“A brush with death always helps us to live our lives better.”
                                                           ~Paolo Coelho, author of The Alchemist.

We couldn’t agree more…

People who have faced death often realize we’re all just living on borrowed time. One day, everything that we have, everything we hold dear…

…will all disappear. You don’t have to have a near-death experience, though, in order to realize what matters most in life.

Today’s post is special because it’s different from the rest…

It’s not about learning and/or refining your real estate investing tactics or strategies. It’s more about refining  and living a better and more rewarding life.

And I honestly believe that the following truths could very well change everything for you if you let them.

“That which does not kill us, makes us stronger.”
                                                            ~Friedrich Nietzsche
                                                            Title credits Conan the Barbarian

1. We are stewards

A steward is someone who manages the arrangements and possessions of someone else. But this type of stewardship isn’t just about money or possessions, it’s about arrangements and circumstances.

When you go through the process of visualizing your goals in life, don’t just focus on money and material things. Trust me, it’s going to be a very unfulfilling journey if you focus on those.

Money is a piece of the puzzle. It’s a cog in the wheel…

Stewardship is essential. So it really isn’t optional. There’s a tendency that we spend most of our time thinking about the past and the future. We forget to be fully present in what has been entrusted to us.

You are a steward of your:

Stewardship is all-inclusive. At some point, you’ll be asked to give an account of how well you handle everything that’s given to you:

2. Be transparent.

Transparency isn’t just powerful, it’s imperative.

Consider this important question:

Why do we wear masks?

Does society or culture have a way of making us mask our struggles or keeping our dirt hidden from public view?

Think about it…

Sometimes other people only see the side of us that we want them to see (we don’t even realize it). We keep our struggles, our rough edges, nicely out of sight.

But when you visibly face the challenges in your life, you not only attract the support and encouragement you need from your loved ones but also deeply impact other people around you in a positive way.

It’s definitely life-changing when you can live your life with transparency and authenticity. It draws support, encouragement and input from the people who matter the most in your life.

3. We ought to live a purposeful life

Have you ever wondered why you were born?

Or why you didn’t die when you definitely should have (cue a near-death experience)?

That’s because we all have a purpose here on earth other than just surviving.

If you want to know your purpose, ask yourself this:

“If you didn’t have to please anyone or worry about anyone else, what would you do?”

And this one:

“If money was not an issue, what would you do?”

Begin with your passions – what you really want to do and go from there.

Always remember that you are unique. You have gifts, talents, skills and opinions that no one else has. Your job is to share those with the world. Make yourself available to not only serve your interests but other people as well.

You’ll eventually realize that it’s more fulfilling to give than to receive.

4. Change is constant

It’s probably the most cliché of all clichés, but change is inevitable.

Only when you embrace the change can you notice its benefits. Turn the changes into opportunities, embrace them with open arms and an open mind; recognize and capitalize on these changes and you’ll definitely use it for your benefit.

Most people like to ignore the change. They keep on doing the same things over and over in the hopes that it will go away.

Newsflash: Change will always be there.

If you’re going to continue to ignore it, then there’s a huge possibility that you’ll fail. Life doesn’t stop for anyone.

Nothing in life is constant. When everything’s going well, appreciate it and be grateful. If you’re always on the lookout for something better, something more than what you have, you’ll never be able to fully enjoy the present and the wonderful moments in your life.

5. Don’t be afraid of failure

We all have fears, that’s a given, but don’t let your fear rob you of what could have been.

The main source of regret is fear.

When opportunities pass by, you’ll think more about the chances you didn’t take than the possibility of failure. So, don’t be afraid to take risks.

Those risks should be calculated, with an ample amount of due diligence, but they are still risks. Every day in life is a risk.

Business is risk. You just can’t escape it.

Embrace it. Seek to minimize it. And use it to your advantage.

Really, what’s the worst thing that can happen to you?

It probably won’t kill you (be careful around those near-death experiences, though). There is nothing worse than allowing yourself to die internally while you’re still alive. Living a life afraid of everything will be a slow death.

Think of the failures as lessons for the future. Some may be expensive lessons. Failure is just part of your education.

Look, all these truths help us become better people and better real estate investors…

Try running your business around these 5 truths. Make the most out of  knowing that you have a purpose to not only change your life for the better but to impact other people as well.

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The place is in pristine condition and ready for renters or already rented. Oftentimes, these properties are bought from companies specializing in rehabbing old estates. Property management is also offered by these companies to buyers in order to minimize the amount of time and effort poured into the rental.

What do turnkey investors look for?

Finding a turnkey investment property that makes money is not easy. Real estate investors generally think they have to buy a property requiring extensive repairs in order to buy it low enough to make it worthwhile.

It’s true that it is difficult to purchase a single property or two properties in pristine shape and make much money on them renting them out…

That’s why turnkey investors think bigger.

Think of  buying at least 10 to 15 (or more!) properties at a time and rehabbing them. That’s what some large real estate development companies do. They buy the properties in bulk. And it just doesn’t stop there – it just keeps on getting bigger and bigger…

Some companies can purchase and rehab more than 200 properties at a time instead of fixing and flipping properties one by one. This gives them tremendous leverage. Buying in bulk means:

Plus, often buying in bulk means lots of parts left over after the rehab. The extra set of supplies will come in handy when repairs or replacement are needed. Either the large investment company can take care of their investors through lowering the prices of repairs (which investors will have to pay eventually) or they can save the parts for future rehab projects.

Companies that can purchase in bulk can sell individual properties to the turnkey investor at a price that provides cash flow and the potential for appreciation – without all the work and hassles of flipping it themselves.

How does a turnkey deal work?

