5 Updates Landlords Shouldn’t Make

Marble countertops, shiny tiled floors, and a brand-new patio: while they might be pretty, upgrades like these won’t help your bottom line. If you plan to invest and maintain a profitable rental property, you’ll need to strike a balance between updating the space and minding your budget.  By creating an appealing setting, you can make more of a profit by increasing the rent – however, if you stray from updates to full-scale renovation, you might end up dealing with a property that costs more than it earns. Here are a few renovations that investors shouldn’t make on a rental property.

  1. Adding a Swimming Pool

A pool may seem like an ideal addition to the backyard, but it won’t necessarily increase the value of the home. The feature can also take away space in the backyard for pets or children to play in on the property and make it seem unattractive to families who lack the time or resources to maintain it.

  1. Room Addition

According to loans.usnews.com, room additions don’t always pay off due to the high cost of the construction. Projects with a lower price tag – such as appliance updates and repainting – tend to have a better ROI for landlords.

  1. DIY Projects

From painting the walls to installing new sinks, DIY projects are cost-effective at a price; while they may seem cheap at the outset, they often look they were performed by someone who had a lack of experience and ultimately turn away would-be tenants. It’s necessary to leave the work to professionals to ensure that your money is an investment that pays off and attracts more tenants in the coming years.

  1. High-Maintenance Landscapes

According to Time Magazine, creating a beautiful garden benefits the aesthetics of a home – but it doesn’t justify increasing the rent that you charge. It can also require a significant amount of money for landscaping services to upkeep the property or the tenants may not want to spend their weekends pulling weeds and watering different areas of the yard. Stick to landscaping that is easy to maintain to ensure that you don’t waste your money if you’re renting out the house.

  1. Upgrading Everything

Many landlords make the mistake of upgrading everything and assuming that the home needs to have all new features or materials to attract good tenants. Overspending on upgrades can make the house appear too chic and regal for the local area, making it necessary to keep the upgrades to a minimum. Stick to adding new fixtures on the cabinets or new hardwood floors in the living room to make upgrades that are minimal, yet aesthetically effective.

 

*Originally posted on JasonCohenPittsburgh.net

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Writing a Business Plan for Your Real Estate Investing Business

When it comes to investing in real estate, there are many things that you should do before even looking at properties. At some point, you will need to write a business plan. Often thought of as a map of a business, these plans work as a guide. The plan should be fluid. As circumstances change, so can the contents of the business plan. Not only will you, as a business owner, want to review this periodically, investors will also want to review the plan. At Jason Cohen Pittsburgh, we start every investment with a written plan.

Normally business plans are divided into smaller sections allowing the writer and the reader to focus on the section that is most important at the time. The most common sections are a mission statement, goals, strategy, market, criteria, exit strategies and backup plan, and financials.

The mission statement is possibly the most important section of a business plan. It should answer the questions of why, what, where, how, and when. If you are at this point, you have most likely answered most of these questions — it’s now you need to write them down. Though it will lead the business plan, the mission statement is usually written last. It will serve as an executive summary of the entire report. If you are presenting this to investors, the mission statement may be the only section they read. Grab their attention in this section by giving a solid statement of your business.

The goals section should be as concise and as clear as possible. The goals should be tangible, so you can track success. Separate the goals into short-term and long-term. Remember, you can always update this section as the world around you changes and you adapt to it.

Following the goals section, define your strategy. This section will answer what type of investment property you plan to use to create a profit. This can be a single-family home, multi-family home, a small apartment building, or a large apartment building. When you start your business, stick to one strategy. By picking one strategy, you can master it. After you are experienced in real estate investing, you can diversify into multiple strategies.

A definition of the market area should be a section included in a real estate business plan. By dissecting the market in which you will execute you business, you will uncover possible risks. This section should answer questions about the demographic of your market, the future of your market, and the competition within your market.

The criteria section will give you a chance to go into details about what type of deal you are looking to use as an investment. Define the maximum purchase amount, the maximum rehab amount, and the maximum timeframe to hold on to the property.

An important section to include in your plan contains exit strategies and contingency plans. This section is not only important to you while conducting business but investors tend to focus on this section. Detail whether you plan to buy and hold, flip the property, rent the property out, etc. To cover all your bases, imagine multiple scenarios and multiple exit strategies.

Include a section containing a description of the financials of the business. The financial section should include a listing of any equity that you can use and a summary of the financials at a point in time. You can either include how you plan on finding financing in this section or add a separate section.

Organize the sections in the best way that you see fit, but always lead with the mission statement. By taking your time writing this plan, you can use the real estate investment business plan as a tool while going through the day-to-day operations, like we do at Jason Cohen Pittsburgh. Not only can a good business plan entice investors — it can help you build your business with cohesive strategy and goals.

