questions, problems, etc. the better the chance a great idea or solution to a problem will come about. I do not have a mastermind group (this has since changed), but I have recruited my best friend to work with me and learn the real estate business. He was a top-level manager in the corporate world and left his six-figure salary behind to learn real estate from me. I benefit by having a new mind to bounce ideas off and have more help in the office. He benefits by getting out of the corporate grind and learning how to be truly wealthy. He also has a flexible schedule and he is not stuck behind a desk all day.
Why focus is so important
The self-help teachers also say how important it is to focus on one task or goal. All the greats had something in their mind that they really wanted. They did not let anything stop them until they got what they wanted or died trying. I have always thought of myself as being able to multitask, a jack-of-all-trades type of person. So far, it had worked out well, but I know I can do better. I know there are things I can improve in my business to make it run better and make more money. I have always thought that I knew everything about finding good deals in real estate. After starting this blog, I have realized that there is a whole world I have been missing in direct marketing to off-market properties. Instead of trying to manage five different sources of income myself, I need to delegate less important tasks to my staff and focus on the real moneymakers. If I can focus intently on a couple different areas of my work instead of just skimming over 50, I know I can improve my numbers significantly.
Why visualizing the goal being achieved is important
Many great athletes will tell you how important visualization is to succeed in sports. Great golfers visualize exactly how their shot will look before they hit it. Basketball players repeatedly visualize hitting the game-winning shot. The wealth teachers are all huge supporters of visualization. They say visualization will give your subconscious a clear picture of what you want and then your subconscious will do its best to make it happen. If you want to change your life, start visualizing how it should be every day. Better yet, go see, touch, and smell the things you want. Test-drive the car you always wanted, look at your dream home, or immerse yourself with the things you want and your subconscious will get to work. I wrote a ten-year dream story on exactly how I wanted my life to be. I described a beautiful house and in three months, I bought that house. I was not even planning to move and in no way thought I could afford a house like the one I have now, but it became a reality.
Using all I have learned to reach my goals
Based on the ideas I have just discussed, I think I have a good chance of reaching 100 rental properties. I still do not know exactly how it will happen, but I know it will or I will find a better and more challenging goal. I have to train my subconscious to help me reach my goal. I have to be positive all the time. I have to think about my goals constantly and break it down into manageable pieces. I must have help and I have to focus more intently on my important goals. I also have to visualize myself already achieving my goals and having everything I want. Even if not all of this makes me rich, worst-case scenario, I am a positive, determined, focused person who knows exactly what he wants.
Breaking down big goals makes them more realistic
I have broken down other goals in my life, but I have yet to break down a goal this big! I am going to work through the goal while writing the blog and see where I end up in 9.5 years. I wanted to write this article to help convince myself that it is possible to buy 100 properties. The first part of this article was all about my mindset. Now, let us get down to the numbers. Here is a year-by-year breakdown of how I plan to purchase 100 rental properties.
Year one
With my current income, I can purchase three rental properties a year and I have purchased that many in the last three years. I should be able to do a cash-out refinance on at least one rental property in 2014 and get enough money to buy another property. I am also counting on my new attitude and work ideas to create enough extra income to purchase one more rental property. I also just acquired a HELOC on my personal residence for $60,000. I think that will allow me to purchase one more rental. New goal for 2014 is to purchase six long-term rentals.
I will have 15 houses with about $9,400 in monthly cash flow. That is $112,800 a year all going toward paying off mortgages on my properties. I will have paid off one house at the beginning of 2014 and will pay off one and a half more in 2014.
Year two
In 2015, with income and savings, I should be able to purchase four properties. I should be able to do another cash-out refinance and buy another rental property as well. I also believe my continuous improvements will allow more increases in income, through either listing or flipping houses. The increased income will allow me to add another rental and HELOC another as well. I am hoping the addition of my friend beginning to work with me will bring in more income from his real estate activities, which will allow another purchase. My goal for 2015 is to purchase nine rentals.
I will have 24 houses with about $15,200 in monthly cash flow. That is $182,400 a year all going toward paying off mortgages. I will pay off the other half of one property and two more rentals in year two and will have four properties paid off.
Year three
I believe I will increase my income and savings enough to be able to buy five rentals. I will have 24 rentals and I should be able to refinance at least two of those properties. That will allow two more purchases and the HELOC should add the flexibility to add another rental. I am still planning to add to my income every year with increased business. This year I see a big jump in income with my friend being around for his third year and our new marketing and listing techniques taking off. I see three more rental properties being purchased from new income. My goal for 2016 is to purchase 11 rentals.
I will have 35 houses with about with about $22,200 in monthly cash flow. That is $266,400 a year all going to pay off mortgages. I will pay off four and a half more properties for a total of eight and a half properties paid off.
Year four
From my current income, I will be able to buy eight rental properties. I will continue to refinance two properties a year, which will allow at least two more purchases. I am also going to use the HELOC to buy another, and I am still planning to increase my income. I am going to stay conservative and assume enough income to buy one more property this year. My goal for 2017 is to purchase 12 rental properties.
I will have 47 rental properties at this point with about $31,400 in monthly cash flow. That makes $376,800 a year all going to mortgage payoff! I will pay off the half of a mortgage left over from 2016 and five more properties in 2017, making 14 properties paid off.
Year five
From my current income, I will be able to purchase nine rental properties. I will refinance two more properties and use the proceeds to buy two more rentals. I may not have enough money in the HELOC this year so I will not count on that, but I will count on my income increasing enough to purchase one more rental. My goal for 2018 is to purchase 12 rental properties. Note: To buy this many properties I will need about $300,000 in cash for repairs and down payments.
I will have 59 rental properties with a monthly cash flow of $41,000. That makes $492,000 a year all going to mortgage payoff. I will pay off seven and a half more properties in 2018 making 21.5 properties paid off.
Year six
From my current income, I will be able to purchase ten rental properties. I will refinance two more properties and use those proceeds to buy three more rentals. With inflation and appreciation, I should be able to refinance the properties for more money than in previous years. I will not use increased income to buy another property. If my income increases, I will use it for fun stuff such as vacations or cars! My goal for 2019 is to buy 13 rental properties.
I will have 72 rental properties with a monthly cash flow of $51,600. That is $619,200 going toward mortgage payoff. I will pay off the half mortgage from 2018 and nine more properties in 2019 making 31 properties paid off.
Year seven
From my current income, I will be able to buy ten rental properties. I will refinance two more properties and use that money to buy three more rentals. I will not count on any more raises in income since I do not need it at this point. My goal for 2020 is to purchase 13 rental properties.
I will have 85 rental properties with a monthly cash flow of $63,400. That is $760,800 a year going towards mortgage payoff. I will pay off 11 more properties in 2020 making 42 properties paid off.
Year eight
From my current income, I will be able to buy ten rental properties. I will refinance two more properties again and purchase three more rentals with that money. My goal for 2021 is to purchase 13 rental properties.
I will have 98 rental properties with a monthly cash flow of 75,600. I will have $907,200 a year going towards mortgage payoff. I will pay off 14 more properties in 2021 making 56 houses paid off.
Year nine
I only need to buy two more properties to reach my goal! I made it ahead of schedule and when I started writing this article, I was not sure how I would be able to reach 100 properties by 2023. I do not need to refinance any properties at this point and I can start using my income any way I want or I could retire!