Some real estate investors will fix up a property to make it just barely ‘rent ready.’ That means they may cut corners or do a shoddy job, which results in a rental unit barely over the minimum acceptable requirements.

But hey – if the minimum weren’t good enough, it wouldn’t be the minimum, right?

True turnkey investing is not about this at all…

Investing in turnkey properties means buying undervalued properties, redeveloping them – often stripping them into the studs – and creating an almost brand new property out of it. The property is upgraded – a lot.

A beautiful property results in a backlog of tenants ready to move in. After all, if the rehab isn’t done right the first time, it means lots of maintenance headaches further down the line – definitely NOT turnkey!

When you buy property from turnkey investors, they should guarantee it and fix anything that goes wrong the first year. These repairs should not cost much since chances are the investors upgraded everything before tenants moved in – new wiring, new mechanicals, new plumbing, new everything.

So, you buy the property and then the next day there’s a tenant ready to move in…

There is never a lack of people wanting to rent because smart investors strategically position these properties in commuter cities where rental properties are high in demand. This is what makes it turnkey.

It’s up to you to do your due diligence to make sure that investment company is doing what they say they are doing.

The key to a successful business or turnkey investment company is to continue selling properties to existing clients. This is a good indication that a business is nailing the game.

Ask for lots of references from a company that sells a lot of turnkey deals. If they are doing a good job, their investors will keep investing.

Who is turnkey for?

Generally an investor should not look for a ‘no-money-down’ turnkey deal. Because an investor is hardly putting any sweat equity into the deal, it would be hard to make much money if your debt service is too high.

Instead, think of investing in turnkey properties like you do stocks…

With a stock, you are basically relying on the company to improve your share price and pay dividends. If you are a turnkey investor, you are relying on the management company to improve your ‘share price’ by keeping the property nice and helping it appreciate.

The company should also pay you ‘dividends’ in the form of rent payments. And just like buying stocks on the margin can be risky, it may be a losing proposition to stack up too much debt when buying turnkey investments.

Turnkey is a good idea for your Self-Directed IRAs or if you want to borrow against your 401k. Let the management company run it while you work on other projects.

What makes a good turnkey market?

Rental markets are usually classified like school grades. There are A, B and C neighborhoods.

And then there’s D and F – also called “war zones,” these are properties we want to steer clear of. Lower-grade areas are usually dangerous and have a high crime rate. Every urban city has them.

In ‘A’ locations, these are mostly the expensive neighborhoods. The CAP rate (return on investment) is lower and causes a lower return for your money since you have to pay a higher purchase price. Plus there is less rental demand because almost everybody in A neighborhoods owns their homes.

As you go lower into the riskier parts of the city, the B, C, D and Fs, your CAP rate is higher along with the return of your money. But the hassle factor (and safety factor should you have to go out there!) goes way up.

Generally as a rule of thumb, your goal is to stay around the 10% cap rate. That means you make 10% on the money invested.

A good place to buy turnkey rental properties is a major metropolitan area that has various industries.

Detroit for example, was heavily dependent on the automobile industry. When that industry struggled, Detroit really felt the pain.

If you are an investor who wants to build your wealth and your portfolios, look in B and C (working) suburbs, where the demand for rentals is high. Nice homes in these areas will have lots of competition, high rents and low vacancies. About 65% to 70% of people in these areas are renters.

Chicago and New York City are examples of some of the best rental markets in the country.

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T oday, Steven Howell has a little inspiration for you… actually, a lot of inspiration. If you want to move from part-time investor to full-time investor… or maybe you already are full time and you want to get more deals done, this video post is for everyone.

Oftentimes in this business, we get caught up in the ‘money, money, money’ spiral.

So, he’s challenging us all to think about REI in a different way – and you may not have thought about it like this before…

He’s empowering us to think about our strengths and where we can improve.

Check out his ideas – which include some real-life and actionable examples. Enjoy…

With Steven’s tangible examples, we hope he’s given you a new way to think about this industry and your investing business.

And if so… we look forward to hearing about all the wonderful opportunities that can come your way.

Here’s to working on your craft.

Share your BIG lessons with us!

Got any hard-learned lessons, falters, or good ‘ol fashioned mistakes to warn others about? Share below! We’ll take the best ones and write about them in a future post.

Do you remember the OJ Simpson trial?

OJ was an ex-NFL running back who was accused on murdering his wife in 1994. His trial captivated the nation, and many people were certain he did it. Then along came OJ’s Dream Team of lawyers…

They convinced the jury there was enough doubt to not declare OJ guilty.

Those lawyers didn’t out right lie (as far we could tell). Instead they crafted a story by linking the known facts in such a way as to create doubt. They came into the courtroom after a ton of preparation.

They were ready for any objection the prosecution might throw at them.

At some point in your REI life, you probably looked for a lender or investor to finance your projects. Think of that lender or investor as the prosecution. You’re on the Dream Team…

They will bring up all sorts of objections why they should not invest with you. You need to come up with reasons in your “financial story” that overcome those objections – especially if you’ve had some financial setbacks in your past.

You need to be able to explain how those setbacks taught you the hard way how to see problems in projects. Or how those setbacks were completely different than the investment you have now.

Just like those lawyers, you will want to be thoroughly prepared before you go up against the financiers. That means having your detailed financial statements all put together and that you understand them.

Review all your financial dirty laundry and anticipate the objections ahead of time…

When you are in front of those investors, it’s a little worrisome when they bring up problems about your project. It’s even worse when you don’t have an answer for their objections.

IMPORTANT DISCLAIMER: This post does not imply that you invent reasons or a financial story. It’s about taking the facts as they are and reframing and rebooting your financial story in a way that is beneficial to you and them.

