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Many successful real estate investors know the secret of finding and buying off-market properties. While discovering these deals may be tricky, you may stumble upon a great and lucrative real estate investment if you know how to find off-market properties.

What Are Off-Market Properties?

Off-market properties are not publicly listed for sale on the Multiple Listing Service (MLS). However, that doesn't mean they aren't for sale.

Buying houses off-market happens more often than you might think. For example, the National Association of Realtors (NAR) reports that around 10% of home sales occur without being listed on the MLS. Typically, off-market sales are common in hot markets where demand outweighs supply heavily, meaning that a home can sell easily without ever going to the public for sale.

Pros of Buying an Off-Market Property

Searching real estate markets for off-market properties widens the net of investment opportunities. Real estate investors should look for off-market properties for a few reasons:

• Off-market prices can be negotiated better due to less competition.
• Lower competition, in general, equals a better chance of your offer winning.
• You can negotiate other, more favorable terms that aren’t always available on-market.

Why Do Sellers Go Off-Market?

The three reasons sellers typically choose the off-market route are privacy, potential savings, and price testing. Also, the off-market listing process ensures sellers can reach the right buyer or buyer’s agents and only get interested, motivated parties. Sellers can also save on marketing costs, listing fees, and staging.

How to Find Off-Market Properties

The best way to find off-market properties for sale is to use a reputable off-market listing platform. Some websites specialize in off-market real estate sales, whereas others, like Zillow, have listings for “for sale by owner” (FSBO) sales.

While that’s a good start, there are other ways to find off-market deals.

Real estate auction websites

Leverage the power and reach of real estate auction websites. They can give you access to off-market properties such as foreclosures and bank-owned properties. Ensure you do your due diligence before placing a bid, as these often sell as-is. You don’t want to bite off more than you can chew with an off-market property.

Facebook Marketplace and Craigslist

Don’t underestimate the potential of social media and online platforms. Both Facebook Marketplace and Craigslist are good places to search for off-market properties.

Sellers often use these platforms to avoid agent fees or to test the market before formally listing. Create a daily routine of browsing these platforms for new listings and be ready to act quickly when a good deal pops up. They go fast!

Door knocking

As old-fashioned as it may sound, door-knocking is still a valuable strategy for finding off-market properties. This method involves you identifying homes in your preferred areas and physically knocking on doors to express your interest in buying. It might be time-consuming, but the direct approach can yield surprising results, especially if homeowners are considering selling but haven’t taken the first step yet.

Phone prospecting

Phone prospecting is another proactive approach that requires resilience. You can obtain lists of homeowners from various sources (like public records or lead generation services) and then make calls to inquire if they’re considering selling their property. While you’ll face a fair share of rejections, patience, and persistence can lead to excellent off-market opportunities.

Search for “For Sale By Owner” yard signs

Keep a sharp eye out when you’re driving through your target neighborhoods. You’ll occasionally spot For Sale By Owner signs on lawns. These sellers are trying to bypass the traditional real estate process, making these properties off-market opportunities. Note the address, reach out, and express your interest.

Use a direct marketing campaign

Craft a personalized direct marketing campaign to reach potential sellers. This could involve sending mailers, flyers, or even personalized letters to homes in your target area, expressing your interest in buying properties. This method helps put your name in front of homeowners who may be considering selling, pushing them to reach out to you first.

Network with listing agents specializing in non-MLS properties

Building relationships with real estate agents specializing in non-MLS properties can provide a steady stream of off-market opportunities. These agents often have exclusive access to properties that aren't publicly listed, and networking with them increases your chances of getting the first look at these hidden gems.

Build a professional network

Build a professional network of wholesalers, contractors, and investors using real estate forums like BiggerPockets.

These real estate professionals often know about potential sales before they become public. Attend networking events, and join online forums and local real estate clubs to nurture these relationships and expand your network. It’s often the best way to find the perfect off-market property.

Search public records for foreclosures

Short sale and foreclosure opportunities are typically a matter of public record, and staying current with these records can tip you off to properties that may come up at auction. Watch the local newspaper, browse local and state government websites, and keep websites like the HUD Home Store bookmarked, which will alert you to up-and-coming properties.

Attend local events

Local events such as community gatherings, property auctions, or real estate investment meetups are excellent places to discover off-market deals. You’ll find like-minded individuals, potential sellers, or others who might give you a tip about a property that’s about to be available for sale. Always have your business cards handy and be ready to follow up on leads promptly.