I will have 100 rental properties with a monthly income of $82,400. I will have $988,800 a year going to whatever I want it to go to at this point. I can stop paying down mortgages if I want to or I could keep buying properties if I get bored. I came really close to the figures I estimated before writing this article. Falling just short of one million in income from my rental properties (which was more than I thought) and just shy of 60 properties paid off.
Assumptions in my plan to purchase 100 rental properties
You may be wondering how I came up with my figures. To be honest I used very basic figures to make things easy on myself.
I assumed $600 in monthly cash flow per property. I am making between $500 and $700 per property now.
I assumed each mortgage that I paid off would increase monthly cash flow by $400.
I do not assume any inflation because that would cause the numbers to be much more difficult to figure!
I assume my portfolio lender will continue to lend on as many properties as I want. I will have 43 houses financed at one time and then those will start to decrease as I pay them off.
I assume I can continue to do cash-out refinances with my portfolio lenders.
I assume interest rates will not increase significantly.
I assume rental rates will not go up.
Additional benefits of rental properties that my income projections did not account for
Rental properties have great tax advantages, which I discuss here. Every rental property can be depreciated, which will save me thousands in taxes each year. I assume my rental properties will not appreciate, but they have already seen huge appreciation in the last two years, increasing my net worth by $600,000. I assume rents will not increase, but my rents have increased as well over the last couple of years. I rented my first rental property for $1,050 a month in 2011 and it now rents for $1,300 a month. I will most likely be better off than my projections indicate if I can buy 100 rental properties.
Potential roadblocks
These are many assumptions and one or more of them may not work out as I plan. However, other factors may help me do even better than I planned or balance out any roadblocks I run into.
New ways to find properties: I am going to start direct marketing to off-market owners. This should allow me to buy properties even further below market, and I may even find a few owners who will finance down payments. I recently realized I could use my IRA to buy properties!
Private money: One of my goals is to find new sources of private money that will allow me to finance more repairs and down payments. This would allow me to put less money into properties and buy them faster.
New income sources: I have no idea what the future holds as far as opportunities and money. I may find a gold mine that will allow me to buy properties for cash and not have to worry about financing at all!
I assume I will not do anything with the houses I pay off free and clear, but if needed to I could easily get a line of credit or refinance one of these houses to bring in enough money to buy a few new properties.
What will I do in 2023 if I reach my goal?
I have many things I would love to do if I did not have to work. Here is a list of a few of the things I would love to do with one million dollars a year coming in and no job!
Start a pizza restaurant
Start a car dealership
Travel the world with my family
Donate time and money to those less fortunate
Play in the World Series of Poker
Attend a Super Bowl
Play golf all over the world
Buy a Lamborghini Diablo (done!)
Buy a beach house
Help teach others about real estate (doing my best now)
I have a much longer goal list than what is above and I hope to do many of these things before 2023. I know I will have time, money, and the freedom to do these things at that time.
Conclusion
I plan to purchase 100 rental properties by January 2023, but I realize that may not happen. If something better comes along to change my plan, I am ready to embrace fully any new opportunities.
Update on my plan 2014
I have already changed focus slightly in 2014 to fix and flipping over buying long-term rentals. I have done this for two reasons:
There have been more fix and flip opportunities than rental opportunities in my market.
The money from flipping will help me buy more rentals; rentals take a great deal of cash.
It seemed crazy to think I could increase my income enough to buy this many properties when I first made this goal in 2013. However now that it is late 2014, I can easily see myself making more than enough money to buy 100 rental properties and have plenty of money left over to do other fun activities. At some point, I may decide it is better to buy larger multifamily buildings than single-family homes, but for now, I see more opportunity in the single-family market in my area than multifamily.
Update on my plan 2016
The market has gotten even crazier in Colorado. Houses I was buying for $100,000 are now at least $160,000 or more. The rents have not increased nearly as much as house values have increased. It is very hard to find rentals and I have stopped buying them in Colorado. I have started to look at other states including Florida for a new market.
I also stopped paying off my mortgages early. I decided my money was better used to buy as many homes as I could. It has paid off buying 16 rentals in the last five years since our market has gone up so much. I have invested about $300,000 in buying my houses and my equity is close to $1.5 million. I have even decided to sell some of my rentals and re-invest that capital into more properties in another market.
I wrote this goal out in 2013 and updated it in 2014, and it is now 2016. I think goals are vitally important to achieving what you want in life. Will I reach this goal? I do not know. If I don’t reach it, will I be a failure? No! I am already way ahead of where I would have been without this goal. That is the point of goals, to motivate you to go farther than you think you can.
Update on my plan 2018
Right now it is the middle of 2018 and I have not come close to where I should be with my goal. Am I disappointed? No. Many things have happened that are out of my control; good and bad. The biggest challenge I have faced is the housing market in Colorado. Prices have almost tripled since I made this goal. Some of the rentals I bought for less than $100,000 7 years ago are worth close to or more than $300,000 today. I can no longer cash flow on residential rental properties in my market. I have thought about buying rentals in Florida, but in the end, decided to buy commercial properties here. I even bought a 68,000 square foot strip mall this year. I am buying rentals worth a lot of money, but not as many as my plan called for. Sometimes we have to change our plans based on changes in our lives or markets.
I have also focussed more on flips because I can make money with those in my market. I flipped 26 houses last year!
Mortgage rates are still rather elevated relative to recent years, and it has made homeownership far less affordable for many Americans.
One way to potentially save money when buying a home is to use an adjustable-rate mortgage, or ARM. An adjustable-rate mortgage is typically a 30-year loan that has a fixed interest rate for a certain length of time, usually five or seven years. After this time, the mortgage’s interest rate will periodically adjust higher or lower depending on prevailing interest rates at the time.
To be sure, ARMs aren’t right for everyone. But they generally have lower interest rates than comparable 30-year fixed-rate mortgage loans. So, here’s a look at just how much of a difference an ARM can make in your monthly payments and your long-term cost of ownership.
What’s the interest rate difference between fixed- and adjustable-rate loans?
According to the Mortgage Bankers Association (MBA), the average interest rate on a 30-year fixed-rate mortgage in the last week of April 2023 was 6.55% with 0.63 points. (Note: Mortgage points are an upfront cost associated with a mortgage and one point equals 1% of the initial loan amount.)
On the other hand, the average 5/1 adjustable-rate mortgage had a 5.47% rate during the same week, with 1.18 points. When you sign on for a 5/1 ARM, it means your initial rate is fixed for the first five years, and then adjusts according to a certain benchmark index every year thereafter.
How much could you save with an adjustable-rate mortgage?
Let’s say you want to buy a $500,000 home with 20% down, so you’ll need a $400,000 mortgage. You’re trying to decide if a 30-year fixed-rate loan or a 5/1 ARM is the best choice for you.
More: Check out our picks for the best mortgage lenders
As we’ll discuss later, there are other things to consider besides the cost difference, but here’s how the numbers work out over the first five years of ownership.
If you obtain a 30-year fixed-rate mortgage with the average 6.55% interest rate, your monthly principal and interest (P+I) payments will be $2,541. With a 5/1 ARM that comes with a 5.47% interest rate, your monthly P+I would be $2,264.
Now, notice that the typical ARM has higher points, and this would mean an additional upfront cost of $2,200. However, the difference in mortgage payments would mean saving $16,620 over the first five years of ownership, so even with the higher points, your out-of-pocket costs would be more than $14,000 less over five years with an ARM.
An ARM isn’t exactly a free lunch
As you can see, an adjustable-rate mortgage can result in significant cost savings over the first few years you own a home. And if rates fall between now and when your initial rate period expires, it’s even possible your rate could go lower once it adjusts.