What is a financial story, anyway?

Your financial story is your financial picture – your financial documents and your financial statements. These tools tell a story about how successful you are as a business owner or as an investor.

It’s important to know that you already have a financial story…

You just have to craft it and position it in the best possible light, in a way that it makes sense to the key players – the stakeholders who aid you when you are trying to raise money or when you’re dealing with debt or equity.

Your finances are numbers and you’re not going to change them – it is what it is. But people interpret numbers in different ways, and here’s why you need to craft your financial story.

Identifying your financial score in the money game

Crafting a good financial story has a process, and it is broken down into 3 steps:

1. Identifying your score.

2. Understanding your past.

3. Creating your story.

The first 2 steps – identifying your score and understanding your past – are critical because they are the building blocks for your ‘future story.’

1. Identifying Your Present Score

The score pertains to your status in the money game. You make up the score as you see fit.

Are you winning or losing?

If your expenses are greater than your income, would you say you’re winning the game?

If this is the case, your current financial score is low.

You can also determine your score through your net worth. If your net worth is a billion dollars, it generally means a higher score. If your net worth is negative or the like, my guess would be… lower.

These are 4 steps in identifying your score:

1. Fill out a personal financial statement and understand what it means.

Generally, your financial statements (income statement and balance sheet) have everything you need to identify your current score:

2. Schedule of Real Estate Owned

This data is often listed on your personal financial statements, but for big-time investors who own a lot of property, they need a separate attachment – the schedule of real estate owned. Listed there are all of the properties owned with their corresponding value and debt.

3. Global Rent Roll or Global Pro Forma

For each real estate that you own, the income, expenses, profit and cash flow of every single property you own are listed.

4. Credit Report

I’m pretty sure you’ve seen what a credit report looks like. It has a list of every single personal debt you have.

So, aside from these 4 documents, another important detail banks or lenders look out for when they underwrite your deal is your Debt Service Coverage Ratio or DSCR. Your DSCR compares your net operating income to your mortgage. It basically calculates how likely you can pay back your loan.

When banks compare your DSCR, the magic number is typically around 1.2 or 1.25.

Ideally, when you add up all the income and expenses from all your properties and compare that to your debt payments, you would want to have a minimum DSCR of 1.25. The higher the ratio, the better.

So, if you have a property that has a net operating income of $39,346 and your debt operating income is $19,335, divide the income by the debt operating income. It will give you the DSCR of about 2, which is extremely high…

Meaning lenders will be more comfortable working with you with this ratio.

2. Understanding your past

Part of the problem in understanding your past is that you don’t know what you don’t know. But you want to understand these things so you can communicate well with the bank…

Let’s take into consideration your tax returns. You usually have your accountant compute all the figures and you’ll most likely only care about the end result: how much you owe. But when you present this to a bank, they view everything that’s on the tax return.

90% of the time, an investor’s tax return doesn’t match with the other documents. This is okay, banks are aware that this happens often…

So make sure you understand your tax returns, so you can answer any objections.

It now boils down to crafting your story…

You want to get ahead of the bank or the lenders and have your tax returns match your other documents. Or at least you should be able to explain the differences. You also want to identify other red flags, not just with your tax returns, but all throughout the process.

3. Create your story

Your goal in creating a story is to turn these red flags into a compelling story. Even a notorious credit history can turn into a promising story.

A famous internet meme of Cinderella said, “Says you are the love of his life, forgets what you look like and has to put a shoe on every girl in the Kingdom.” If a girl read a guy’s profile like that on Match.com, they would hardly think of Prince Charming.

But if you take the same story and relay it the way Disney did, now you’ve got the famous Cinderella story.

The point is, you cannot change your facts, but you can find a Cinderella story in your financial story.

Action Items – Do It To It

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The real estate industry is a relationship business…

The success of your real estate business is determined by the quality of your business relationships. Make one mistake of providing your clients or agents with unethical or a so-so service, and good luck getting back on track.

The key to unlocking real estate success is found in building and nurturing relationships – working hard to maintain your clients and your network, and by creating strong relationships that can last more than just a one-time sale or listing.

We’re in a Relationship Business

Let me give you a concrete example…

Real estate agents have pocket listings that go to their favorite clients. Pocket listings are great deals that the agent doesn’t want to give to just anyone. Clients become one of the  ‘favorites’ by:

But time after time, preferred clients make the most money – because people bring them the best deals.

A lot of other clients may actually become upset because the agent doesn’t call them when a great deal comes along. When they complain like that, they are not on their way to becoming a preferred client.

Without a good relationship with the real estate agent, people miss out on great deals.

It’s critical to have solid relationships with various people in the real estate industry so they will let you know when something special is going on.

Life Lessons 101: Trust Is the Foundation

Just like every personal relationship, mutual trust is needed for your business relationships to work.

Don’t tell me that people you do business with or the people you employ are the ones you don’t trust… if that’s true, your business is heading down. Fast.

Usually, the people who work on your deals are the ones you’ve met over the years – you know, like and trust them.

For a real estate agent to bring you the best deals, he must like and trust you enough to do business with you.

Credibility is very important in this line of work. It goes hand in hand with taking care of the relationships you’ve formed.

In the real estate industry, it’s imperative that you have these relationships in order to thrive – and also you’ll know who to go to if you need something.

A good relationship also means you don’t abuse that trust…

Don’t let your appetite for profit grow to the point where you are ticking off everyone around you. Think of the Preferred Client…

Remember?

The one who makes things easy for everyone.

Constantly bugging your agent for new deals does not make things easy for her/him.

A New Investor?

If you’re a newbie investor and you don’t know anybody in the industry, you might not know where to meet new people and how to start building your network.