Work with an investor-friendly agent

Rather than conduct a search independently, work with an investor-friendly agent (or multiple real estate agents) who can keep their eyes open for off-market properties. They can bring you these opportunities before anyone else, thus improving your odds of closing a deal. The BiggerPockets agent match service can connect you with experienced, knowledgeable real estate professionals in your local area. As a real estate investor, you need an agent who understands the local market and how it ties into your strategy.

How to Approach a Seller

There are several ways to approach a potential seller if you are actively looking for an off-market property. For example, you could print high-quality postcard-size flyers for a direct mail marketing campaign. In some markets, real estate investors go door-to-door and ask homeowners directly.

Another option for meeting with sellers is to search for distressed properties in a neighborhood. These could be abandoned homes or foreclosures. You could then track down the owner with a little investigation at the county records office or online.

Some investors have success writing a personalized letter to the homeowner with a solid, attractive offer to buy the home.

It is also good to remember that some off-market sellers are facing financial hardship and may be facing foreclosure. Therefore, it’s important to be empathetic with the seller as they may be going through a lot of stress.

Tips on Negotiating

When negotiating with the seller on an off-market property, a strategic approach may help you land the off-market deal. Here are a few negotiating tips to be successful:

• Have a good idea of local housing market conditions to determine if it’s a seller’s or buyer’s market.
• Offer higher down payments to stand out from the competition.
• Counteroffer until you are sure the seller won’t budge on their position. Remember, a lowball offer significantly below fair market value could antagonize or insult the seller.
• Negotiate contingencies in the sale contract. This protects you in the deal if the home appraisal is low or a home inspection finds major issues with the property.
• Have your finances in order with either a pre-approval letter or cash to buy the home.
• Work with a real estate agent to finalize the deal and negotiate nuances in the purchase contract.

Final Thoughts

Off-market properties can offer endless investment opportunities if you know where to find them. Therefore, it makes sense to include looking for off-market homes as part of your real estate investment strategy. And remember, you’re not the only real estate investor searching for deals. Be ready to make fast, decisive, and informed decisions.

This post originally appeared on the BiggerPockets blog.

Residential real estate investing has the potential to be very profitable. But how much do you need to invest in real estate and generate steady passive income?

Unfortunately, the perceived excessive costs involved in purchasing real estate can intimidate aspiring residential real estate investors. However, understanding all the costs of buying a real estate investment property will help you avoid costly mistakes.

Buying a rental property, holiday home, or property to flip can yield short-term and long-term financial gains. However, the money needed to start real estate investing depends on several factors. You must establish a contingency fund, pay closing costs, and save for the down payment. Then you have ongoing costs like mortgage payments, property maintenance, and property taxes.

This article provides a thorough overview of how much money you need to start your real estate investor journey. You will also get helpful advice on calculating the potential return on investment (ROI).

But suppose you decide against purchasing an investment property. If so, you will learn about additional real estate investing options.

Initial Costs to Consider

Before buying your first rental property or house flipping project, it is crucial to think beyond property prices. Purchasing property requires a considerable amount of cash upfront.

Down payment

The down payment is one of the biggest upfront costs when buying real estate. Typically, you can expect to make a down payment of between 15% and 25% of the purchase price.

But the size of the down payment depends on several factors. These include the following:

• Type of loan
• Your credit history
• Type of mortgage
• Debt-to-income (DTI) ratio
• Loan-to-value (LTV) ratio
• The property type

Even if you have enough for the down payment, your lenders will require you to meet certain criteria before approving a home loan. The criteria include:

• A minimum credit score of 700: You need a minimum credit score of 700 unless you are willing to pay more than 25% of the sale price upfront. But to qualify for the best mortgage rates, your score must be at least 740.
• A minimum loan-to-value ratio of 80%: Generally, lenders will loan up to 80% of the total loan amount. However, the amount differs depending on the property type and lender.
• A minimum debt-to-income ratio of 45%: Real estate investors typically cannot allow their monthly debt to exceed 45% of their gross monthly income.

In addition to the initial cost of the down payment, remember that it can affect your ongoing costs. For example, making a larger down payment can help you lock in lower interest rates. Over the home loan term, this can significantly reduce your mortgage payments.

Closing costs

Real estate investors must pay most of the closing fees when finalizing a mortgage and real estate sale. Typically, you can expect to pay between 3% and 6% of the sale price in closing costs. These fees include charges for appraisals, inspections, title insurance, legal fees, lender fees, and various additional fees.

