Andre C. Hatchett: Owning Investment Properties 101.
Others who have done it in the past don’t even want to hear the words Investment property. Having owned several investments in the past, I lie somewhere in the middle. After reading this article, you will have a better idea if it’s for you.
It takes a certain kind of personality to have tenants. For starters, let’s say Tim owns a 3 Family home in the Bronx, NY. His monthly payments are $2,500 a month. This includes the mortgage, property taxes, insurance, heat and hot water. Each unit is a two bedroom and Tim collects $1,500 rent from each unit. This makes the total gross profits $4,500, making Tim an Extra $2,000 a month. It sounds nice! Property values in the Bronx are going up on average 5% a year. So, Tim is also gaining equity along with monthly profit. All three of his tenants pay on time, this is the best case scenario, but in 2011 it wasn’t this pretty for our good friend Tim. One of the tenants stopped paying their rent for four months. So Tim was out $1,400 (the market rate at the time) for four months. He had taken 4 days off of work to appear in court costing him $200 a day, totaling $800. NYC has the reputation of being a tenant friendly state and city. This means that the judges are known to give breaks to tenants. When they were at court the Jude gave the tenant an additional two months to get out. So that’s about $9,000 Tim was losing for this one tenant. And to make matters worse, the tenants who didn’t pay were so loud that Tim’s best tenants left their apartment and Tim could not find a new Tenant for two months, costing another $2,800. That’s almost a $12,000 loss he took in 2011.
Overview: Here’s what Tim did right. First: The home was newly renovated. This is a key factor because it allowed Tim to charge the market rent as soon as he acquired the property. And this helped him rent out all three units within two weeks of closing the property. And he did not have to make repairs, which can be very costly. Second: He bought a three family home! This has a lot of upside. Why? Well it’s better to get three pay checks as opposed to one. Let’s say Tim’s investment property was a single family home. When the unruly tenant stopped paying, he would have had to pay all the expenses out of pocket. Remember, it’s an “INVESTMENT” property. Not an “EXPENSE” property. In conclusion, this article has given you what can go right and what can go wrong when owing an investment property. Also, investments come in many forms. If you are looking for a Real Estate Expert in New York, feel free to email me at Andre@HarlemLofts.com