However, it’s not a wise financial move to plan on that. The smart move is to assume that your ARM’s interest rate will go up after your first adjustment and plan accordingly. Therefore, an ARM is usually best for homeowners who plan to sell their home before the initial rate period ends or those who are confident they’ll be able to refinance their loan with favorable terms before it does — and there is absolutely no guarantee you’ll be able to.
The bottom line is that while an adjustable-rate mortgage can be a good tool to increase your home’s affordability, it isn’t without its drawbacks.
Save more, spend smarter, and make your money go further
Being a homeowner comes with a steep learning curve, and many first-time homebuyers struggle financially in their first year of owning a home. After years of saving for a down payment, they are blindsided by the extra expenses that come with buying and owning a house. It’s frighteningly easy to exhaust your cash reserves before you even move in.
Misunderstandings about the costs of owning a home can push people even further into financial distress. You can avoid a lot of this trouble by doing your research and determining how much house you can actually afford. Develop a sample budget to help you prepare for the cost of homeownership and the expenses that come along with it.
Hidden Costs of Homeownership
Here are some expenses prospective homeowners often forget to consider while they are shopping for a new place to live. Keep these figures in mind as you set your budget for a home.
Utilities
If you’re used to paying for utilities and other costs of living as a renter, it can be tempting to think that homeownership won’t alter your budget significantly — especially if your estimated mortgage payment will be less than what you’ve been paying for rent. However, your new home may use substantially more electricity and gas than an apartment, townhouse, or smaller rental house. Plus, your monthly rent may have included utilities like water or internet.
Mortgage Payment
Each month, most of your mortgage payment will go toward your principal and interest. However, you’ll also pay additional expenses such as property taxes, homeowners insurance and mortgage insurance. Insurance companies assess these expenses annually, but your lender will collect the fees each month with your mortgage payment and hold the funds in escrow. If you choose a home in a neighborhood with a Homeowners Association (HOA), you’ll also have HOA dues to include in your budget.
Furniture and Decor
New rooms could mean new needs. When you buy a house, the furniture you used in your rental may not be a perfect fit for your new home. Paint, curtains, furniture, and other decorative items can personalize your new home but can be a strain on your budget. If the thought of all new furniture and decor is overwhelming, choose one room to finish at a time.
Lawn Care
As a first-time homeowner, you may find yourself with a whole new set of outdoor responsibilities — mowing grass, trimming hedges, and keeping weeds at bay. If you buy a home in a neighborhood with an HOA, you may face strict lawn care standards. Whether you choose to do it yourself or hire a service to take care of it for you, lawn care can get expensive. If you go the DIY route, you’ll need to purchase equipment and supplies to get the job done, such as:
Lawnmower
Weed-eater
Hedge trimmer
Weed killer
Fertilizer
Grass seed
Pest control products
If you hire a company to take care of your lawn, expect to pay between $100 and $200 per month for basic care.
Renovations
Once the excitement of buying a new house starts to subside, your focus may shift to how your new home meets your needs. Unless you built a home with custom options, you may eventually want to update or renovate.
Renovations are becoming increasingly common among first-time buyers. According to a 2017 study by Houzz, first-time homebuyers spent an average of $33,800 on home renovations in 2016 — up 22% from 2015. Among all homeowners surveyed, the greatest motivating factor for renovating was a desire to customize their home.
Maintenance and Repairs
Maintenance and repairs can be a major budget killer for new homeowners. Many first-time homebuyers overlook the age of the roof, exterior paint, AC unit, and furnace when they buy a home. Even if you buy brand-new construction, you should begin saving for necessary maintenance updates and unforeseen repairs.
Don’t exhaust your savings to purchase your home; keep some money aside for necessary or unexpected repairs. Some financial experts suggest saving 1-4% of the home’s purchase price each year, depending on the age of your home.
Your homeowner’s insurance should cover damage due to fire or weather, but you’ll still need cash to cover the deductible, which could be anywhere from $200 to $2,000, or more. If you’re concerned about having enough cash on hand in the event of an emergency, look into plans with a higher monthly premium and a lower deductible.
A Sample Budget for Your First Year of Home Expenses
The price for a starter home will vary widely depending on where you live. Looking at average starter home prices around the country and landing somewhere in the middle, here’s a sample budget.
The following sample budget is an example of what your monthly home-related expenses would look like if you purchased a $200,000 home with a 5% down payment. For this sample, we used an online mortgage calculator and the average 30-year fixed mortgage interest rate of 5.10%.
Mortgage Payment
Monthly mortgage payment: $1599
Utilities and Lawn Care (based on national averages)
Gas
$82
Electricity
$183
Water
$40
Sewer / Garbage
$20
Internet / Cable
$147
Lawn Care
$150
Monthly utilities expense:$622
Recommended Maintenance/Repair Fund
Repairs/ Maintenance
$4,000 (based on 2% of purchase price)
Monthly repair/maintenance savings: $333
For this sample budget, your expenses would work out to $2,554 per month. That’s nearly $1,000 more than your monthly mortgage payment.
The Takeaway
Don’t make the mistake of asking how much house you can buy — instead, examine your income and projected expenses to figure out how much you can afford. If you’re buying a home with a spouse or significant other, be sure you’re on the same page.
An experienced real estate agent is an excellent resource. Ask lots of questions: inquire about the home’s roof and exterior, as well as appliances and heating or cooling systems. Your agent can also request information about HOA fees and utility usage from the seller.
For more information on home buying and selling visit Owners.com.
Save more, spend smarter, and make your money go further
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Money Moves to Make During Cold Spells
One of the nation’s top homebuilders plans to buy its own homes and rent them out.
Beazer Homes introduced its “Pre-Owned Homes Division” today, which will acquire, improve, and rent out recently built and previously owned homes in markets where the company operates.
“Homes targeted for inclusion in the Pre-Owned Homes program will have been built since 2004 by a reputable builder, including homes built by Beazer Homes,” the company said in a release.
“All Beazer Pre-Owned Homes will receive necessary repairs and upgrades to bring them up to strict Company standards.”
Beazer expects to acquire homes at a discount as most will be distressed sales, including foreclosures and short sales.
And Phoenix seems to be the test market, with more than 100 homes expected to be purchased in fiscal year 2011.
Beazer said it chose the desert metro because the rental market for recently-built homes is strong, with an estimated vacancy rate below five percent.
If things work out, Beazer may expand the program to include homes in Nevada or California.
The company said it will target consumers who have elected not to become homeowners, along with those unable to fully qualify for mortgage financing.
The move should help Beazer on a number of fronts, as they’ll be able to remove eyesores in the very neighborhoods they created, which should boost home prices and investor/homeowner confidence, while reducing foreclosures and upping home sales.
Those who rent the properties will eventually be given the option to buy as well.
Last Updated on February 25, 2022 by Mark Ferguson
I have flipped over 210 homes in the last 17 years and although it is not easy to flip houses, it is a lot of fun. You can make a lot of money flipping once you have developed a system and learned the business. I average about $30,000 in profit on each flip I do and I flip 20-30 houses a year. I love flipping houses, but fix and flipping is only part of my real estate business. I also have 186k sqft of long-term rentals, I own my own brokerage, and I created this blog. While you can make a lot of money flipping homes, it takes hard work, and help. The television shows can make flipping look easy, but they leave out many of the most important parts of the business.
How much can you make on one flip?