Here is a list of some of the fees you can expect to pay in addition to the money upfront when investing in real estate:

• Loan origination fee: This is the lender’s fee for processing the loan application. This cost is typically 0.5% to 1% of the loan amount.
• Title search and title insurance: The lender carries out checks to ensure no issues with the property’s title, like a tax lien. Title insurance protects the lenders in case issues with ownership arise after the sale.
• Underwriting fee: This is for processing the cost of verifying the borrower’s credit history, income, and other financial information.
• Discount points: Many investors pay more money upfront to buy discount points and reduce the mortgage interest rate. One discount point equals one point of the mortgage’s interest rate.

Other fees you may have to pay at closing include attorney fees, recording fees, escrow fees, and courier fees. Also, you may be required to pay homeowner’s insurance and prorated property taxes for the remaining year.

Inspection/appraisal

Like buying residential properties, investment properties are subject to inspections and appraisals. Costs for the appraisal and inspection can be up to $400 each. Not all property purchases require an inspection. However, many real estate investors use the inspection to determine if the property is a good investment.

Here’s more information about these two steps:

• Home appraisal: Mortgage lenders require a home appraisal to ensure the sale price represents its current market value. The appraiser looks at the sale price of comparable properties, the size of the property, and other factors that may affect its value.
• Home inspection: A home inspection is a comprehensive evaluation of the property’s condition. The inspector checks the plumbing and electrical systems, the roof, the foundation, the HVAC system, and the general structural condition. Although not required, spending a few hundred dollars can help you discover hidden repair issues.

Contingency fund

A mortgage lender typically requires you to have significant cash reserves before buying a residential rental property. A contingency fund protects your finances if you have cash flow issues and cannot pay the mortgage. Common cash flow issues in real estate arise from vacancies, unexpected repairs, or market downturns.

Typically, lenders require individual investors to have at least six months of mortgage reserves. Examples of liquid assets that can be used for a contingency fund include:

• Cash in a bank or savings account
• Stock or bond investments
• Cash value of an insurance deposit
• Money in a 401K, IRA, or other retirement savings account
• Certificates of deposit

Let’s say your monthly payment for a mortgage is $1,500. In that case, you would need liquid assets of at least $9,000 to secure a mortgage.

Calculating How Much You Need to Begin Investing in Real Estate

Let’s do the math to calculate how much money you would need to buy a residential rental property as an investment. Assuming the property’s value is $280,000, here is a breakdown of the approximate upfront costs to buy residential real estate:

• Down payment at 25%: $70,000
• Closing costs at 5%: $14,000
• Home inspection and appraisal: $800
• Contingency fund based on a monthly mortgage payment of $1,300: $7,800

Therefore, to get started in real estate investing, you would need around $92,000. Of course, the final amount depends on additional factors like credit scores, DTI, LTV, and current interest rates.

Check out BiggerPockets’ Rental Property Calculator to see if you can afford the investment.

Financing Options

Financing most real estate investments requires a loan or mortgage. Most startup investors use a conventional mortgage to buy their first investment property. However, other options are available, and they can affect initial costs.

Let’s compare various financing options to see how they can affect your financial goals.

Traditional mortgage

A conventional mortgage from a bank or credit union has moderate closing costs, reasonable interest rates, and lower monthly payments. However, you typically need to put down a lot of money upfront.

Hard money loan

Compared to a traditional mortgage, a hard money loan has a lower down payment—sometimes as low as 10% of the loan amount. They are typically short-term loans for fix-and-flip projects. Hard money loans involve interest-only payments with a balloon payment at the end. However, they have higher interest rates.

Partnerships

Partnerships allow investors to make larger real estate investments. They involve collaborating with other investors to manage an investment property. In most cases, partnerships are most effective for seasoned investors.

Therefore, a conventional or private loan is safer than forming a partnership if you plan to purchase a single-family home.

Private money loan

Borrowing money from private money lenders is another option to buy a rehab or rental property. Private money loans can be from private companies, money lenders, family members, or friends. This type of loan can have flexible terms and few upfront costs.

However, a private money loan is a high-risk financing option because it’s unregulated. They may have exceptionally high interest rates and short repayment periods.

Ongoing Costs to Consider

Real estate investing can allow you to enjoy passive income from rental properties. At the same time, you benefit from price appreciation on your investment properties. However, budging for ongoing costs is vital for making the best investment decisions.

Some real estate investors set aside 50% of their rental income for taxes, insurance, repairs, and maintenance costs. Others follow the 1% rule, calculating annual maintenance costs at 1% of the property value.

