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3 Metrics Crucial for Finding Amazing Apartment Building Deals (2019 Update)

If you are a real estate investor in the areas of North Dallas, Plano, University Park, Southlake or this general region, you should know that this area has been touted as the hottest in the national real estate market for 2017. It is due to the cost of living and the prices for rentals, the diversity of industries and the strength of the job market.

What it means to an investor is simple: this is a perfect spot for real estate investing of any kind, but most especially rental properties. Common logic dictates that one of the safest investments in residential real estate is the multi-family property. This is due to a simple fact – it is rarely going to be at risk for 100% vacancy. With an apartment building, you can still count on solid monthly income with a few vacancies or tenants late with rent. With a single-family home, this same scenario (vacant or late on rent) means 100% vacancy.

Naturally, this does not mean that every single multi-family or apartment building is the best deal or choice for your investment goals. In fact, we have three metrics that are more likely to help you find amazing apartment building deals than just basic assessments.

The Cash on Cash Return

How much cash will you get back each month for your investment on the apartment building? This is the cash on cash return. It is the amount of money after every possible expense has been considered. You divide this by the total amount invested.

As a simple illustration: a property has annual cash flow of $30k. You invested $200k into the purchase. That means that you divided that $30k by $200k invested to find your cash on cash return is 15%.

What is a good return? Experts say that a property with 90% occupancy should yield a cash on cash return of nothing less than 12%.

The Risk Level of the Apartment Building

Typically, this is known as the debt service coverage ratio and it is going to often reveal whether or not you can get financing to make the investment. The debt service coverage ratio looks at the NOI or net operating income versus the annual debt service (interest and principal) you must pay.

As a simple example, you have a building with a net operating income of $40k, and its debt service each year is $30k. The debt service coverage ratio is figured by dividing the NOI by the debt services, and getting a 1.3 ratio. Most banks want to see at least a ratio of 1.25 to be comfortable with the amount of risk in such an investment. The safer level is 1.5.

The Cap Rate

Finally, you need to know the fair market value of the apartment building. That means knowing is NOI as well as the cap rate. The NOI, we already know is the amount of income after all expenses (but usually not including debt service). The cap rate is a multiplier used on the NOI to figure the value of the building.

It is a strange and bit confusing concept, and represents the return on the apartment building if you bought it with 100% cash. You calculate it as a ratio by dividing NOI by the value or price of the building. However, you might often receive the cap rate from your broker, and hear it in terms of the typical cap rate for buildings in a specific area of North Dallas or Plano.

You will usually want a cap rate of 8% or more. You can then use that to determine the fair market value for any apartment building. You do this by dividing the NOI by the cap rate. So, the building that has an NOI of $40k and a cap rate of 8% would be worth $500,000. If it is much lower or higher than area comparables, you need to understand why before making the investment.

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Where Is Real Estate Investing Most Profitable? (2019 Update)

It’s no secret that real estate investing is a wonderful way to diversify and stabilize your portfolio while you see regular monthly cash flow and steady increases to your net worth. However, if your area does not have a good market for rental real estate, house flipping, commercial rental real estate, or whatever real estate niche you want to invest in, then you could be looking at some very bad deals.

Fortunately, as a real estate investor, you do not absolutely have to invest in your own backyard. If you live in an area with a flat or declining market, you may want to consider looking at other areas of the country, where you can find the very best real estate investment deals and get the largest returns on your investments.

Austin, Texas

On a recent list of the best cities to own investment properties in the US, Austin ranked at number five. While Denver, Colorado was higher on the list, this may not be the case for very long. Denver’s property values have been skyrocketing for the past few years, and while those values may continue to rise, market prices are already astronomically high in the most attractive neighborhoods and areas of Denver and the surrounding suburbs.

This phenomenon is not uncommon, and it’s happening in numerous cities around the country. If, for example, you could go back in time to buy property in San Francisco or New York, you could make an incredible profit on your investment today. Without a time machine, investing is nearly impossible for most people in these areas and cities like Denver that have already seen a huge boom.

However, if you look at market trends over the past few months and years, you can see that Austin is primed to see major market value increases. Furthermore, with rental rates rising every year, it is the perfect time to invest in rental properties in this growing city as more and more people move here.