How much money you make on a fix and flip varies with each deal and how much the house is worth. I have lost $10,000 on a flip and have made up to $180,000 on a flip. My goal on each fix and flip is to make at least $25,000 in profit. I have hit some home runs and had some huge mishaps when flipping. There are many risks involved when you fix and flip a home. If I do not have at least $25,000 in profit potential, I usually will not make the deal. The more expensive a house is, the more money I hope to make because of the increased risk and cost.
I also base how much profit I need in regards to the work that is needed. On houses that need massive remodels I want to make more than $30,000 in profit because there is so much that can go wrong. On houses that only need paint and carpet, I am willing to accept a smaller margin because the work is simple and fast.
I had 19 flips going as of the writing of this article.
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Do you need to make more on expensive houses?
The more the houses cost, the more you should make on each fix and flip because all of the costs increase. The more expensive a house, the more interest you must pay, the more repairs you must make, the more holding costs you have, and the more commissions you pay. Because of the increased risk of a more expensive house, you need to be rewarded with a larger profit. It can also take longer to sell a more expensive house because there are fewer buyers. If prices are to decrease in the future, the more expensive homes are also more volatile with their prices.
It also takes more capital to buy and repair a more expensive house. I want to make at least $25,000 if I am flipping a $100,000 house. If I am flipping a $200,000 house, I will want to make at least $35,000 because I have more money tied up. Since I am buying a more expensive house at $200,000 and I am using more cash for down payments and repairs and I will not be able to buy as many properties. Since I am buying fewer properties, I want to make sure that the houses I am buying will make more money.
Here is a review I did on the Rehab Valuator, a great tool for figuring the costs and profits on flips.
How much have I made flipping houses?
In 2017 I made over $600,000 flipping houses. I sold 26 flips in 2017, 18 in 2016, 8 flips in 2015, 12 in 2014, and 10 in 2013. I will have a few flips that will profit from $20,000 to $30,000, and I will have a few that will profit around $50,000. Twice in the ten years, I have made close to $100,000 on a single flip. For me, the big money in fix and flipping is volume, not in one extremely profitable property.
How do you calculate the profits?
When I am talking about profit, I mean the money I make after paying for repairs, carrying costs, financing, and selling costs. The shows on HGTV do not include many of these costs, which can make the business look much more glamorous than it really is. Here are what the costs could look like on a flip I hold for 6 months:
Purchase price $100,000 with a private money loan
$5,000 in financing costs
$2,000 in closing costs
$2,000 for utilities and maintenance while owning the property
$2,000 for taxes and insurance while owning the property
$7,000 for selling costs (agent commissions, etc)
The costs to own and sell this flip are over $18,000 and we did not even consider the repairs yet. I also have a project manager who helps with my flips and other team members that help with my business. I do not count the money I pay them against the profits because they are also real estate agents, and help the business in other ways. I also do not take income taxes out as some suggest I should since everyone pays taxes and that is part of life!
The 70 percent rule is one way to calculate how much you should buy a flip for.
Can you average $30,000 on each flip?
Like much of the country our market is hot, which makes it difficult to find deals. However, I am still finding deals and I have 20 flips being repaired or for sale right now (middle of 2018). You can flip in any market if you know the numbers, and if you know how to find a great deal. I am a real estate agent, which gives me a huge advantage when it comes to finding deals. I also buy primarily off MLS, which means I save commissions and I am able to write offers quickly. Making $30,000 on a flip all comes down to the numbers. While it is not easy to find deals that make that much money, it is possible. I also buy flips through auctions, wholesalers, and direct marketing.
Is there money in just doing one?
I would love to make $100,000 on each flip, but that is not possible for me. I do not always know which homes will work out great as flips and which will not. I have had unforeseen circumstances that caused me to hold a property for a year before I could sell it. That killed my profits and was one of the homes I lost money on. I have accepted that some flips will be great and others will not. If I continue to purchase great deals, the averages will be in my favor. My strategy is to buy as many flips as I can that meet my criteria and continue to average about $30,000 in profit on each property. If you are looking for that one house that will make $100,000, you may be looking for a long time.
How to get financing
One of the most difficult aspects of flipping homes is being able to find the money to buy the properties. Most lenders do not like to lend on flips because the loan is short-term and the lender will not make much money on it. In most cases, in order to get a short-term loan, you must use hard money, a portfolio lender, or private money. Hard money is very expensive with rates from eight to sixteen percent and origination fees from two to five percent. Portfolio lenders will have much less expensive money, but you will have to have an established relationship with them (I use portfolio lenders for most of my flips). Private money is a great option if you have family, friends, or other people with extra money to invest.
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How to avoid losing money
Here are a few tips on how to avoid losing money on flips:
Be very careful at foreclosure auctions. I used to buy 90 percent of my properties at the foreclosure auction. You have to pay cash without a title policy and sometimes you cannot see the interior of the home. If you buy at the foreclosure sale, make sure you have a lot of money for repairs, title issues, and possible evictions.
Always estimate more for repairs then you think. Repairs always cost more and more repairs always show up when fixing a house. I always assume there will be 20 percent more in costs than I calculate on each deal.
Account for financing and selling costs. When you sell a fix and flip, you have to pay a real estate commission, title insurance, financing interest, insurance, taxes, utilities, and more.
Be conservative when you estimate value; price the home right! Some of the biggest losses for fix and flippers are due to overpricing homes and then not lowering the price quickly to get them sold.
Conclusion
Fix and flipping is not easy. It takes patience to find properties, money to fix them up, and market knowledge to sell them. If you can master fix and flipping, it can create an awesome income and be a lot of fun as well. Becoming a successful fix and flipper does not happen overnight.
Last Updated on February 25, 2022 by Mark Ferguson
Many people have dreams of making it big as a real estate agent, but they want to start slow as a part-time agent. They want the freedom, income, and other benefits that come with being a real estate agent but are afraid to lose a steady income. Getting a real estate license and working part-time as an agent may seem like a great idea, but it is not easy to pull off.
There are some cases when working part-time may work; like an agent who only uses their license for their own investing strategies. There are also a couple of other instances where being a part-time agent can work if you have a very flexible schedule. The problem with being part-time in real estate is that clients need things done at all times of the day. If you cannot get away from your job, you are going to find yourself struggling to help those clients.
How hard is to become an agent?
One of the drawbacks to becoming a part-time real estate agent is how much work it takes to become a real estate agent. One of my team members just got their real estate license. It can take hundreds of hours of education and testing to become an agent. If you already have a job, even part-time, it will be tough to find the time to complete your education.
There are night classes and online classes that you can take to get your real estate license, but you will have to spend a lot of time studying. The real estate exam is not easy to pass and it will take a lot of time to prepare for it. If you want to become a part-time agent, make sure you factor the time it will take to get your license into the equation.
In Colorado, you will need to take 168 hours of classes either online or in-person to complete the education portion. Once you pass the classes you must take the test, pass the background check, and find a broker to work with. This all takes a lot of time!
If you are interested in getting your real estate license, Real Estate Express offers classes in most states and is very affordable.
Will you have enough time for clients?
Once you get your license, you must hang it with a brokerage. After finding a brokerage, you must start working with clients and generating business. This is where it gets tricky for a part-time agent who has another job. Whether you are listing homes or working with buyers, selling real estate is a random hours job. You may not have to work 40 hours per week, but you will have to work all hours of the day.