To start, you can:

You need to form relationships in different states and areas of the profession.

For example, get yourself a new attorney in each state since state laws differ from one to another. You can also have broker relationships in different regions, as well as contractors and the like.

You can usually get these referrals from property management companies, colleagues, fellow investors, Realtors, etc.

Immersing yourself in various networking strategies to build your network, helping other professionals with their real estate needs and being strategic in forming relationships will most definitely help your business. So get to it.

Action Items – Do It To It

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Got any hard-learned lessons, falters, or good ‘ol fashioned mistakes to warn others about? Share below! We’ll take the best ones and write about them in a future post.

The good news is this – for some investors, renting to Section 8 tenants can be an awesome opportunity. Depending on your market and the types of homes you purchase, Section 8 can offer some distinct advantages over renting to private tenants.

The key is – you need to do your due diligence when determining if this is the right opportunity for you.

The process of becoming a Section 8 landlord is fairly straightforward. You start by filling out an application with your local Public Housing Authority (do a quick Google search using your county name and “Public Housing Authority” to find the right one).

Once the paperwork is complete and you’re approved as a Section 8 landlord, the process for finding and screening tenants is pretty much the same as finding any tenant. You’ll still want to do a background check on possible tenants, create a lease and make sure you’re policing your rental property on a regular basis.

With that being said, there are some definite advantages and disadvantages of renting to Section 8 tenants. I want to cover those in more detail, so you can make an informed decision about whether or not this is the right choice for you.

And, of course, don’t take my word for it – do your own research before you make the final decision.

The Good Stuff #1: Steady Income

There are obviously quite a few benefits to renting to Section 8 tenants… otherwise, no one would do it.

Let’s address the glaringly obvious one first (and the reason many property owners decide to take this route when it comes to renting out their homes)… guaranteed rent payments, baby!

First – a little background on this…

When people become eligible for Section 8 benefits, they receive housing vouchers from the government. After they find a place to live and sign the lease, the Public Housing Authority pays the tenant’s housing voucher directly to the landlord.

This can be done in one of two ways:

After the first monthly payment, however, it should be a breeze from there. You will receive your payments in a timely manner from the government. Cha-ching!

Also, I would be remiss if I didn’t mention the fact that many Section 8 tenants don’t have their entire housing cost covered by the government. Some of them will need to pay a small portion of the rent out of their own pocket.

If they don’t pay their portion, they risk losing their monthly housing voucher. And, as those of us with rudimentary math skills can tell you: paying a small portion of the rent is much more desirable than paying all of the rent – so these individuals and families are highly motivated to pay their rent on time, every month.

On the other hand, if you’re renting to private tenants, there’s always a chance that they may fail to make their rent payments (even if you’ve conducted an excellent background check, this could still happen).

Check out this true story…

I heard of an investor who “inherited” a private tenant when he bought a property, and then had a terrible time getting the guy to pay his rent. When the investor finally took the delinquent tenant to court, the tenant claimed that he was the rightful owner of the property, and that the investor was a scam artist who was just trying to get him thrown out of his house. (Whaaat?!)

Obviously, this was an extreme case. But the bad part was that the judge gave this bozo tenant a chance to prove himself, and the case turned into a tedious and time-wasting process that left the investor drained of emotional energy.

The morale of the story: Tenants from hell can come from anywhere, but with Section 8 tenants, you are at least guaranteed to receive your monthly rent payment. Boom!

The Good Stuff #2: No Shortage of Tenants

Another advantage of renting to Section 8 tenants is that you will probably NEVER have trouble finding people to live in your properties.

In many areas of the country, there are waiting lists of individuals and families who are hoping to qualify for the Section 8 program; that’s how popular and widely used it is.

Plus, when you decide to open your properties up to Section 8 tenants, you’ll have a whole new pool of candidates to choose from.

The U.S. Department of Housing and Urban Development website also allows Section 8 landlords to advertise their properties (for free), which means you’ll need to do basically ZERO work at ZERO cost to find potential tenants.

Overall, Section 8 is a great resource for property owners who may be struggling to find traditional, private tenants.

The Good Stuff #3: Pre-Screened Tenants

Now, as I mentioned before, if you decide to go with Section 8 tenants, you’ll still want to conduct your own background check (and possibly a credit check too). BUT, the nice part is: The Public Housing Authority does its own screening of potential tenants – which helps narrow down the candidate pool before you even have to do any work.

For instance, the Public Housing Authority checks out criminal histories, and will not provide vouchers to people who have a been evicted for drug-related offenses in the past 3 years. The government will also provide you with a list of the tenant’s current and past landlords (names and addresses), so you can easily do your due diligence.

Just make sure you’re covering all your bases when it comes to screening tenants for your Section 8 properties. But it’s good to know that some of the initial work has already been done in that area.

Now that I’ve painted a pretty picture of the benefits of renting to Section 8 tenants, I want to make sure you’re aware of the cons.

The Bad Stuff #1: Property Inspections

This may or may not be a “con” in your mind. Just know that the Public Housing Authority will perform an initial inspection of your property, should you decide to apply as a Section 8 property owner.

The inspection will ensure that the property meets HUD’s housing quality standards for safety, water, electrical, etc.

The bad news?

You may be given a list of items to repair or upgrade. It could be as basic as installing new smoke detectors, but it could also be as complex as rewiring electrical.

After the initial inspection, you will also be required to submit to a yearly inspection by the Public Housing Authority.

All in all, this is just something that you should consider when deciding whether or not you want to accept Section 8 tenants. Make sure you have the time and funds to accommodate these inspections and their possible repair requirements.

