Buying Real Estate or Investment Property

Thanks to everyone who joined us for our May 21st session, as well as Onyx members Eric Anderson and Audrey Hipkins for sharing insights they’ve gained as real estate investors over the years. This session provided a great opportunity to learn from one another’s experiences. 

There’s no way to concisely capture everything shared, so in this recap, we’ll cover some important things to know before diving into real estate investing, some common entry points, and some suggestions for protecting your investment and preserving your family’s wealth for the long term. Watch the replay video to hear about everything else we discussed.

Four essential things to know before diving into real estate investments.

  • Managing rental units is not a passive source of income. If you really want passive income, become a silent partner in someone else’s business or hire a property manager. Otherwise, be prepared to put lots of time and energy into managing your properties–especially short-term rentals. Active involvement in property upkeep and ongoing maintenance is a must if you want to protect your investment.
  • The rules of engagement will change based on location. Homeowner Association (HOA) covenants and state/local laws vary by location, and they will impact what property owners can and can’t do. For example, some HOAs have restrictions that limit property owners’ ability to use it as a rental. Some states have more tenant-friendly laws that limit your ability to charge late fees or evict folks who aren’t paying rent. So it’s essential to read the HOA covenants before purchasing a property and understand local laws in preparation for engaging with tenants.
  • Stay attuned to current market conditions. Whether you’re a current property owner or in the market to purchase, you can maximize your return on investment by staying informed about current market conditions. For example, if you typically do short-term rentals but the market is oversaturated, and rental rates have dropped, consider switching to long-term–or perhaps even selling. Alternatively, if you’re in the market to purchase a new home, consider buying in a newly developed area, in a neighborhood that is the focus of revitalization efforts, or where new roadways are being built.
  • Running credit and background checks on long-term rental applicants pays off in the long run. It will cost money upfront, but these screening mechanisms will help you choose responsible tenants with good payment histories.

Next up: Strategies for Building Rental Income Streams

  • Some single-family homeowners will construct alternative dwelling units (ADU), like backyard cottages or basement apartments, to rent them out. 
  • People who own a second home or have inherited property can leverage those as a source of rental income, and 
  • First-time buyers can purchase a multifamily home and generate income by renting out additional units. 

Strategies for Safeguarding Your Investment with rentals and inherited property 

  • Invest in an LLC: Creating a limited liability company (LLC) will help protect your assets and shield you from personal liability if something happens.
  • Hire a property manager: Property management companies collect payments, handle day-to-day operations, and ensure compliance with local regulations. They also help owners maintain anonymity, which is especially useful when living in the same place as your tenants.
  • Start estate planning as soon as possible: Do you want to leave real estate assets for the benefit of future generations? If so, start planning now and communicate your wishes to everyone ahead of time. That way, everyone is on the same page, and there’s less likelihood of disagreement or litigation after the fact.
  • Break the taboo and talk about money: When it comes to estate planning, it’s important to have frank conversations about finances-especially if it involves multiple people inheriting a property that is not financially self-sustaining. Even if the property is fully paid off, some people may lack the financial resources needed to contribute to ongoing maintenance costs. In situations like that, it’s not uncommon for one or two people to bear the financial burden for the entire group–and there’s a possibility no one steps up, so taxes go unpaid, and the property falls into disrepair. You can decrease the likelihood of losing property by discussing financial constraints upfront and negotiating a sustainable and equitable arrangement for everyone. For example, a vacation home might go to someone who can afford to maintain it, with the stipulation that they have to negotiate an agreement allowing others to continue using the property.

That was a lot of information, but we hope this recap and the accompanying video are helpful.

Eric Anderson

Audrey Hipkins


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