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Welcome to Texas!
Where the Weather is Made Up and the Seasons Don’t Matter
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Over the years Texas weather has become the brunt of many jokes! From the severe heat during the summer months to the volatility of the fall and winter, our weather is quite nonsensical and, while this lends quite a bit of humor to our lives, it can make planning quite difficult.
Preparing for the fall/winter maintenance needs for your portfolio before the season can often save you quite a bit of headache, stress, and best of all…money! For example, if you wait until the first cold spell of the year to have your heating system tuned up, you will be competing with everyone else. Not only will your tenant be at the mercy of a very busy, very overwhelmed tech but your invoice will likely increase due to the demand of business. But, by scheduling before the season hits you can save yourself some cash while maintaining a good rapport with your tenant.
Like HVACs, there are many more areas where early maintenance can be a benefit. Here are items to consider to avoid unnecessary repair expenses or tenant tension.
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Gutters: Having gutters and downspouts cleaned and if necessary, repaired after leaves fall and before heavy rains hit can reduce damage and avoid other problems. Many landlords think tenants should do this but it can become a safety issue. Having a qualified vendor handle the problem can be a safer and more cost-effective solution.
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Roofs: It pays to have roofs checked for missing materials, hanging branches, and any other damage. Have repairs completed before winter weather hits to avoid unnecessary damage and expense inside of the property. You may not be able to avoid winter storms but the roof may hold up better if maintenance is completed. Proper maintenance can also extend the life of the roof.
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Chimneys, fireplaces, and smoke detectors:
If your investment has a fireplace and chimney, having a yearly checkup can prevent fires and/or other safety issues. Of course, a working smoke alarm/detector is an absolute must.
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Driveways and sidewalks: Damaged, cracked driveways and sidewalks can be a safety issue. Many times you cannot repair them during bad weather, leaving it open to more liability. Contractors are more likely to give you a better price during better weather.
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Porches, patios, decks, retaining walls, fences, and landscaping: Again, these are items where necessary repairs can extend their life. Major tree roots can cause many problems, such as broken sidewalks, raised driveways, and problems with sewers. When possible, avoid these liabilities.
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Walls, foundations, windows, doors, and plumbing: Checking walls, foundations, windows, doors, and plumbing can reveal problems with moisture, leaking, cracking, drafts, and more. It is truly important to avoid water and moisture problems that could lead to toxic mold - one of today's biggest liabilities for investors.
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Heating: Heating is simply a necessity and in the eyes of the legal system, it is a requirement for the health and safety of tenants. You could experience loss of rent if the tenants are without heat for an unreasonable amount of time. Having the heating system checked out yearly before cooler or cold weather hits could avoid bigger maintenance problems and making necessary repairs can prolong the life of the heating system.
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While there may not be maintenance issues with your property now, it pays to perform preventative maintenance to avoid larger expenses and liability later. If you are interested in ramping up your preventative maintenance schedule, reach out to your property manager for a personalized assessment!
“Preventative Maintenance: Don’t start today by doing yesterday’s work.”
– Deniece Schofield
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Jay Hartley MPM®, RMP®
Owner - Managing Partner
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Office | 817.377.3190
Direct | 817.288.5546
Frontline Property Management, Inc.
3000 Race Street, Suite 132
Fort Worth, TX 76111
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Real Estate Investing Basics
3 Potential Maintenance Hazards That Tank Deals and How to Spot Them!
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Maintenance Hazard #1: Foundations One of the first things we look at with the homes we intend to purchase is the foundation. No matter if it is a basement, crawl, or even slab (rare in the area, but still an item we have found), we want to be sure the foundation is in good shape. Without a good foundation, the cost of repair and ongoing maintenance can be a profit killer for any deal. We look for signs of cracking on the exterior of the home, examine the ground around the home to determine if water damage could be possible, and pay very close attention to any chips or blocks that seem out of sorts, broken, or shifting. From the exterior view, we can generally tell major issues.
In the case of a basement, we will always look for signs of water infiltration and issues by again looking for cracking or worn out grout on the interior of the basement walls or staining on the walls, especially a few inches off the ground. We also examine any mechanicals in the basement to see if any water has damaged them in the past. If we see any warning signs of current or previous foundation issues, we will not go forward with a purchase and will escape our contract within the inspection period of the purchase agreement.
Maintenance Hazard #2: Roofs During our walk around the property examining the foundation, we will also look at the roof as a potential maintenance hazard. This hazard can be a very pricey item down the road if we do not take prudent steps in looking over the roof, gutters, shingles, and more in our inspection. We will look for major slopes, grooves, or weak spots on the roof. This could be a sign of issues with the roof decking, indicating weakness in the structure of the home or aged materials requiring costly repair down the road.
We will look at the condition of the shingles (and if there are multiple levels of shingles). Curved shingles, missing shingles, or more than two layers of shingles all point toward the age of the roof being over 15 years. We will examine soffits and, if applicable, venting, as well.
In general, we are looking for an age on the roof to be no more than 10 years and in proper shape to avoid maintenance hazards down the road and to assure we do not see major expenses early in the life of the property.
Maintenance Hazard #3: Electric Panel and Furnace Ok, maybe there are technically four maintenance issues. The last two are simple to explain but are indeed very important to review as you finish your inspection walkthrough of the property. When we hit the basement or garage, or wherever we find the panel, we are looking to see if the house has a minimum of 100 amps. These days, with all the electronics tenants and homebuyers have, if you do not have 100-amp minimum, you will undoubtedly run into issues with electric in the home.
These issues are not only maintenance hazards but fire hazards, as well.