Property management

Hiring a property manager can help to eliminate the stress of residential real estate investing. The property manager can be on call 24/7 and conducts most of the day-to-day tasks of managing a rental property.

You can expect to pay between 8% and 10% of the gross rental income for single-family homes. You may have to pay additional fees for maintenance, vacancies, evictions, and lease renewals.

Property taxes and insurance

Real estate taxes are ongoing expenses for rental property owners. Additionally, a lender may require you to take out homeowners and landlord insurance. The amount you pay in taxes and insurance depends on the rental property value.

The good news is that owning rental properties has many tax benefits. You can write off taxes, property insurance, mortgage interest, and property management fees.

Mortgage

The property must generate enough rental income to cover the mortgage payment. The monthly mortgage payment amount depends on paying the principal, interest rates, and loan terms. Therefore, if you have a variable interest rate mortgage, you must budget for fluctuations in the financial market.

Maintenance & repairs

Budgeting maintenance costs is vital to maintaining healthy cash flow. Your budget should deal with preventative or regular maintenance and emergency repairs. As a rule, set aside 1% of the unit’s value for annual maintenance. However, you should always budget for a worst-case scenario to maintain positive cash flow.

Vacancy costs

The cost of vacancies can significantly impact your cash flow. Vacancies mean a loss of income and increased expenses. For example, you must search for new suitable tenants and continue to make monthly loan payments. Therefore, you should budget 5% to 10% of the annual rent to allow for vacancies.

Why Is ROI Important?

Calculating the return on investment (ROI) is the only way to make worthwhile investment decisions. ROI factors in rental income, operating expenses, real estate market health, and property appreciation to assess the potential return. You can then determine if the property is worth the investment. A positive ROI ensures the investment helps you build wealth and minimizes financial risk.

How to Determine if You Can Afford to Invest in Real Estate

Calculating how much you need to invest in real estate is more than covering the upfront costs. You must also calculate the property’s potential to generate income.

Let’s look briefly at several methods professional property investors use to look for good opportunities.

The 1% rule in real estate investing

The 1% rule in real estate says that a rental property’s monthly rental income should ideally be at least 1% of its total purchase price. This rule can determine cash flow to see if the property has the potential to be a lucrative deal. It can also help set the monthly rent price for unoccupied properties.

Gross rent multiplier (GRM)

The gross rent multiplier is the purchase price divided by the gross annual rent. This metric is useful when buying a rental property, as you can calculate how long it takes to pay off the investment. You can use it to compare comparable properties to see which one is the better real estate investment.

70% rule

The 70% rule is useful in house flipping to find profitable investments. This guideline means you should not pay more than 70% of a property's after-repair value (ARV) minus renovation costs. This percentage helps maintain a buffer for unexpected expenses and maximizes the chances of a profitable resale.

Use Leveraging to Your Advantage

Leveraging can turn a little money into healthy cash flow and increase the potential for returns. Leveraging requires finding the best mortgage deals and searching for the right property with positive cash flow and appreciation potential.

A simple example of leveraging is to use as little money as possible on a down payment. This way, you conserve your cash for other investments. Or you could use the equity in your existing property to fund a down payment.

However, becoming more experienced in real estate investing is best before using leveraging to maximize gains.

Alternative Options (Less Investment Required)

Suppose you want to start investing in real estate but don’t have enough cash. In that case, several options are available to budding investors without paying huge upfront costs. Additionally, you can enjoy passive income without the headaches of being a landlord.

REITs

Real estate investment trusts (REITs) offer an uncomplicated way to invest in real estate without directly buying properties, reducing risk. REITs own and operate income-producing real estate and pass on profits to investors. Real estate investment trusts are a relatively low-cost, less-complex entry point if you are new to investing in real estate.

For example, Streitwise is a real estate investment trust (REIT) for accredited and nonaccredited investors. You can start real estate investing from $5,000, with a minimum hold time of five years.

Pooled funds

Pooled funds such as crowdfunding projects and pooled REITs offer investing opportunities without huge upfront costs. You purchase shares in the investment portfolio by investing in trusts and partnerships. These investments allow for greater flexibility, diversification, and tax benefits.

Two examples of pooled fund investing platforms are Concreit and Fundrise. These platforms allow you to start investing with minimal upfront costs.

Secured loans

Secured loans are ideal for short-term investing in real estate. The cash you invest gets pooled into crowdfunding real estate platforms. In essence, you help to fund loans to investors. It is possible to select the loans you prefer.