If you have a day job, you had better be able to get away from that job to take calls for your real estate job. Buyers are going to want to look at houses and offers must be negotiated and presented. If your clients have to wait eight hours to get a hold of you, they are going to get frustrated. There is a good chance you will lose clients if you cannot get back to them in a timely manner. In a tight sellers’ market such as the one we have now, speed is very important in getting offers accepted. If buyers feel an agent cannot submit offers quickly enough for them, they will probably find another agent. If you cannot respond to your clients for hours at a time, are you being a good agent to them?
You can also check out the video below on part-time agents
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What does a real estate agent do?
Most people think that being an agent is about showing houses and writing offers. However, there is much more to being a real estate agent, and that is why we are paid so much for selling homes. Real estate agents have to do many things to close deals and generate business. Here are some of the things an agent must do in order to be successful:
Show houses
Write contracts
Help buyers complete inspections
Contact lenders
Contact title companies
Contact other agents
Complete continuing education
Host open houses
Talk to your circle of influence
Create brochures
Take photos
Create advertisements
Answer their phone
Floor duty
Create plans and goals
Manage expenses
As you can see, there is a lot that a successful agent must do. Not only do you have to work with clients, but you have to find clients as well. It takes a lot of time to be a great agent and it is very difficult to do part-time. Being able to answer your phone at any time is one of the best ways to get business. If you are returning calls hours after you receive them, there is a great chance that person already has another agent who called them back quicker or answers their phone.
Can you maintain a good reputation as a part-time real estate agent?
As a real estate agent, I deal with other real estate agents, title companies, buyers and sellers, lenders, attorneys, investors, and many people in our community. My reputation is a huge reason why I have been so successful as an agent, broker, and investor. When you are a part-time agent, it is very tough to find enough time in the day to get all your tasks done and follow up with people. If you are calling back people days later or not at all, word will spread very quickly around the real estate community. It is very important to provide great service as a real estate agent and that is tough to do when you only work part-time.
If you get a reputation as someone who is hard to get a hold of, does not call back, or is too busy to follow up, it will be very hard to shake that reputation. Even if you become a full-time agent and do an amazing job, people will remember the less than par work that you did previously. People remember the poor work people do and they expect people to do good work.
I go over everything it takes to become a real estate agent in my book How to Make it Big as a Real Estate Agent. How to get leads, how to find a broker, how much money you can make, how to make money, how to manage your time, and how to avoid the struggles many agents have. It is available on Amazon as a paperback or Kindle, and it is also on audible as an audiobook!
Can joining a team help?
If you want to be a part-time agent and there is no possible way that you can quit your current job, there are some steps you can take to be more successful. I have a team of ten people who help me run my real estate business, fix and flip business, and REO business. We have some part-time help and many members of my team started out as part-time workers. If you join a team, your team can help cover for you when you have to work your other job. By joining a team, you agree to give up part of your commission to the team so the team is motivated to help you succeed. I think there is a better chance of succeeding as a part-time agent if you can join a team rather than trying to do everything yourself.
You will be doing other tasks than just working as an agent, but it will all be real estate related. You will also have a flexible schedule on most teams that will allow you to drop everything and go show houses if needed.
Does it help with investments?
The best situation to become a part-time real estate agent is when you are a real estate investor. I own 20 long-term rentals and I complete 20 to 30 fix and flips per year. I save money when I buy a home from the MLS and when I sell a home because I do not have to pay a listing agent. Being a part-time agent who invests in real estate is well worth it in my opinion.
If you are only an agent to save money on your own properties, you do not have to worry about having a flexible schedule or working leads. If you are only an agent because you are an investor, being a part-time agent may work out great.
What other options will help part-timers succeed?
Joining a team is one way to succeed as a part-timer. There are some other ways to make a part-time real estate career work. The most important thing to have as a real estate agent is availability. Many people do not want to be on-call all the time, but there are sacrifices you must make for an awesome career. While you may not have to work 30 hours per week as an agent or even 20 hours a week to sell houses, you need to be available most of the time. If a buyer or seller needs to talk to you on a Sunday afternoon or on a Monday morning, you should be available. You may have to show houses on the weekends or in the evenings. Real estate agents make their own schedules and have a lot of freedom, but when a client needs to see a house after hours, an agent should accommodate them.
If you want to be a part-time agent and have a very flexible schedule, you have a much better chance of making it. If you have to work another 9 to 5 job every day, it will be very tough to make a real estate career work. There are some amazing jobs today that can help agents make money and have a flexible schedule. Uber or Lyft are ways agents can make money, but also be able to drop everything to help out a client.
Conclusion
A part-time agent can make it in the real estate industry, but to be successful, part-timers need to join a team until they can go full-time. If you are an investor who just wants to save money on your own investment properties, becoming a part-time agent is a great idea.
Many of my sales come from listing REO and HUD homes for banks and for the government. If you want to become an REO agent, you must be a full-time agent. Banks and HUD need immediate responses on their properties and getting back to them in a day or two will not cut it. I have to do inspections within 24 hours and most tasks in 48 hours. To be successful you need to commit and it is tough to commit to something when you are part-time.
Last Updated on February 25, 2022 by Mark Ferguson
Rental properties are a great investment, but they take work to manage, especially if you do not use a property manager. I own more than 20 rental properties and I managed my rentals myself until I had 7 and realized it was taking way too much time. My rental properties are single-family, mixed-use, and commercial properties. Managing rentals is not extremely difficult but it takes time, you have to pay attention to details, and be firm with tenants to successfully manage rental properties yourself. You can’t be easy on your tenants and you can’t ignore problems, because that is when rental properties can change from a great investment to a poor investment.
Self-management
Whether you chose to manage your rentals on your own or hire a property manager you need to know how to manage the properties. If you are hiring a property manager you need to know if they are doing what they are supposed to be doing. It can help top manage rentals yourself to get an idea of what is involved to see if the management company is any good or not! A lot of this is also common sense and you don’t have to manage properties first if that is not your thing.
Here are some tips on how to manage rentals the right way. You will notice that there is a lot that needs to be done and it may not be as easy as you thought.
How to figure market rent rates
Determining market rent should be done well before you are ready to rent a house and one of the first things you do as a real estate investor. You should have an idea of what a house will rent for before you even buy a rental property so that you know it is a good investment. It is tricky to tell people exactly how to determine market rental rates because each market uses different techniques to rent homes. Some markets primarily use the MLS to rent homes, while other markets (like my market) use Facebook, Craigslist, or Zillow as the primary method to rent a home.
You need to check the prices of other rentals in the area to see what market rents are. You cannot simply choose the highest rent you can find and assume that is what you will get. You can also check with property management companies or real estate agents to see what they think properties will rent for.
When I am trying to determine rental rates, the first thing I do is pull up properties for rent on Facebook. I browse the marketplace to see what is available in the neighborhoods that are most similar to my property. I don’t look at the most expensive rentals, I look for homes in the lower end of the price range (Be careful if you see an incredibly low-priced rental, it may be a fraudulent listing trying to get people to mail money to Nigeria). There also could be some incredibly high rents being asked for executive or short-term rentals that may not compare to your rental.
Looking at prices online is the first step. To see what is actually renting takes a little more work. Print or write down the ads that are the most comparable to your property. Wait three days, and then check to see if the ads are there. If the advertisements are gone, then those houses were probably rented. If they are still up then they probably have not rented. Check again in a week to see which ads are still there and which are gone. If you want to take one more step then call the numbers or email the ads that you first printed and ask if the properties are still available.
I have tried a couple of different methods of pricing my rentals.