The Bad Stuff #2: Financial Considerations

Just as there is a financial upside to Section 8 (guaranteed rent payments), there can also be some financial downsides that you should consider.

First, the government doesn’t require tenants to pay a security deposit for Section 8 properties. On the flipside, you can still require a security deposit – but you will have to get it directly from the tenant. This could be an issue, especially if tenants are willing to go elsewhere and live in a Section 8 home that does not require a security deposit.

Even more importantly, HUD will also determine a “Fair Market Rent,” based on the location of your property, its condition and the number of bedrooms/bathrooms. Based on how they evaluate your property, you could end up with less monthly rental income than if you were to rent to non-Section 8 tenants.

Again, in some cases, these financial factors may be a non-issue…

Maybe you will have no problem getting a security deposit from your tenants. Maybe the government will charge a fair (or even-better-than-you-expected) rent price for your property. And that’s awesome.

The Bad Stuff #3: Stereotypes & Stigmas

One final factor to think about – when considering whether to rent to Section 8 tenants – is the stigma and stereotypes associated with subsidized housing.

Section 8 tenants are sometimes portrayed as individuals who will neglect or even destroy your property, because they have no ownership or reason to respect it.

But let me say this: ANY tenant can do this. This is not unique to Section 8 tenants!

I’ve heard horror stories about investors who take on Section 8 tenants but – on the other hand – I’ve also talked with investors who say that their Section 8 tenants are the most respectful, courteous and grateful people they’ve ever met.

It all comes down to this…

If you do your due diligence and properly screen potential tenants, you will greatly reduce the risk of your property being damaged by their negligence. A person’s inner character has nothing to do with income level or status in society.

One final thought to consider as well: Even if you are A-okay with renting to Section 8 tenants, there may be others who are not as enthusiastic about it. For instance, if you own a multi-unit property, and you rent to some Section 8 tenants, you may encounter some difficulty in renting the other units to non-Section 8 tenants.

Again, these may not be deal-breakers for you. Maybe you’re shaking your head right now and saying, “Nope, this would never be an issue for me.” But I say it’s simply something to mull over before you make the decision to pursue Section 8 tenants.

Bringing it Home

Pulling all of these ideas together, you should be able to develop a clear picture of whether or not Section 8 is the right choice for you.

If your target market is low- to middle-income tenants, this could be an amazing opportunity. But if you’re investing in luxury properties in affluent areas, obviously this is not for you.

Also, carefully consider the amount of time this process requires. You need to have the availability to accommodate inspections, make necessary repairs and more. If you’re a brand-new investor who is just starting out (and you don’t have an assistant or a team of people to help you), the time needed to focus on Section 8 responsibilities might be too great.

Once you get into the groove of Section 8, it can basically be an effortless process. It’s all up to you to decide if this is right for your market, your property and your skillset.

Ups and Downs

What’s been your experience with Section 8? What techniques do you use to ensure that you get the best tenants? Every situation is unique, but I find it super helpful to hear stories from other investors. Let me know your thoughts in the comments section below.

Then consider converting your rental into an STR (short-term rental). Depending on your location, you could make more than double the income from an STR compared to a traditional rental.

Sounds great, right?

But before you take the dive into this growing market, make sure you get ALL the information you need.

What Is an STR?

Short-Term Rentals are furnished properties rented out for short stays. Guests stay one or two days or a few weeks.

These properties are often posted on sites like Airbnb and vrbo. Vacationers love STRs because they offer great prices, more privacy and more space.

STR options are also incredibly flexible. Go on Airbnb’s site and you’ll find everything from single rooms to large homes available for rent. Some homes require a multi-day booking, while others can be rented for a single night.

What’s the Catch?

STRs do offer some unique challenges for investors.

Pricing for an STR can vary week to week. You can charge more in busy seasons, say, when there’s a popular concert in the neighborhood or during the summer when families typically go on vacation. But you should lower your rates when it’s slow, to keep the property occupied.

And, of course, the property needs to be cleaned in between guests and furnished before it’s rented out, in addition to regular maintenance. Plus, you should invest in marketing to attract guests.

All of this adds up to time (or expense) that isn’t required for traditional rentals. Even so, if you’re in the right market, you can still walk away with more income from an STR compared to a traditional rental.

Is an STR worth it?

Take a look at these 5 ways to get started with an STR and see for yourself.

1. Evaluate Your Market

Before you make the decision to invest in an STR, do some market research.

First, find out about other STRs in the neighborhood you’re considering. Go on a few STR sites, including Airbnb, VRBO and HomeAway, to look for properties in your area. Look at their calendars to get an idea of how often they’re vacant.

INSIDER TIP: If a calendar is completely booked, don’t assume that’s all short-term renters. The property owner might be staying there or the property might not be available for STR temporarily.

Look at the rates for local properties to see how much they charge.

Next, check out a few market tools, such as AirDNA.co…

AirDNA is Airbnb’s data and analytics site – it gives you stats on your area including forecasted annual revenue, the average daily rate and expected occupancy rate – both for your area and for an address you type in.

Some of the information on this site is free, and some of it requires a subscription. And remember to factor in cleaning fees, property management and taxes when you’re looking at revenue numbers.

INSIDER TIP: Sites like AirDNA are helpful in more urban areas with plenty of host properties, but the data is not as accurate if your property is in a more rural location or an area with only a few host properties. So do some other research to get a complete picture.

2. Getting Set Up

Once you’ve made the decision to invest in an STR, you need to prep your property. Unlike long-term rentals, you need to furnish your property (or hire someone to furnish it for you).

INSIDER TIP: We’ll talk about this more in #5, but from here on out, always make decisions with the knowledge that you only make money if your property is occupied, and your property is only going to be occupied if you have great reviews. So make smart decisions that will positively impact your reviews.