Should you invest in stocks or real estate?

Now that the real estate market has made huge strides in the way of recovering from the Recession, its appeal to investors is growing again. All over the nation, people are looking for ways to turn their money into more money. And real estate is looking like a better option every day.

But, which is safer — real estate or stocks? Where can you get the greatest return? And how much time are you willing to devote? At Jason Cohen Pittsburgh, we are clearly in the real estate camp for ourselves. But is it the right investment for you?

Familiarity
Unless you come from a family in which stocks and bonds were discussed at the dinner table, chances are you’re more familiar with real estate than the stock market. You see homes sitting on the market every day. You know how they can necessitate work when you see a pipe freeze, a roof leak, or a floor wear out. It’s tangible. Stocks are figurative. They exist in another space. When they go bad, it’s just as palpable — but not as visual. You may already know how to repair damages in a home.

Control
Unlike stocks, that are subject to the whims of the market and business decisions made in boardrooms far from your office, you have some level of control over your real estate investments. Sure, weather and human error can wreak havoc on a home, but you can be insured against a great deal of the damage.

Time Commitment
Though real estate is generally familiar and fixable, this also means that it is more high maintenance to the investor. You may already know how to repair a damaged bannister, but do you have the time? Stocks and bonds are far removed from your daily life. Aside from monitoring them, they are a nearly effortless investment.

Steadiness
While stocks have generally proven to yield higher returns on investment, they are prone to extreme fluctuations. This can cause a novice investor to panic. Real estate values usually do not skyrocket or hit rock bottom. Their steadiness brings comfort to the investor. You can’t open the paper in the morning to see that the value of your investment property has plunged.

Diversity
You hear the creed of “diversify” from every financial advisor. Because you can invest less money in each stock than in a single real estate property, you have more opportunities to diversify your investment portfolio. Real estate investors generally invest in a certain geographical area. Therefore, if this region takes an economic downturn, all the investments go with it. Investing less in stocks offers less risk.

Unless you love all the risk and work that goes into real estate investing, the stock market may be a better option for the casual investor. But if you’re like us at Jason Cohen Pittsburgh, and you live for turning that distressed property around, then real estate investing is the path for you.

Limited Liability Landlord. Why to Set Up Your Rental Properties as an LLC.

It’s often the case that a property owner will fall into landlordship. Maybe you have a property that you had to leave when the job sent you out of town. Maybe that starter home just wasn’t big enough anymore and you decided to rent it out instead of selling it.

At Jason Cohen Pittsburgh, acquiring, owning, and managing rental properties is our business. We didn’t just start out by renting out a house as a way to steadily pocket some extra cash by making money by something that was already there. We treated it as a business from day one. So, we operate as a limited liability corporation.

In legal terms, there are four ways of operating a business, two of which — sole proprietorship and partnership — name you as your business. This means that you are personally accountable for them. Your home and assets are all linked to the business. In a corporation or limited liability corporation, your business is a separate entity, so your personal finances are not connected.

An LLC is almost a lighter version of a corporation. It borrows elements from corporation and proprietorship, enabling business owners to choose how they want to be taxed. This business structure also allows you to operate without the formalities of a board of directors and shareholders that corporations require.

The minimal paperwork and meetings of the LLC makes it ideal for property managers and landlords. If you own a few properties and want to make sure that they are considered separate from your personal residence to guard yourself against a professional catastrophe, one LLC should suffice. If you’re a professional property manager, conversely, and you are constantly acquiring new properties, you may want to consider forming several LLCs for various properties.

The reason to form multiple limited liability corporations is the same as the reason for forming one in the first place — to protect your other assets. Say you own 45 properties in your city. Property management is your business. Something goes wrong in one of the properties and it ends in a lawsuit. Having this property set up as its own LLC isolates it from the others. That way, you don’t have to worry about one incident in one rental property destroying your entire business.

A prohibitive factor for many property managers when pursuing an LLC is the cost. It varies by state, but in some it can be $800/year. However, you’ll just have to weigh this predictable, set cost against the risk and unexpected costs if you don’t limit your liability legally. Another drawback is that often banks may not lend money to LLCs, which makes financing more difficult than operating as another type of business entity.

When operating several LLCs for rental properties, run them as if they are separate businesses by setting up separate bank accounts and filing separate tax returns for each.

At Jason Cohen Pittsburgh, our combined decades of experience in property management have enabled us to learn how to best protect both our collective and personal assets. Aspiring and new property managers should consult legal counsel and solicit advice as to how to best handle the legal issues in forming their rental companies.