I bought my first rental property in 1996.

Back then, I was looking for a way to create retirement income.

My wife and I were terribly afraid of making a big mistake before we bought our first property.

And we did make a whole bunch of mistakes.

But we also learned a whole bunch along the way.

There are a whole bunch of ways that rental properties can benefit you financially.

However, you have to have your property management base covered.

So for us, one property led to three.

We managed our own properties, and at first it was a disaster because we didn’t know what we were doing.

Our poor property management led to poor okc rental property cash flow.

As we begin to figure things out, three led to ten.  And so on.

What you need to know before You Become an Oklahoma City Landlord

Oklahoma City rental properties can make great investments if you get it right.  To get it right, you need to buy the right property at the right price.

You need to make the right improvements. Spend just enough, not too much and not too little.

Then you need to get the right management team together to manage the property.

But it starts with defining your goals.

What’s Your Goal?

Deciding if it makes sense or not to have your property managed depends on a number of factors, but it starts with two questions:

#1 – Does it make sense for you to own this property as a rental?  

#2 – Should you own this property for an investment?

Buying and holding rental properties is one of the best long-term strategies you have for accumulating wealth, especially in the Oklahoma City metro area.  Why?

  1. Rental income.  Rental income is very nice because it is predictable.  If you have a loan against the property, it can help pay off that loan.  If your property is free and clear, it make for an excellent source of monthly income.  But again, you need to have your property management base covered.  If you don’t, item #1 will not work for you because the okc rental property cash flow will be negative.
  2. Appreciation.  Over the years that you own your rental property, it continues to go up in value (for the most part – values can also decline).  As I said, I’ve owned rental properties since 1996.  I still do.  And wow!  Have the values of those rental properties ever gone through the roof!  And, you can build in appreciation when you make improvements.  For example, when you do a big remodel, you obviously bring up the value of the property because it will produce more rent than it did before you started the project.
  3. Leverage.  The banks allow you to borrow against the value of your real estate if you qualify for financing.  That means that you can simply place a down payment to buy the property instead of having to invest 100% of the cash needed to buy a property.  For example, you could put $20,000 down on a $100,000 property.  That means you borrow $80,000 from the bank.  The rent the tenants pay you will pay the mortgage payment plus the expenses (if not, it’s not a very good investment).
  4. Tax Benefits.  There are income tax benefits that go along with owning your rental property, such as depreciation.  Essentially, the government gives landlords a financial incentive to own rental properties.

Collectively, these benefits can greatly increase your okc rental property cash flow.  It does require that you are willing to own the properties for years.  If you aren’t willing to own them for at least five to ten years, it may not be a wise investment.  The reason I say that is that every time you sell a property, you are going to have closing cost and likely a sales commission to pay.

Here are some questions you should be asking yourself if you are considering owning a rental property:

  1. If your property stays rented 90% of the time, will it at least break even?  Remember, you are going to have more expenses than just your mortgage payment.  You’ll have these:
    1. Property Insurance.  Oklahoma has high insurance rates because of our frequent storm damage events.  A landlord policy should run no more than 10% of the income.
    2. Property Taxes.  Property taxes are going to run you about 10% of the income.
    3. Maintenance.  You will have periodic maintenance costs.  Figure an 10% of the income for maintenance.  Generally, the older a property the higher this figure will run unless it’s an older property that has been renovated (plumbing, electrical, and heat and air are new).
    4. Vacancy.  It does take some time between tenants to complete the make ready, advertise the unit, show it, screen the application, and get them moved in.  That’s another 10% to take into account.
    5. Property Management.  Don’t forget this cost.  Figure in 10% for the cost of property management.  Also, if you aren’t executing well on your property management, the percentages on items 3 and 4 will be out of whack.  Your maintenance costs will be too high.  Your property will sit vacant for too long.
  2. Do you plan to have a property reserve built up in case of vacancy and make ready costs?  When your property goes vacant, you get hit with the cost of the make ready and the cost of having your property sit vacant at the same time.  There is a security deposit to cover damages from tenants, but it doesn’t always cover all the damages.  You may want to have 2 months of house payment and $1,000 in savings for this.  In addition, you might run into a big whammy, such as a heat and air unit that needs to be replaced.  Just be ready for some surprises.
  3. How emotionally attached to the property are you?  If you can’t bear the thought of tenants damaging your property, you may want to consider selling the property instead of renting it out.  Your tenant will never, ever treat your property with the same amount of respect as you do.

Frequently Asked Questions

Why is Property Management critical to a successful real estate investment?

Property management is a way for you to collect rental income from a property without all the headaches of managing the property.

In other words, you hire a property management company to handle all those hassles for you.

If they are doing their job, they can take all the headaches off your plate.

It’s absolutely critical that you get all the facts about property management company and the services they promise to provide before you sign the property management agreement.

Why is it so important?  If the property management isn’t absolutely locked down, you will loose money.

Think about it.  You will have issues with vacancy because of sketchy tenant selection.

If your property management company moves in the wrong tenants, they may tear up the property.

If they tear up the property, you will have thousands of dollars in repair costs.

How much does property management cost?

Our company does charge a management fee and a leasing fee.  Those rates depend upon a few factors.  If you will call, we can quote you exact pricing.  Also, to real an article about that discusses the costs of property management, click here.

What is the upfront cost?

You will have not one dime of upfront cost for our property management service.  We deduct management fees and leasing fees from the first rents paid by the tenant.

How much will the property lease for?

Most of the time, we have to visit your property to give you an accurate estimate of the amount a property will lease for.  OKC Home Realty Services, LLC is happy to schedule a time to meet with you at your property.  Please call our office to schedule a time.

What is the best way to find potential rental properties?

In my opinion, the best way to find rental properties is to work with a realtor.

Here are a list of things you want to find in a realtor who is trying to find you a rental property:

  • The right realtor will know the market.
  • They will present offers at a price you are comfortable with, not prices they think will be accepted.
  • They will have a rich list of contacts from which they can find deals that might not be listed on the MLS.
  • The right realtor will set up automatic searches for you to find properties that are within your parameters.

 

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