Price at the top of the market and try to find a renter who will pay a premium.
Price a little below market and take my pick of great renters.
My experience has been better with taking my pick of great renters. Even though the rent is lower, I usually have a lot less to worry about like late rent or excessive wear and tear. Whenever I price rentals high, I am waiting for a decent to mediocre candidate to send an application in, instead of picking the best tenant from many applications.
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Advertising
Once I have a decent idea of the market rent, I place an ad on Craigslist, put a for rent sign in the yard, and post it on Facebook, Craigslist, and Zillow. I don’t post in my MLS because very few people look for rentals with an agent in my area. Other areas of the country primarily use MLS or another method to advertise rentals. Be sure you research what the most prominent way to advertise rental properties is in your area.
Application
I use an application I found online and altered slightly when I am looking for potential tenants. I used to not charge an application fee or run a credit check but I do now. I charge $50 for an application fee and I use that money to run a credit check and background check. Potential tenants have had no problem paying these application fees, and it helps to make sure all tenants submitting an application fee are serious. A great way to judge a tenant is by talking to them as much as possible and looking at their application.
I want to see an application that is filled out as much as possible with multiple references. If an application is barely filled out, then the potential renters aren’t taking the process seriously or they are trying to hide something. When I talk to a potential renter, I want to learn as much about their previous living situation as possible, I ask about pets, I ask about employment, and who will be living in the property. The longer you talk to a tenant, the more you can learn about them.
When you first talk to a tenant on the phone, take notes so you remember what they said. Then when you meet them in person, ask them some of the same questions to make sure they give you the same answers. If someone is lying to you, it is a very bad sign. If they are late or do not show for an appointment it is an extremely bad sign. To avoid tenant problems, proper screening is vitally important and we now use SmartMove for credit and background checks. SmartMove lets the tenant sign in and pay them directly for background and credit checks so you don’t have to take social security numbers or private information. They also give you a recommendation on whether you should accept the tenant or not.
References
I always call references for all applicants that I am considering. I want to talk to the reference for the applicant’s previous residence and their current employer. I want to know if they paid rent on time, took care of the residence, or were high maintenance. By high maintenance, I mean calling in every week for minor issues, causing plumbing problems because their children like to flush toys down the toilet or any number of other items. I want to see if they had pets and if that information matches up with what they are telling me on their application. I want to ask the employer how long they have worked there. I want to know if they are a good worker and how solid their position is.
I will also ask how much money they make to see if it lines up with what the applicant is telling me. You cannot rely on everything a reference says because they may want the tenant out of their property and will say they are great when they are a nightmare! This is only one piece of the puzzle.
Pets and smoking
Pets can be an extra source of income or destroy your house. I prefer not to allow pets at all, but I may allow one dog with an additional pet deposit or an increase in rent. I usually charge a $200 nonrefundable pet deposit for a small dog. I always want a pet reference as well, meaning they had the pet in their previous residence and the pet did not hurt the property.
I do not allow cats, cats can ruin a house quicker than anything. If you haven’t smelled cat urine in a house, it is not pleasant. At a minimum, you have to remove all carpets and padding and in some cases remove the subfloor as well. I do not allow smoking in my rental properties at any time. If anyone is caught smoking or breaking any of the other rules, the lease says I can fine them $750 per occurrence.
Lease
I am lucky that I have a sister who is a property manager. I was able to use her lease and customize it for myself. Everything needs to be in writing including rent, term, late fees, the date rent is due, and things the tenant can and can’t do. A few things I include in the lease:
No painting without written approval.
Do not hang curtain rods without written approval.
No smoking on the property.
No pets on the property.
Only people on the lease and their children may live in the home.
No overnight visitors for over three straight nights.
No illegal activities on the property.
If any of these rules are broken, the lease says I can fine the tenants $750 per occurrence. If there are any exceptions to these policies, I put them in writing in additional provisions in the lease. I have a section that shows what utilities are paid by tenants, in my case all of them. I have a section that says if the tenants break their lease early, they owe the remainder of the rent due for the entire lease. If I can rent the home again, I can’t charge the previous tenants for rent as well, but I will charge a one-month’s rent lease-break fee. I have many other items in the lease. I am not an attorney and I highly suggest you have an attorney look over any lease you create.
Lead-based paint
With any house built prior to 1978, I have to provide a lead-based paint pamphlet explaining the dangers of lead-based paint. I also have a lead-based paint disclosure signed by the tenants as well.
Deposits
I charge one month’s rent for the deposit, and it must be paid with the first month’s rent before the tenants move in. The only time I split up the rent and deposit is if the tenants want to reserve the home before they move in. They can pay the deposit first and then pay rent when they move in.
Safety
Each state has different laws regarding carbon monoxide detectors and smoke alarms. No matter what your state law is, I would put them in. In Colorado, we have to have carbon monoxide detectors within 15 feet of every bedroom. They are very cheap for the protection they offer, and you can plug them straight into an outlet.
Keep tabs on your tenants
The worst thing a landlord can do, besides rent to bad tenants, is ignore tenants or their properties. If you never talk to your tenants or never send them anything in the mail they will think you don’t care. Once they think you don’t care they will stop caring about the house and stop paying rent. Landlords cannot assume tenants will pay their rent and take care of properties without any oversight.
When I managed my properties, I had a tendency to be very lenient with my tenants. Some tenants paid on time and took care of my rentals and others always paid late and damaged my houses. I learned you have to be tough no matter what the tenant tells you. After learning my lesson I became very strict on rent being in on time and scheduled routine check-ups on the houses.
I learned the more you contact your tenants the better tenants they will be. We have a maintenance person check every house once a quarter. He checks furnace filters, smoke detectors, carbon monoxide alarms and looks for any problems. It is written into the lease that we have someone check the house every quarter and the tenants know they will have to keep the house in relatively good condition.
I said this once already, but it is worth repeating. The worst stories I hear are from landlords who did not check on their houses for years and they were surprised to find the tenants had trashed the house. Not only can tenants trash the house easily without oversight, but they also have a greater tendency to commit illegal acts at the house or create dangerous situations.
A drug house is a landlord’s worst nightmare, especially a meth house. If a property is used as a meth lab, the entire interior may have to be gutted costing tens of thousands of dollars or more. If the tenant knows they will be checked on every couple of months, there is a much better chance they will refrain from illegal activities.
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Late Fees
My leases say that all rents must be received by the 1st of the month and rent is late on the fifth. If we don’t receive rent on the fifth we start charging late fees. I don’t care why the rent is late, we charge late fees. It is not fair to charge late fees to one tenant and not another. If you don’t charge late fees the tenants will think they can continue to pay rent late with no penalties. Pretty soon the tenants are one month behind and it is a struggle for them to ever catch up. Once they get too far behind they may stop paying altogether and then you will have to evict them.
Evictions
I rarely have to evict a tenant, but that doesn’t mean I have not had bad tenants. The reason I avoid evictions is I usually come up with a mutually agreeable move-out plan for the tenant. If you have to evict a tenant it can be a very expensive and a long process. The eviction process varies in every state. In Colorado, it takes about a month to evict a tenant. In other states, it takes longer and in a few states, it is a quicker process. It is not only the time it takes to evict someone that costs money.
To get to the eviction point, the tenant is at least a couple of months behind on rent. People also do not like being evicted and have a tendency to do damage to homes when they are evicted. I have avoided evictions, but that does not mean I have avoided vacancies. I have ended leases early in multiple situations where the tenant could not pay rent or would not for various reasons.