When you’re making decisions about furniture and fixtures, keep your costs down but also consider your guests’ expectations…

First, they want your property to be clean. So choose furnishings that will be easy to clean and are durable—don’t buy a white couch. And if you’re buying items secondhand, make sure they look and smell new.

Second, guests want to be able to relax and make themselves at home.

You should provide enough furnishings and amenities that they will feel comfortable and enjoy themselves (Wi-Fi and television are a must). Bedrooms should have nightstands. The living room should have a coffee table…

Make sure each room is comfortable, but not crowded, and decide what’s required and what’s just nice to have using your budget as a guide.

Also, buy items like:

Finally, decorate in a way that’s attractive and memorable.

You don’t need to spend a lot of extra money, but you want to make a good first impression. Think about the colors and styles of the walls and furnishings. Add photography and make your property as welcoming as possible.

INSIDER TIP: We’ve been talking about your renters as “guests.” Since great reviews make you money, it helps to keep in mind that your short-term renters think of themselves as guests—and you should too.

While you’re getting the property set up, make sure you’ve got everything in place behind the scenes…

You will need general liability insurance—homeowner’s insurance doesn’t work in these situations. Also, find out what kinds of claims you are able to make through the host sites you are considering.

For example, Airbnb has a million-dollar guarantee—they will reimburse hosts for damages up to $1M.

Make sure you get systems in place as well:

3. Find a Hospitable Host

One of the most time-consuming and most important aspects of running an STR is communication with guests. Unless you are planning to keep your STR business very small, outsource this task to a property manager or hosting service.

Think through the services you would like the hosting service to provide. They can:

Talk about the response time you expect (within 1 hour? within 8 hours? within 24 hours?) when a potential guest asks a question or when a current guest has a problem.

INSIDER TIP: Listings on Airbnb can be set up to pay your hosting service directly. You can also have your hosting service run your Airbnb listing with you as a cohost, so you can see the bookings at your property while they manage everything for you.

4. Get the Word Out

Once you’ve got your property ready to go, you need to get the word out.

Start by deciding on your target market.

Include:

Use social media to advertise. Set up a page with a link to your listing and keep it updated with local events, links to deals at nearby businesses and restaurants, and any news of interest to guests.

Invite guests to follow your page, and they might just share your posts with their friends or come back for a second visit.

5. Your Paycheck: Great Reviews

Remember, to get paid you need great reviews.

But you don’t need a large budget to get great reviews. It’s more about doing the right things well than about doing everything…

Keep your property clean and well maintained: Reviews are based on the guest’s opinion of your property, so make sure it’s up to a guest’s standards.

Exceed the guest’s expectations: Make sure all the amenities in your property listing are available, and leave a few small things out so that the guest is pleasantly surprised. For example, if your target market is small families, mention the swing set in the backyard and the fully furnished kitchen on your listing. But keep details like board games and a stock of coffee for the Keurig off the listing.

If you do hear a complaint, fix it right away: You don’t want that complaint to become a pattern or bad review.

When you see specific positive comments in your reviews: Make it a point to continue doing those things well. Then rely on the systems you put in place to meet guests’ expectations and keep everything running smoothly.

Your Take

What does it take to make a short-term rental property a successful investment? Is it worth the extra time (and money) to get an STR set up and maintain it? Let me know below!

So many people I know – friends, colleagues, students, clients – are feeling overwhelmed… Steven Howell here letting you know that I’ve been there too. Heck, everyone’s been there. If you’re so overwhelmed that you can’t get past it – I’ve got 2 ways to help you break through. Allow me to explain in more in detail in today’s video post. Enjoy…

So, think things through, be strategic… and don’t be afraid to fail forward. You can do this.

Blinders on. Now focus…

Here’s to simplifying and being proactive.

Talk to Me

Tell me how you simplified things and became proactive. Share in the comments section below.

“Real estate is an imperishable asset, ever increasing in value.

It is the most solid security that human ingenuity has devised.

It is the basis of all security and about the only indestructible security.”

                                  ~Russell Sage, American financier and politician

As a real estate investor, you’ve probably chosen this career path for the financial security and success that it can ultimately provide. It takes time to reach the level of financial freedom, but the efforts are completely worth it.

In the beginning, one of the most critical decisions you need to make concerning your real estate investing business is simply… where you want to invest.

It’s a huge “make it or break it” factor that you can’t take lightly.

In fact, when it comes to finding a new market to invest in, you’ll want to put a ton of time and research into your decision before pulling the trigger.

Maybe your current market isn’t ideal for investing and you’re not willing or ready to move. Or, maybe you have built a successful investing business in your own community, and you’re ready to branch out to other cities or states.

Either way, deciding to invest remotely in a new market is a BIG decision.

Luckily, I’m here to help.

So, without further ado, let’s get into my 3-step approach to finding a new market to invest in. I want to give you as many details as possible, because I think this is a topic that warrants going the extra mile.

Step 1: Hitting the Books (Heavy-Duty Research)

For this type of thing, there’s no such thing as doing too much research. It’s time to make your high school science teacher proud.

There are SOOOO many factors that go into choosing a new market to invest in, but here are the first ones you should look in to…

Market Type: You’re only one Google search away from finding the “fastest growing markets in the U.S.” The tricky part is: deciding what to do with that information.

You don’t necessarily want to immediately jump on board with the #1 market. It may be right for you, but chances are that it’s not.

Consider the direction you’d like your investing business to go. Some investors like the hot markets because of appreciation, while others like tapping into undervalued or up-and-coming markets, so they can get ahead of the competition and take advantage of lower property prices.

So, your search results will be a very basic starting point – but there’s a lot more work to do from here.

