Feb 07, 2018
Real estate investing is a preferred investment strategy for many. With proper information and planning, these investments can provide an additional stream of income or a mainstream of cash flow. If you are a seasoned investor or someone who’s interested in entering the residential real estate investment zone for the first time, we have an interesting interview for you.
Today we are talking with a prominent residential realtor who owns rental properties and helps his clients find properties to increase their own investment portfolios. In this interview, Minneapolis real estate consultant, Tim Kindem with Keller Williams Integrity Lakes, gives us some of his views on this type of investing, with a special emphasis on buying duplexes. Let’s invest a little time.
Answer: I always enjoy talking about real estate, and I’m a strong advocate for real estate investing. For people who like working with real estate, it’s a great opportunity to create additional income streams and offer exceptional rental situations to great tenants in the process.
A: Sure. I’ve been a full-time agent since 2006, and I was first inspired by the experience and excitement of buying my own home which seemed like I was setting myself up for such a bright future. I wanted to help others and impact their world in an uplifting way. It’s great to have a career that can make a positive difference in people’s lives. At this point, 95% of my business comes from referrals, so I must be doing something right ^_^.
A: I went to seminars all over the country, listened to webinars and podcasts, took classes (probably triple the classes needed for continuing education credits), read a library of books, and picked the brains of gurus and experts. I learned to focus, take things to the next level and approach the industry as a business from a number of fabulous mentors along the way. I found that people like to share their knowledge when they know you are eager to learn. I also learned a lot by trial and error. And error can effectively teach lessons that you remember!
A: I own or co-own 14 properties. It’s become an area of expertise for me. Friends and clients come to me for advice, and I enjoy helping them achieve their goals for investing wisely.
A: Since I’m on the residential side of the market, my clients are most interested in buying duplexes, single-family homes and townhomes. Many will “flip” their properties: buy, fix it up, then sell and make money. Some of these owners will buy the property, live in it while making improvements and increasing the equity, then buy another and repeat the process. This works especially well for duplexes. Others will “buy and hold” which is the strategy for most of my investor-clients. Investment properties are not the highest percentage of my business, but they are a significant amount.
A: When people are buying for their own purposes, most often they are willing to pay a little more because it will be their personal residence. There might also be more of an emotional attachment and a longer list of “must-have” features. They generally don’t feel the pressure of having to make the numbers work as much. Cash flow is not top of mind as it is with an investment property.
A: For first-time investors, I ask if they want to a) buy and hold (becoming landlords with tenants) or b) flip the house. These are two different strategies. If the first strategy is preferred, I ask if they also want to live there. If it’s intended as a flip, I ask how long they intend to keep it before selling and whether they will live there. For both scenarios, we also discuss:
In general, buyers need to understand the financing and options. The numbers are important and cash flow becomes extremely meaningful. The cash flow can make all the difference between a good experience and a poor investment that drains you physically, emotionally and financially.
A: Once we narrow it down, I set them up on the MLS, so they are getting alerts that meet their criteria. I also subscribe to wholesaler mailing lists which include sellers who don’t want to be shown on the MLS, but clearly, the MLS yields the most results. Communication with other agents is also a great source of leads, and occasionally an FSBO (For Sale by Owner) deal may have possibilities, but these are generally higher in price than an investor is willing to pay.
A: There are many factors to consider. Here are a few at the top of the list:
A: If the buyer plans on an owner/occupy situation, that’s the best scenario. They have their own unit and when the other unit is rented, things are great. If the other half is not rented, at least it doesn’t hurt as much as in a single-family home when you would be missing 100% of the rent. The key to rentals is you need to keep them occupied.
A: There can be a downside (or several). It might be that the chances of getting a longer-term tenant are lower. You want long-term renters, and induplexes the tenant stay tends to be shorter, perhaps because it’s less private. Maintenance expenses tend to be higher because the tenants might not have as much ownership or connection to the place since they know they won’t stay that long.
Also, there are costs associated with losing a tenant and preparing the space for a new renter: cleaning, making repairs and improvements, etc. A question some people forget to ask is, “Who pays the utilities?” If the bill is split between the units so each tenant can pay their own, that makes it easy. If not, the owner generally pays the bills and splits it in some fashion between the tenants. This can happen in older buildings, especially for gas and electric. You need to also check on how the water bill is calculated.
A: The first thing I recommend is a list of resources: books and podcasts. A more educated client will better understand the process, financial implications, and how to attain more favorable results. Here are some books high on my list for investors:
Podcasts are also a valuable source of information. Bigger Pockets is not just a podcast but offers a wealth of knowledge and an online community for real estate investors. You can sign up for free membership.
A: It’s important to figure out financing first. They should be pre-approved by a lender (specifically a creative lender with numerous loan options and experience in lending on investment properties) and be willing to get that done. They also need to be willing to formulate a workable plan. Sometimes you can tell that they aren’t yet ready if they can’t make a decision even when a good deal is presented.
A: If the deal doesn’t match up with their comfort level, it’s not right. If the property needs more work than they are willing or able to do, that’s a red flag. If they can convince themselves that things can be improved easily, or they can afford to do it, but they really can’t, that needs serious discussion. The best time is when it makes financial sense and the plan is feasible.
A: Usually, as they see houses, something will excite them. Then, it’s a matter of going with the momentum or having a reality check. If it gets uncomfortable, we can get them out it.
A: Here are a few examples to show the variety of assistance and opinions that can be needed:
A: Assuming “buy and hold,” think about it as a long-term strategy. Be patient. There aren’t always abundant deals in today’s market, but they can be found. The more you’re willing to do as an owner, the better the opportunities. If you are a DIYer, you can save a lot, but you also need to find the time to do it. Financing impacts your results. If you have the money, great. If not, be sure to explore the lending options.
Thanks, Tim! We’ve learned more about this fascinating journey into the real estate investment market. There’s a lot to learn and now we have even more resources to help us find success in property ownership. We know that we need to pay attention to finances, investment goals and property management. We can also evaluate our desire for hands-on involvement and carefully chose our mentors.
If you have gained motivation to dig deeper by reading some of the recommended books, talking with other investors, or looking for rental properties, please share this article with a friend who might also benefit. Happy investing!