Using Real Estate Investing To Retire Early With Chad Carson
Chad Carson writes at coachcarson.com about how to use real estate investing to retire early.
We recently asked Chad for his insight on investment properties and got his advice for individuals interested in purchasing vacation rental properties. Here's what he shared:
Tell us about your background in real estate investing. How did you become interested in the field?
I used to hate real estate investing. But I was 12 years old, and my father bought nasty, trash-filled houses at foreclosure auctions. He would drop me and my brother off during hot, steamy Georgia summers with trash bags and gloves. He'd say "I'll be back after a while. Have it a lot cleaner than it is now."
We thought our dad was in a CRAZY business. Trash, rotten food in the refrigerator and occasional rats - who wants to mess with that? I guess that's a typical reaction for young boys who want to be swimming or playing sports with friends.
But then I graduated from college and decided my dad wasn't so crazy after all! I read some books off his shelf and I realized the real estate business WAS exciting. And controlling my own financial destiny and my time sure beat the other more traditional options I was considering.
So, at 23 years old I moved to my old college town, and a friend and I started buying, selling and leasing properties. After 15 years, I've never looked back.
What do you look for in an investment property? What are the signs that a particular property is a good investment?
I look for investment properties that meet both qualitative and quantitative criteria.
Qualitative criteria are the things buyers and renters look for like attractive neighborhoods, convenience, walkability, a nice yard, property layout and potential curb appeal. Strong qualitative criteria keep rentals full, reduce vacancy rates and make properties easy to sell when it's time.
Quantitative criteria are the numbers. Even the property with the best qualitative criteria won't necessarily make a good investment if it has the wrong price and terms. So, I'm also shopping for quality properties that make investment sense.
What about red flags that would make you turn down a particular investment opportunity?
I avoid problems I can't fix. These include things like:
- Dangerous neighborhoods
- Annoying next door neighbors (or their dogs)
- Health hazards (real or perceived) like proximity to major power lines, factories, dumps, etc.
- Obnoxious smells or noises
- Remodels that would cost almost as much as the property itself
Also, Warren Buffett once said buy investments that are simple and understandable. There are many real estate properties and locations I don't understand. I stick to the simple ones I can get my head around. This often means I buy existing single family houses, small multifamily units, and mobile homes on land instead of more complex or speculative deals. I also buy in general locations I know well.
What advice can you offer individuals who are interested in investing in vacation rental properties? Where should they start?
I've noticed a lot of people invest in vacation rental properties for reasons other than financial ones. I would put my financial criteria in writing before I ever set foot near a vacation rental property. Don't let the emotional appeal of the location sway your decision.
If the numbers don't work, pass. There will always be another deal. And if not, you're better off with your cash and your time than with a bad deal!
Start your search for vacation rentals like you would start a search for any real estate investment. Study the market intensely. Look at the rent/price ratios and the long-term economics of the location. And evaluate individual properties to see if the numbers make sense.
If a vacation rental market has potential, put together a plan to start communicating with owners of properties or their agents. Then start making offers.
What are your favorite resources for researching the value of a particular property? How can those investing in vacation rental properties determine their worth?
Nothing beats the MLS (multiple listing service) for researching the value of residential properties. The MLS not only has a large database of comparable sales to study, but it also has the most useful data. There are so many details you need to know beyond just the price when comparing your property to others.
For example, you want to find out how long a property was on the market before selling, what it's condition was like and how many concessions the seller had to give. The MLS can tell you all of this and more.
If you're not a realtor, you'll have to hire one to help you get access to MLS data. But it's worth having that person on your team.
What are the most common mistakes you see income property owners making? How can those mistakes be avoided?
I think many income property owners underestimate the long-term cost of owning a property. It's so enticing to "make the numbers work" on the front end by ignoring real costs like vacancy and capital expenses. But the costs will come, just like they have for every other investor.
It's better to take the blinders off up front. Build a solid spreadsheet that includes all the costs, and use that spreadsheet on every deal. Don't buy a property unless you understand all of those numbers.
By using a solid analysis tool, you can make a realistic financial decision by comparing a property to other options available to you.
I think many new income property investors also underestimate the work and time it will take to buy a good deal. My experience is that you need to look at dozens or even hundreds of properties before you find one that makes sense. Good deals rarely fall into your lap.
This also means investors need to invest their time and money into marketing or prospecting. This effort will bring those diamonds in the rough to you.
What should rental property owners do to make their properties more appealing to potential tenants and/or guests? How can they learn what their target tenants are looking for?
To cater to your customer, you have to become your customer. So, I recommend going to open houses of competitors. Study their listings and look at their photos. Imagine yourself as a renter, and ask yourself what is most important to you in a rental or vacation home. Then take what you learn and apply it to your own rental in order to be competitive.
If you lack imagination, bring a friend or spouse who matches your clientele more closely. Listen carefully to this test market.
What are your favorite tools for managing properties that help reduce headaches?
Online software has certainly changed the game for reducing headaches while managing properties. It makes everything easier and more streamlined - from marketing the property to screening tenants to handling maintenance issues.
I have also found that the best properties attract the best tenants and are easiest to manage as a result. So, avoid run-down properties and run-down locations. They will only burn you out faster and make your management job more difficult.
What's one piece of advice you find yourself repeating to potential property owners over and over again?
Know why you're getting into this business. Yes, we all want to make money. But will you enjoy it? Do you have a passion for the details? Are you willing to stick with it? If not, you may never continue long enough to learn the hard lessons and overcome your beginner mistakes.
If you're just in it for the money, the interest will certainly fade. The business will become a chore. And you won't have the passion it takes to become better as an investor over the long run.
If you're not really passionate about the real estate business, go find a hobby you do enjoy and invest your money passively in a stock index fund. Life is too short to sacrifice decades of your happiness just for money.
Looking for more thoughts on vacation rental properties? Get even more great vacation rental marketing tips and news.