Growth Factors: Once you have a few cities/areas of interest, dive deep and research the following factors for each one:

Taxes: Some investors prefer to purchase properties in states that don’t have state income tax, because this eliminates one administrative task that will need to be completed each year.

It’s totally up to you. But if this matters to you, you may want to invest in states where there is no income tax, such as Florida, Tennessee or Texas.

Climate: The local weather isn’t simply a preference. If you’re hoping to purchase rental properties in the Midwest or Northeast, consider doing so in the summer months.

It will probably be tricky to find new tenants in the dead of winter, when moving sounds about as thrilling as scraping the ice off your car windows.

Region: It’s also important to consider not only the state where your market is located, but also the overall region.

Many investors steer clear of the east and west coasts, simply because of soaring property prices – but this doesn’t mean that you can’t build successful businesses there.

Still, if you’re looking for a “safer” choice, many investors prefer the Midwest or certain areas in the South. Popular cities for investors right now include:

Step 2: Packing Your Bags

Once you feel confident with your research, narrow your list down to 2-3 potential markets that you think would be the best fits for you and your business.

Now comes the fun part (sorta)… you need to visit those locations.

Yes, this will cost money (between the travel costs, hotel and meals). BUT it’s 100% necessary. If you’re planning to invest in properties remotely, you have to visit the area before making a decision.

Even if you’re confident that you’ve chosen an awesome city where investing opportunities abound, you still need to see it for yourself.

Remember: Neighborhoods can vary greatly from block to block, and choosing a home that is just ONE block in the “wrong” direction can make all the difference in your profit.

In most cases, you probably want to find a B- or C-level neighborhood to invest in.

Stay away from luxury properties (unless you have extensive experience with them), as these types of homes carry a high amount of risk. Also, avoid neighborhoods where safety is a concern – it’s just not worth it.

Being somewhere in person makes a huge difference on your impression of it. There may be things that you never would have discovered, unless you’re there.

For instance, I heard of an investor who visited a city, thinking it was the perfect market… until she met with a local agent who told her that investors would remove the AC units from their vacant properties because those were stolen frequently. Let’s just say… that investor decided to look elsewhere for opportunities.

Another Good Tip: Try to plan your trip for a time when that city/town is having a Real Estate Investor Association (REIA) meeting. This would be an awesome opportunity to meet other investors in that area, so you can get an idea of the types of challenges they face.

If there’s no formal meeting taking place, it could still be helpful to arrange to meet up with an investor or two while you’re in town…

Find a Facebook group (for example, “Memphis real estate investors”) and connect with a few people who seem to be active in the group. Then, when you’re ready to make the trip, ask if you could take them to coffee or lunch and chat about the local market.

Finally, when you’re visiting a potential market that you’d like to invest in, ask yourself a simple question: “Would I enjoy visiting here again?”

If you make a commitment to invest in this area, you’re more than likely going to need to make occasional trips. Make sure it’s a place where you would actually enjoy spending time.

Now that you have a solid idea of what your market of choice has to offer, it’s time to start building a skilled and dependable local team that will be your “go-to” people in the area.

Step #3: Assembling a Solid Team

When investing remotely in a real estate market, you NEED to have a team of reliable people who are local to the area.

No matter how awesome a deal is – and no matter how perfect the market may seem – you won’t be successful if you don’t have the right people on the ground.

In fact, I’d go so far as to say that your team (or lack of one) will most likely make or break your investment.

Your team of pros should include:

Make sure your team understands the property locations and types that you’re interested in. You might find it beneficial to work with property managers who are also investors or licensed agents. It’s always a plus if they understand the mentality and process of an investor.

I also recommend getting pre-approved with a lender, if that is how you will be financing your deals. Conversations with agents will go much more smoothly if they know you’ve already been pre-approved.

It also might be a good idea to hire a 3rd party property inspector, who can give you a second opinion on the state of the properties you’re interested in purchasing. These professionals will provide a highly detailed report on the condition of the property. If you’re using a bank or other non-private lender, you’ll also need to get an appraisal.

Also, as you already know, it’s essential to get a clear title. A lender will require you to do this; but, if you’re paying cash for your properties, it’s your responsibility to ensure that a clear title is provided.

Overall, you cannot completely eliminate all risk associated with investing in another state, but you can certainly mitigate it – if you have the right people on your team.

One Final Thought: If you are not in the financial spot to hire property managers or other team members in another state, you may need to start working locally in that market (and handling the property management yourself). Or, you can simply wait until you have the financial means to manage those investments remotely.

The Heart of the Matter

Ultimately, the perfect market is the one where you can establish the best cash flow. But it’s not going to be easy. It’s going to take a lot of blood, sweat and tears (figuratively and literally).

Don’t think that remote investing is a passive venture… it’s not.

You need to be 100% engaged and dedicated in order to be successful. Plus, you need to work regularly with your team on the ground – the more time you invest in those relationships, the better your chances of succeeding.

Remember: Investing in other markets (other than your immediate location) is probably not the best idea if you’re a new investor. Wait until you feel you have the skills, expertise and finances needed to expand to another area or state.

In the end, investing in another market is an amazing opportunity…

It takes a ton of research, a highly talented and reliable local team, and a lot of time and effort on your part. But the rewards, profits and overall success can be completely worth it.

Go Forth and Invest

Have you considered investing in another area or state? What challenges or questions are holding you back? Let me know in the comments section below.

“A truly great mentor is hard to find, difficult to part with, and impossible to forget.”

~ Anonymous

“How can I find a good mentor?”

And: “Why does it cost so much to have one?”

