Inman

First-time investors key in on location

Alan Langston remembers his first rental investment: It was a Florida condominium located about 45 minutes from his home — close enough to check up on the property if something went wrong.

A few years later, Langston transferred to the West Coast and after some consideration decided to keep the property, although it was, obviously, no longer going to be within driving distance. That old "Hey honey, let’s go drive by our condo and see if it’s being taken care of" wasn’t going to happen anymore.

Originally, Langston placed the condo in the development’s rental pool, but after relocating he made a strategy change, taking it out of the rental pool and making the property a long-term rental. Instead of frequently having people come and go, there would be more stability at the property.

The disadvantage was the income. Instead of, for example, getting $800 a week as a vacation rental, he was bringing in $1,200 a month as a long-term rental. Still, Langston says, "the property was a cash cow," and he held onto it for more than 20 years, although he never moved back to Florida. He finally sold that condo four years ago.

Langston has owned numerous rental properties since and is now executive director of the Arizona Real Estate Investors Association. I gave him a call and asked him about the issue of proximity. Should people who are investing in residential properties be somewhat near to their investment — just in case something goes wrong?

It depends, he says, on whether the investor is a beginner or veteran.

"My suggestion is," he says, "if it is your first investment property then you should have it close to where you live so you can visit the property or do a drive-by. This is especially so if you are self-managing. Then you want to keep a close watch on your investment."

This issue of proximity is more emotional than necessity.

As a first-time investor, you are certainly going to worry over your investment because:

1. It is something you have never done before and have not yet gained a comfort level.

2. The odds are you have a substantial portion of your investment portfolio tied up in the property.

3. In trying to squeeze as much profit out of the investment as possible, you have probably taken on the job of management, i.e., doing all the handyman jobs, plumbing, repairs, etc.

For self-managers, Langston recommends that one shouldn’t take on these jobs unless the investor has the time to respond to all the calls from tenants or has the knowledge to fix a busted pipe or rewire a hall light. Finally, he says, it’s helpful for self-managers to belong to a local organization that can help with creating agreements and contracts, offer legal services, and/or has a stable of reliable craftspeople to do the jobs that you can’t do.

I’ve also owned rental properties — single-family homes near where I live in Arizona — and I know two things tenants never take care of, or don’t do it properly: the pool and the plant life around the home. The pool goes from blue to green and the botanical world goes from green to brown.

The best thing to do in both cases is to bring in a service and include that cost in the price of the rental. …CONTINUED

I’ve known new investors who drive by their rental property, not to check up on the tenants but to make sure the service people are doing their job.

Veteran investors know not to worry so much and at some point probably relinquish "management" duties to a property manager. (Try to find a company that has a good reputation and has a history of property management. Also, if you paying the property manager as a percentage of rent, try to keep it in the 8-10 percent range.)

For a few years when Langston lived on the West Coast, he also kept a single-family-home rental property in Florida, which he self-managed.

"I knew whom I was going to call if there was a plumbing problem or any other situation," he says. "It was in an area where I grew up and there were people in the area I trusted. Most people don’t have that, so they will need to rely on professionals to deliver those types of services."

Emotionally "letting go" of your investment property allows you to expand your horizons. You can start investing elsewhere in your state, or maybe even buy a property in another state or another country.

And speaking of buying property in another state: Is that acquisition an investment property, in that you expect to receive an income from it as a rental, or is it basically a second home?

The latter is a completely separate type of purchase because the objective isn’t remunerative but emotional: You are trying to satisfy your lifestyle needs or those of your family. People who live in a cold-winter inland environment may choose to buy a home in a warm climate near a beach, and folks who live in the Sunbelt may opt to purchase a condominium near a ski resort, for example.

The easiest second-home purchase is a condominium or a townhouse in a type of gated community, only because the services such as pool and lawn are often taken care of by the community’s property manager. If security is a worry, and it is for most people, you should have an alarm installed — even if your condo is in a high-rise with a doorman.

If you are truly a worrier, you might also want to check the crime statistics in the area where you want to purchase.

Come to think of it, this would be a good idea for anyone buying any type of property anywhere.

Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."

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