How to Make Money Investing in Real Estate

Investing in Ann Arbor real estate can either produce a negative or positive result. To increase your odds of making a successful investment in Washtenaw County, you need to educate yourself and arm yourself with facts.  Currently, real estate is a hot market and now is the time to give some serious thought to making that investment. To get you started in the right direction, there are some specific guidelines to consider.

Applicable Costs
To be a good investor, you must first understand all the costs associated. There are many different costs to consider such as loan payments, taxes, operating and maintenance costs. In addition, it is vital that you maintain solid financial records to avoid running into problems. Your best options are to meet with a financial advisor before you get started and then set up a database to track all the finances associated with each investment. This is a key step in being a successful investor.  I have an LLC for each property.

Comparisons
Before putting money into a property, do some research on the market value of that house. This would include:

• Neighboring homes to compare value
• Geographical area to determine if it retains value
• Crime rate

These are just a few things to look at to ensure you are investing your money in the right house, in the right area in Washtenaw County.

Utility Costs
Be sure to make some phone calls to confirm the cost of recent utilities such as electrical, gas, water, and sewer. When you turn around to rent your house out, in addition to recouping the actual mortgage payment, if you plan on covering any utilities as a part of the lease agreement, you want to make sure that you also cover those costs along with the rent payment. For example, if the mortgage payment is $600 a month, and you plan on covering electrical and gas, which on average run $125 a month, you would need to ask $725 per month from the tenant for rent to cover those costs.

Tenants
Although the majority of people are honest, it is critical to run a background credit check on all tenants as well as collect a security deposit upfront in the amount to cover one month. This ensures you as the owner, if the tenant leaves for any reason without paying, you are covered for one month. In addition, if the tenant has pets such as dogs that might cause damage to the interior of the home or tear up the yard, you should also consider collecting a pet deposit. Again, if damage is done to the carpet, this will provide you the money needed to replace it.  I charge a $25 monthly pet charge.

Inspections
Another extremely important step before making your investment is to have a full inspection of the house done by a qualified inspector. A house may look perfectly fine but without having it properly inspected, you could easily miss a foundational problem, or a plumbing leak, or damage to the roof. These items could end up creating your worst nightmare and costing you thousands and thousands of dollars. The minimal cost to have the inspection done is the best money you will ever spend.

Taxes
If you are considering an investment based on current tax laws, you should rethink your strategy. Tax laws are constantly changing. Based on what the current law is, it may or may not make a property a good investment.

To better your chances of creating a positive cash flow from your investment, either contact a tax advisor or conduct thorough research first.  I am more careful now about Village taxes because they are higher than the township taxes and impact cash flow.

Insurance
It is important to understand that if a seller’s coverage is based on replacement value that is lower than the current value, you could end up paying a higher price due to insurance costs rising.

Whether you are buying your first home or your 10th investment property, it is not an easy process, but that is ok, we are here to help.  Contact me anytime.

Kathy Toth and Team
Keller Williams Realty
2144 S. State St., Ann Arbor, Michigan 48104
Phone: (734) 669-0337
Fax: (734) 661-4315
info@KathyToth.com

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