These are simple questions that require a very detailed response. So, to help you peel back the layers of this onion, I want to delve deep into this topic…

Sure, there are plenty of ways to build your real estate investing knowledge on your own, and these can be extremely helpful (so I want to touch on some of these, as well). But there’s something about having a successful mentor that brings a whole new dimension of expertise into your world.

But, for many of us, finding the right mentor isn’t necessarily a piece of cake. And when we do find the right mentor or coaching program, is it really worth our hard-earned dollars to learn from them?

The answer is different for everyone. Luckily, I’m going to give you some insight to (hopefully) help you make the right decision for your situation.

So, let’s get right into it…

Find Yourself

I’m not trying to get all introspective here, but there is something to be said about knowing yourself and your core business values.

If you’re still trying to determine what exactly you want to gain from your investing business (aside from the obvious… money), it might be best to put the mentor search on hold.

First, ask yourself these 4 basic questions:

If you don’t have a clear answer for each of these, it’s time to do some soul searching. You can’t find a mentor who will meet your needs if you don’t even know what those needs are.

As you build your business and become more confident in your identity – but still have a long ways to go, in terms of achieving financial freedom – this is the “sweet spot” where finding a mentor can be extremely helpful.

Determine Your Budget

Let’s face it – anything that is worthwhile and valuable in business will probably not be free. You get what you pay for, in most cases.

That being said, there are also ways to expand your investing knowledge and build a foundation for success without ever writing a check.

So, first… determine what your budget for training, education and mentoring will be. If you want to start out with a shoestring budget, that’s totally fine. Just make sure you define a specific amount of money you want to spend… and stick to it.

Find Value in the Free Stuff

If you’re not willing to shell out cash for a top-notch mentor, there are some DIY methods that can be useful.

Consider these options:

Now, all of these options are fine and dandy… you can learn a ton from these opportunities. But, if you want to go to the next level, and really benefit from some 1-on-1 time with a mentor, you should be willing to pay a nominal consulting fee.

But let’s cover that in the next section…

Understanding the Value of a Mentor

Many financially successful mentors or REI training programs are not willing to give away their services for nothing. That’s just the way it is. If someone has built a profitable business, their time is worth something.

Think about it: you are taking someone’s time that they could be spending on their business. Wouldn’t you want to be paid for that? Or at least have some incentive to help out?

Plus, if you are gaining knowledge and receiving advice that will help you increase your income and build your business, it’s only fair that the person who provides this expertise should be compensated.

After all, you pay for marketing, you pay to renovate or repair the properties you purchase, and you pay any individuals who are doing labor or administrative work for you…

Think of paying a mentor or a coach as another investment in your business. You’re investing in your investing business (yes, I know, that was extremely clever). :-/

One other way to think of it: When you pay a fee for something, you’re more likely to take it seriously. So, when you compensate an investing mentor or coach, you have more incentive to apply your new knowledge and build a successful business.

Now, a word of caution…

I’ve heard multiple horror stories of investors who got sucked into those “free” flipping guru seminars where they were pressured to cough up anywhere from $20K-$50K in order to continue with training.

Don’t ever fall for this gimmick. You should never be investing that kind of money unless there’s an actual property deal in the works – and make sure a deed is involved.

Trust me, even the best of us can make foolish decisions when we’re extremely motivated to succeed. Just don’t commit to anything that you’ll financially regret.

“Courting” Your Mentor

If you make the decision to invest in mentoring or coaching services, your next step will be to find the right person for you.

This is where your core business values will come into play. You want to find someone whose ideology and strategies are similar to yours.

Think of this as dating – or even a job interview – in both cases, you want to make sure the other person (or the company) is a good match for you.

“The delicate balance of mentoring someone is not creating them in your own image,
but giving them the opportunity to create themselves.”
~Steven Spielberg

Once you identify someone who may be a good mentor candidate, it’s a great opportunity to invite them out for coffee or lunch. Tell them you’d like to pick their brain about some investing topics, and you’re really just looking to make connections with other investors.

At your first meeting, you might consider asking some of these questions:

Notice that I threw a couple of personal questions in there.. It’s okay to do this – it will help you understand the person’s core values and what motivates them in life.

Remember: You should be looking for a personality match, as well as a business match.

Another imperative idea to keep in mind: a mentor-mentee relationship should be mutually beneficial.

If you give this person the impression that all you’re going to do is “take, take, take,” they may not want to work with you. Regardless of whether they are being compensated or not, a “take, take, take” relationship can be draining.

So, make sure you are clear about the value that you can offer the potential mentor. For instance, ask them if there’s anything you could help with – or if there’s any value you could bring to their business.

If you’re not paying your mentor, it can be beneficial to volunteer to take on small tasks for them – such as occasionally driving for dollars, fielding motivated seller phone calls or scouting out properties online.

You might feel a little strange doing the “tedious” tasks, but this is one of the best ways to learn about your mentor’s business model and investing strategies.

“Mentoring is a two-way street. You get out what you put in.”

~Steve Washington, COO & Co-Founder, Casentric

Just like a spouse-spouse relationship or an employee-employer relationship, the mentor-mentee relationship is about give and take. Don’t take, take, take and expect the mentor to continue giving.

That’s not beneficial or healthy for either of you.

Be a Standout

My final tip, when courting a potential mentor, is to really stand out in terms of scoring property deals.

If you’re able to find a house (or two) that ends up being a major deal for that mentor, you will automatically earn their respect – plus, they’ll be more willing to take you under their wing and teach you their craft.

The bottom line is this: If you want to get on the fast track to learning the art of investing in the most effective way, having a mentor is essential.

Starting the Search

If you’re hesitating to find a mentor, what is holding you back? Let me know your questions and concerns in the comments section below.