The furnace along with the electric is one that requires care in examination. We are looking to see if the home has at least an 80% efficient furnace. Without due care in examining the furnace and the age of the unit, this can quickly lead to issues once you get the property to close and begin work—let alone once you have the unit tenanted.
When buying a property, do not be fooled by great pricing with motivated sellers and the perception of a great margin. We will never allow major maintenance issues to slip by us because we are looking at the potential profit in the deal, as maintenance issues should never be passed along to the next buyer.
Keep your head in the game, be thorough with your inspection, and when in doubt, get a second opinion from your trusted partners and contractors just like I always do.
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The 5 Advantages of Buy & Hold Real Estate: IDEAL
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I: Income Most investments offer either a consistent return (i.e. annuities) or the potential for equity appreciation (i.e. stocks). Real estate offers both. Good buy and hold investments offer positive cash flow from rents that not only offset the expenses and debt service, but also provide a monthly income. The average annuity only pays out 3.27 percent per year. A halfway decent buy and hold investor can beat that any day.
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D: Depreciation Flipping is a great business, but one of the biggest cons is that the tax man always gets theirs. Not so with buy and hold. The IRS allows you to write off the value of any property over 27.5 years. Yes, this depreciation counts as negative income—but it's only negative on paper, since the costs of keeping a property in good condition can be paid for out of the rental income. Thus, the depreciation “losses” wipe out the positive cash flow from the property and remove any tax obligation. Unfortunately, due to the Tax Reform Act of 1986, only active investors can take advantage of this.
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E: Equity Build Up With a mortgage, unfortunately, comes the obligation to pay it back. Fortunately, the cash flow mentioned above allows an investor to pay back that mortgage without spending any of their own money. Instead, the tenant pays for it. Furthermore, each month—assuming you don't have an interest-only loan—part of the principle is paid off, too. For a 30-year loan, about 15 to 25 percent of each loan payment goes directly toward the loan's principle. That adds to the equity you have in the property. Plus, accelerating equity pay down—the simple concept that, with each payment, you pay more to principal and less to interest—helps build up equity faster the longer you own a home.
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A: Appreciation Real estate, like any other asset, can go up or down in value. Many have been scared off by the crash in 2008. Worried history might repeat? A look at long-term real estate prices may encourage you. The trend is consistently up. In fact, over the past 40 years, real estate has gone up an average of 4.62 percent per year. Combined with accelerating equity pay down, this means that your equity grows exponentially the longer you hold a property. Some have pointed out that the stock market generally has a better return than real estate. True—but deceptive. Real estate is generally leveraged at a rate of four or five to one. Stocks, on the other hand, are rarely leveraged, especially after the massive losses taken by those “buying on the margin” before the Great Depression.
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L: Leverage If you invest $20,000 into the stock market, and it goes up 10 percent, you’ve made $2,000. If you invest that same money into real estate, you can buy a $100,000 property with an $80,000 loan. Let’s say it only goes up five percent. Well, you’ve made $5,000. Or in other words, you’ve made a 25 percent return! Technically, yes: the stock market has a higher return on average. But that’s immaterial. Your returns with real estate are based on a much higher amount than your principal investment.
One might think this makes real estate more risky than stocks, but that isn’t so either since, as Zack Finance points out. “Stock prices are typically more volatile than real estate prices,” he says. A buy and hold investor who invests right can make it through major downturns like the 2008 crisis—which saw stocks drop as much as real estate, by the way—with the positive cash flow from the property.
In the long run, real estate and stocks both go up. So if you can survive the downturns with positive cash flow, you’ll be just fine in the long term.
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There are several major benefits to holding:
-- Tax advantages, such as writing off depreciation
-- Passive income—whereas once a flip is done, the income potential of the property has ended
-- Easily scalable, because if you flip 10 houses one year, the next year, you still start with zero. Hold 10 houses? The next year you start with 10.
-- Equity, which allows you to refinance out and buy more properties, creating the opportunity of exponential growth
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6 Audio books Investors Should Absolutely Listen To |
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This book by Laura Cochran has withstood the test of time, maintaining a high rating since its late 2013 release. In four hours, the audio book covers important topics—like why mobile home parks are such a good investment. Cochran provides step-by-step instructions on how to buy and manage your own park.
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This book outlines expert strategies for getting the best deals when buying and selling investment properties. It’s written by BiggerPockets star authors J Scott, Mark Ferguson, and Carol Scott, and dives into the weeds of the real estate negotiating process. Whether you’re buying your first property or renegotiating a contract, you’ll find valuable tips inside.
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Knowing your local market is key to successful real estate investing. This book explains how to expand that knowledge and create simple, profitable cash flows. The audio book includes both volumes of the series, and lasts for a quick hour and 45 minutes—making for very easy listening. What’s stopping you?
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The audio book by Brandon Anderson is more than five hours long, and contains a wealth of information on real estate investment. It's a valuable tool for any aspiring real estate investor, with instructions for real estate wholesaling, property management, and financial freedom. Key takeaways include advice on negotiating techniques, financing sources, adding value to your investments, and proven ways to find reliable tenants—in addition to other suggestions.
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This late-2018 book aims to help listeners on their journey to financial freedom by giving them a basic understanding of the market and market strategies. Author Bradley Watson walks a new investor through their first deal and helps investors take advantage of the flipping trend.
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A short three-hour listen, this book by Joseph Samson provides investors with a comprehensive path toward buying and holding real estate. It’s particularly helpful for new investors looking to transcend their perceived socioeconomic class.
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Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation. |
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