But why is Austin such a great place to invest? Employment in and around the city is on the rise and is currently four percent higher than it was last year. Population growth continues at a positive rate with an increase of just over two percent per year, and Austin homes’ values are experiencing significant annual increases, with roughly nine percent growth over the last year.

Dallas, TX

Just behind Austin and Reno, Nevada, Dallas is another incredible place to invest in real estate right now. As a growing metroplex, the Dallas-Fort Worth area’s population is seeing a huge boom right now. At the same time, the market values for homes have not yet caught up to the demand. There are numerous great deals on single-family and CRE (commercial real estate) properties all over Dallas.

Not only are market prices for those buying homes still good, but there also continues to be a major increase in demand for rental properties in and around Dallas. This means that investors have the potential to buy properties at relatively low rates and then rent them to long- or short-term tenants at very lucrative rental rates.

Texas Is the Place to Invest

Basically, if you are in the market to invest in real estate, Texas has a range of great markets with very profitable investments available. You could purchase single-family homes and turn them into rental properties. You could also invest in an REIT (real estate investment trust) or investment club, or you could opt for real estate crowdfunding. Basically, you can choose whether you want to have a more active or passive role in your real estate investment, and there are numerous properties available. Plus, even with all the developments and houses available, demand for rental properties is so high that it still outstrips supply by a great deal.

If your local real estate markets are not performing the way you would like, you do not have to feel stuck with them. Instead, why not invest in Dallas or Austin, two of the best cities in the entire country to own investment properties?

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Highly Effective Property Management Tips to Reduce Tenant Turnover (2019 Update)

In a perfect world, you would never have to find new tenants for your investment rental properties. You’d purchase the properties, make any upgrades and repairs necessary, find the perfect tenants, and then you’d be set for years to come.

While that usually isn’t the case in reality, there are a few things you (or your property manager) can do to help you retain great tenants. With less tenant turnover, your property will spend less time vacant, and you won’t have to spend as much time and money preparing it for new tenants every time your old tenants move out.

Choose Your Tenants Wisely

In addition to doing a background check on your tenants and ensuring that they should be able to pay rent each month, you may want to look into a few other things. For example, if you’re deciding between two tenants who seem equally good, look at their employers’ locations. Is your property nearby or is it going to be a long and inconvenient commute? Tenants who live near their workplaces are much more likely to renew their leases, whereas those who have a long commute are more likely to terminate their leases and move closer to work.

While you’re reviewing your tenants’ applications, you should also take a look at how much they paid in rent at their last residence. If their rental rate was significantly lower than yours, you may want to consider a different tenant, as they may soon be looking for more affordable housing to fit their budget again.

Keep a Regular Maintenance Schedule

Next, instead of waiting on things to break around the house, you should keep a regular maintenance schedule. This will show your tenants that you care about the property and its upkeep, and it’ll ensure that fewer things break or fail while your tenants are living at the property. With fewer hassles like this, your tenants will be more likely to stay.

Make Sure Your Tenants Know Their Responsibilities

While you’re keeping up your end of the property maintenance deal, it’s important that you clearly inform your tenants about their responsibilities, as well. If you expect them to do basic upkeep on the landscaping, as well as mowing the lawn, you need to make sure that this is clear. If your tenants know what they’re responsible for doing around the property, they’ll be more likely to keep up with these tasks and chores, and they won’t think that you’re letting the house fall into disrepair.

Always Answer the Phone

Emergencies happen, and they often happen in the middle of the night or at other inconvenient times. Don’t turn your phone off at night and do make sure that your tenants have a number where they can reach you for emergencies, even if you’re out of town or it’s late in the evening. You can stress that this number is only to be used for emergencies, but you absolutely must answer the phone when your tenants call you. And you must take care of their problems as quickly as possible.

If you can handle problems that occur at inconvenient hours, and you can do it quickly and efficiently, your tenants will know that they have a great landlord and that they’re going to be taken care of if anything else happens while they live in your house.

Consider Hiring a Property Management Company

Finally, when it comes to finding and retaining great tenants, no one does it better than a professional. Property management firms are equipped to handle those late-night calls, to deal with maintenance and repairs, and to respond to your tenants’ needs whenever they arise. If you aren’t sure you can do all this on your own, you may want to hire a professional property manager to do it for you.

Remember these tips and you might be surprised at how much your tenant turnover rate drops!