Instead of going through the lengthy eviction process, we were able to work out a deal where the tenant moved out before their lease was up and I did not hold them responsible for the rest of the lease. I could have held them responsible for future rent as well, but that leaves hard feelings and there is a better chance they would damage the home.
By letting them leave early, they get the feeling I am helping them out. In my rental market, I also have no problem renting homes quickly. I would much rather get a bad tenant out right away and get a good tenant in the property. I still try to collect any back owed rent or any damage done to the property above and beyond the security deposit.
We also always use a lawyer when we have to evict because while it costs money it saves time and it is easy to mess up the paperwork!
Behind on rent
Most of my tenants are very good about paying rent on time because they know they will be charged late fees. I had one tenant that was always late and always has a multitude of excuses and pretended he was not late. The funny thing is he had bought a brand new Toyota Sequoia and we got a call from another car dealership because they were trying to buy a second brand new car. Some people do not know how to manage or save money! If I never told this tenant how far he was behind, he would assume he was paying on time. In fact, he would probably stop paying altogether and assume someone else had started paying rent for him.
One thing we do is send an invoice every month to every tenant. This reminds them to pay rent on time, reminds them where to send the rent and they have no excuses for not knowing they were behind. If a tenant gets more than one month behind or stops communicating with us we will post a notice to vacate on their door. When you post this notice you do not have to evict the tenant, but it sure gets their attention and if they don’t contact us, it is the start of the eviction process.
Maintenance
Some landlords are cheap and will not maintain their properties or repair their houses. You are asking for problems from the property and the tenant if you do not maintain the property. A house that shows poorly will attract poor quality tenants and if the tenants are unhappy with the home they will be less likely to pay rent or take care of it.
If the landlord ignores problems like a bad roof, bad electric, or bad plumbing it could cause thousands of dollars in damage or be dangerous. Rental properties do not have to look like a luxury resort, but they should be functional, all the major systems should work and they should look and smell decent. Maintenance items will come up and that is why it is important to have enough money in reserves to pay for repairs.
How long does it take to manage rentals?
There are many tasks associated with managing rentals, but it doesn’t take a lot of time for one property. The most time-consuming part of managing properties is getting them rented. If you only have one rental property you should be able to spend a few hours a month managing it. Many of those hours will come from renting the home and much fewer hours will be from collecting rent, dealing with maintenance, and other issues.
Managing one rental property, two or three rental properties is not too difficult either. Once you start getting four or more rentals it starts taking a significant amount of time to manage your properties. If you don’t have the time to manage them; get help. When you don’t take the time to screen tenants or check up on your properties is when you encounter serious problems.
Hiring a property manager
There is a lot involved in managing rental properties, but not every rental will have issues that require a lot of management. I have had rental houses that never have a problem, are well maintained and the tenants always pay on time. I have had other rentals where the tenants are always having problems, pay late, or stop paying completely. I had one tenant who had a heart attack and could not work anymore. We came up with a mutually agreed-upon plan where he would move out and try to pay me back for back rent owed. He never paid me, but I rented the house right away for more money than he was supposed to be paying and it worked out okay.
It is worth it for many people to use a property manager, especially if they can’t handle being tough on tenants. Property managers will cut into your profits, but they will save you time as well. Property management fees usually range from 8 to 12 percent of the monthly rents. Some property managers also charge a leasing fee, which could be one-half or one month’s rent. In my area, I can find property managers who charge 8 percent of the monthly rents with no leasing fees. I have thought about starting a property management company, but with fees that low it is hard to make much money.
I have a real estate team that consists of real estate agents, assistants, and myself. When I gave up managing my rental properties, I handed the duties over to my team. Not only does my team help me with selling houses and my fix and flips; they manage my rental properties.
Conclusion
If you want to manage your own rentals, make systems to help you. Create a system to check your houses, make sure rent is on time, and make sure accounting information is logged every month. It was not difficult for me to manage my rental properties, but I also started to let things slide at the end and that is when problems occur. If the tenants don’t think you are paying attention they will be more likely to try and take advantage of the situation. If you are looking to buy rental properties and do not think you can handle managing them, make sure you account for the cost when figuring your cash flow.
America was largely settled by immigrants: These cities lean into that fact.
Moving to a new place can be pretty scary for anyone, but it’s especially intimidating if you aren’t welcomed with open arms. This happens all too often, despite the fact that immigrants and migrants from other states are vital components of any area’s economic and social well-being.
In fact, they actually make up a significant portion of the workforce, and cities with higher immigrant populations tend to experience greater economic growth than other areas. Immigrants also help to offset population decline, which heads off economic disasters. Plus, they readily invest in their new area by opening businesses and thus creating jobs. In short, immigrants tend to show up and take care of business and enjoy upward mobility in the process.
These types of cities are the most welcoming to immigrants
The Bush Institute-SMU Economic Growth Initiative recently ranked cities based on how welcoming they are to newcomers. The outfit says that certain cities, like those that are “knowledge-centric,” are the best options. This includes cities renowned for their technology or finance industries — and college towns where education and forward-thinking are paramount.
Many such cities offer a lot of opportunities compared to where a person comes from, thanks to their economic and professional profile. So a city with a higher opportunity score is likely to provide the chance at a higher quality of life than some others. Now, let’s dissect this data, figure out what comprises a higher life quality and reveal these cities in all of their hospitable glory.
The first entry in the top 10 most welcoming cities in the U.S. is State College, Pennsylvania, the appropriately named home to Penn State University. From the period 2010-2021, the city saw an ever-so-slight decline in domestic migration’s contribution to population growth in the area (minus 3 percent), but experienced an uptick of 6 percent related to immigration.
With an overall population of just over 157,000, State College is one of the smallest on our list, but the numbers are hardly what you would call irrelevant. In fact, the opportunity score in State College is one of the highest on our list, at 117 percent, meaning that newcomers average greater quality of life/opportunity by 17 percent compared with their parents. Some of the influx of immigrants to this area is due to the fact that more than 11,000 students from various countries head to Penn State for its varied educational opportunities.
9. Orlando-Kissimmee-Sanford, Florida
Both domestic migration and immigration contributed to the population in the Orlando-Kissimmee-Sanford, Florida metro area, at basically the same rate of 9 percent! With a total population of nearly 2.7 million, this area is the third-largest on our list, which translates to big numbers, in terms of newcomers to the area. The opportunity score is slightly lower than that of State College, at 92 percent, however, it’s mitigated by the area’s reputation for being friendly to newcomers!
The draw is likely due to a preponderance of jobs thanks in part to the state’s booming tourism industry, but also the fact that central Florida already has a lot of immigrants makes it appealing to newbies. This section of Florida is a well-oiled machine for welcoming newcomers, and it translates into more and more each year.
Not so far away from the OG immigrant spot, Plymouth Rock is the metro area of Boston/Cambridge/Newton, which spans parts of Massachusetts and New Hampshire. Immigration to the area went up by 7 percent, although domestic migration took a dip of minus 4 percent.
The metro’s population totals 4.9 million, making even tiny immigration upticks extremely significant. These days, most immigrants to the area come from China, the Dominican Republic and Haiti, the City of Boston says, and are likely lured there by its opportunity score of 117 percent. They most often matriculate into jobs that are blue-collar (construction, production, repair, natural resources) or within the service industry. As these are all very important to growth, the immigrant population is filling a lot of important roles.
