the-abcs-of-real-estate-investing-ken LifeFeeling

PROPERTY TAXES
There are two kinds of property taxes: real property taxes, which are on the real estate
property, and personal property taxes, which are taxes on the contents of the property like
refrigerators, stoves, dishwashers, and other appliances. There are two ways to get these
numbers. First they are typically listed on the financials you receive from the owner, or you
can get them from the tax assessor’s office. One thing to know is that taxes usually go up
after you purchase the property because the assessors use the new purchase price as the new
assessed value. Yet another reason to make sure you don’t overpay for the property! So
when you are entering in the property tax costs into your analysis, you may want to inflate
them. Your property tax team member can give you insight on how much to raise the tax
costs.
INSURANCE
This is an important line item expense and it’s a critical one. Why? First, insurance is
expensive, and second because usually the bank requires you to have insurance locked and
loaded before signing the loan. This number is easy to get. Just call up a few insurance
agents and get some quotes. The kind of insurance you will need includes property/casualty
and general liability. Deductibles are what will make your insurance costs vary. We vary
our deductibles depending on the property. As a rule, you’ll want to have insurance for the
big things that can go wrong. You don’t want to pay high premiums for all the small things
that you could afford to pay out of pocket. Talk with your insurance agent about the proper
coverage for your property and the risks of having high deductibles.
UTILITIES
Identify all the utilities used in the building. This can include electric, gas, trash, sewer,
water, cable, and phone. Check to see if the utilities are individually metered, which means
each rental unit has its own meter, or if the utilities are master-metered. If they are mastermetered,
there is one meter for the entire building. Individually metered is the better
scenario because the resident pays their own bills. Individually metered buildings mean
lower expenses to you. In master-metered buildings there is no incentive for the tenants to
keep utility costs down.
I stay clear of buildings that are master-metered for this very reason. Ask the owner to
provide you with the financials for the property and these numbers should be there, but
again, I always verify them. To verify the figures all you need is the building address and
the utility companies can supply you the bills for the previous year. If they won’t disclose
the information, call the owner and ask him or her to contact the utility company and
authorize the release. Be sure to get all the bills. Sometimes there are seasonal differences,
especially for heating and air conditioning. Let’s not have any surprises!
CAPITAL REPAIRS
These are the major improvements needed to keep or bring the property up to standard.
Often properties in need of some work are the best buying opportunities, but you’ll want to
have a realistic assessment of just how much money it will take to get the place livable and
looking good. I’m talking repairs to roofs, parking areas, sidewalks, driveways, lighting,