7. Naples-Marco Island, FL
Moving back to sunny Florida, the metro of Naples-Marco Island, Florida is considered another particularly hospitable area to newcomers. Found near the southern end of the state outside of Miami, many of these newbies are important to the local agriculture scene and are drawn to the area by such jobs. They’re also critical to recovery from all-too-frequent hurricanes that hit the area, which necessitate skilled hands at construction and other trade jobs.
Domestic migration actually contributed more to population growth here than anywhere else on our list (up 18 percent!) and immigration was also higher by 7 percent. The opportunity score hovers at 101 percent.
6. Fargo, North Dakota/Minnesota
The next metro area on our list could not be any more different from Naples if it tried, weather-wise. The far northern area of Fargo, North Dakota/Minnesota is especially dependent on immigrants to fill important positions within both the manufacturing and production industries, although many also work in sales and healthcare positions.
Many relocate to the chilly, but friendly area from the Philippines, in particular. Domestic migrants to the area were up by 7 percent, while immigrants were also higher by 4 percent. The opportunity score of 133 percent is one of the best on our list, meaning that someone who moves to this area can experience 33 percent worth of improvement in opportunity compared with where they came from.
5. Miami-Fort Lauderdale-Pompano Beach, Florida
Although domestic migration to the Miami/Fort Lauderdale/Pompano Beach area of Florida has declined by 5 percent in recent years, immigration is up quite a bit at 12 percent the highest uptick on our list). With nearly 6.1 million residents in this metro area, that translates to quite a few newcomers.
Miami has indeed turned into a hotbed of opportunity for Latines, in particular, as they frequently hold STEM positions and 73 percent of local businesses are owned by immigrants. They are also attending local colleges and universities and contribute tremendously to the local economy as consumers.
4. San Jose-Sunnyvale-Santa Clara, CA
The lone West Coast metro on our list, the area of San Jose-Sunnyvale-Santa Clara, California has experienced a decline in domestic migration of minus 11 percent, but an increase in immigration of 8 percent. Asian-born immigrants make up a significant portion of this population, although it certainly sees plenty of Latine newcomers, as well.
Many flock to the area for the tech opportunities it is known for, as well as the excellent school systems for their children. However, the ever-rising cost of living in California is making it difficult for many to stay in the area. That said, the opportunity is so rich in the area that the typical person enjoys 23 percent greater opportunity (score of 123 overall).
Moving back over to the Midwest, Iowa City is considered the third most welcoming city in America. Perhaps this is because the area has a reputation for welcoming immigrants historically. Whatever the reason, the city/state regularly take in people fleeing natural disasters or devastating conflicts in their home countries, including those from Ethiopia and Bosnia. There’s also a strong contingent of Hispanic people who come to the area looking for professional opportunities.
Both domestic migration (1 percent) and immigration to the area (7 percent) have increased in recent years, continuing this region’s longstanding reputation as one that welcomes others with open arms. Much like San Jose, the opportunity score in this area is 123 percent.
The central Minnesota city of St. Cloud is runner-up as the most welcoming city in America. Immigration to the metro is up by 4 percent, however, domestic migration declined in the same time period by three percent. St. Cloud boasts the highest opportunity score on our list at 145 percent, meaning that people can earn and live at a better quality by nearly 50 percent compared the previous generation.
Immigrants to the area tend to come from East African countries like Somalia, however, people from Kenya, Vietnam, Mexico and Korea also make up significant portions of the newcomer population. They contribute to the local economy by filling major gaps in the employment force, but also by paying taxes and contributing to Social Security.
1. Ames, Iowa
The smallest city on our list is also the most welcoming of them all. Slightly north of Des Moines is the unassuming metro of Ames, Iowa, with a population of just over 126,000 people.
Domestic migration is down slightly there, however, immigration is on the rise at 7 percent. This Iowa city is known as a safe haven for people seeking asylum from the dangers of their homeland. Many newcomers hail from Ukraine, Honduras and the particularly war-torn parts of Africa.
The community is very much a part of this effort, as volunteers with the Ames Interfaith Refugee Alliance advocate for refugees and help them acclimate to the area upon arrival. They also aim (pun intended) to educate people about immigration and the positive impact they can have on a given area. It also doesn’t hurt that the cost of living in Iowa is way below the national average and that the opportunity score is an impressive 132 percent.
A little bit of hospitality goes a long way
Obviously, there are still many kinks to work out related to the often difficult immigration process. That said, it’s good to know that some cities are doing their best to make it a positive experience for everyone hoping to breathe free in a new land.
As a renter, having access to a gym within your apartment complex can greatly enhance your living experience. Regular gym workouts offer physical and mental health benefits, social interaction, convenience and professional guidance. With varied options for exercise, flexible hours and personalized workouts, apartment gyms contribute to the long-term health and well-being of renters and is one of the most sought-after amenities among apartment seekers.
1. Convenience
Having a gym on-site eliminates the need to commute to an outside gym, saving you time and effort. You can simply walk or take an elevator to the gym, making it incredibly convenient to maintain a healthy lifestyle. This also helps renters streamline their routine, cutting the time it takes to drive to and from a local gym.
2. Cost-effective
Gym memberships are expensive, but having a gym in your apartment complex is usually included in your rent, making it a cost-effective option for fitness junkies. You can save on monthly gym membership fees and still enjoy the same facilities. Recently, apartment gyms have been upgrading equipment and adding unique features to compete with specific fitness studios, like cycle and yoga studios.
3. Time-saving
You can work out whenever you have free time with an apartment gym. This saves renters time and eliminates the worry about the operating hours of other gyms. This flexibility allows you to fit exercise into your busy schedule more easily, enhancing your overall living experience even more.
4. Privacy
Some people feel more comfortable working out in a private gym setting rather than a crowded, public gym. On-site gyms provide the privacy you need to exercise without feeling like you’re surrounded by others and worrying about the comparison of fitness levels. This can even encourage renters to begin a fitness journey if they’ve been too timid to do so.
5. Enhanced safety
Safety is a concern when exercising in unfamiliar areas or when traveling to a gym late at night. You shouldn’t have to sacrifice your preferred workout time just for safety. By having a gym in your apartment complex, renters are offered a safe and secure environment for their workouts. This peace of mind is priceless.
6. Socializing opportunity
Apartment gyms are a great place to meet and connect with other residents who share similar interests in fitness. This fosters a sense of community and provides an opportunity to make new friends without leaving the community. You may also meet a new workout buddy!
7. Health benefits
Regular exercise is proven to be crucial for maintaining physical and mental health. Having a gym within your apartment complex makes it more convenient and accessible for you to prioritize your health and well-being, with the added convenience of it being right under your roof.
8. Options for every renter
Many apartment gyms offer a variety of exercise equipment, from cardio machines to private yoga rooms, which allows you to choose the type of workout that suits your preferences. This range of equipment and workout options can enhance your fitness routine, encouraging renters to try new things or build on what they know.
9. Accessibility
Apartment gyms are easily accessible to all residents, including those with mobility limitations. Apartment gyms, when designed properly, boast inclusivity and accommodating to a wide range of individuals. Having an apartment that invests in accessible amenities, like a fitness center, is important.
Apartments with gyms: where convenience meets investment
Having a gym within your apartment complex can significantly improve your experience as a renter, adding further value to your overall life. A gym within your apartment complex can save you time and money by eliminating the need for a separate gym membership and commute — all while promoting a healthy lifestyle and encouraging community engagement among fellow renters. Start your search today to find your dream apartment with this valuable amenity.