Secured loans offer excellent short-term gains. However, there is no long-term appreciation.

Groundfloor is one of the most common secured loan platforms. You can start with a minimal investment of as little as $10.

Fractional ownership

Fractional ownership is where you join other investors to purchase a property. Partial ownership gives you a stake in the real estate assets. Depending on the group of investors, you can be as passive or active as you want. In some cases, you have shares in the property. In other cases, you can take a more firsthand approach.

Budgeting—Putting It All Together

The more you understand the costs associated with investing in residential real estate, the easier it is to maximize profits. Your budget must include money for the down payment, closing costs, and a contingency fund. Additionally, budgeting for steady cash flow is crucial. This means having enough income to pay for operating expenses, regular maintenance, and vacancies.

Knowing how much money you need to invest in real estate can help you make the best investment decisions. You ensure your rental property, house flip, or rehab helps increase wealth and builds a successful real estate investment portfolio.

This post originally appeared on the BiggerPockets blog.

Conducting tenant reference checks is crucial for ensuring you find high-quality tenants who respect your property and pay rent on time.

A high-quality tenant typically has a stable income, good credit history, and positive references from previous landlords. They demonstrate reliability, responsibility, and a respectful attitude toward the property.

Reference checks help you verify these attributes, thus reducing the risk of late payments, property damage, and eviction issues.

Questions to Ask Tenant References

When calling tenant references, be courteous and respectful of the previous landlord’s time.

First, explain who you are and that you are calling with reference check questions. Then ask if they have a moment to talk.

It’s important to ask a consistent set of questions during every reference call. Standard questions keep you on the right side of fair housing laws—discriminatory questions may come back to bite you.

Here are 12 of the best questions to ask.

1. Did the tenant stay for the stated period?

Confirming the tenant stayed for the stated period shows reliability and commitment. It also indicates they didn’t break their lease early, which could disrupt your rental schedule.

2. What was the monthly rent?

Knowing the monthly rent helps you assess the tenant’s financial stability. It also provides context for comparing their previous rent to what you’re charging.

3. How much of the rent did the tenant normally pay?

This question ensures the tenant paid their full rent consistently. It reveals any potential issues with partial payments that could affect your cash flow.

4. Did the tenant always pay rent on time?

Timely rent payments are crucial for your financial planning. A history of punctual payments suggests the tenant is financially responsible.

5. Were utilities on and paid in full at all times?

This question verifies the tenant’s responsibility in managing household expenses. It indicates their reliability in maintaining essential services.

6. Did anyone else live with the tenant(s)?

Understanding if others lived with the tenant helps you understand compliance (or noncompliance) with lease terms. Unauthorized occupants can lead to property damage and lease violations.

7. Did the tenant(s) ever receive any legal notices (late rent, noise, unauthorized occupants, notice to vacate, etc.)?

Legal notices indicate potential issues with the tenant’s behavior or payment history. They can signal red flags that might impact your property management.

8. Were there any pets?

Knowing if the tenant had pets helps you assess potential wear and tear on the property.

9. Was the home maintained in good condition (housekeeping, lawn, etc.)?

A well-maintained home indicates the tenant’s respect for your property. It helps you anticipate how they might treat your rental unit.

10. Did the tenant give proper notice before vacating?

Proper notice ensures a smooth transition between tenants and helps you manage vacancies. It reflects the tenant’s adherence to lease agreements.

11. Did the tenant receive their entire deposit back after vacating?

Returning the full deposit suggests the tenant left the property in good condition. It indicates they met the terms of the lease and took care of your property.

12. Would you rent to the tenant again?

This question provides a direct assessment of the tenant’s overall behavior and reliability. A positive answer reinforces their suitability as a renter.

Tips for Conducting Effective Reference Checks

Effective reference checks help you select reliable tenants who will respect your property and fulfill their financial obligations.

Follow these tips to verify the authenticity of references and gather comprehensive insights into a tenant’s rental history.

Verify authenticity

Always confirm the contact information provided by the tenant. Call the previous landlord directly, and cross-check details like the property’s address and lease dates to ensure authenticity.

Ask open-ended questions

Encourage detailed responses by asking open-ended questions. This approach reveals more about the tenant’s behavior and reliability beyond simple yes or no answers.

Check multiple references

Contact at least two previous landlords for a comprehensive view of the tenant’s rental history. This helps identify consistent patterns in their behavior.

Document everything

Keep detailed notes of your conversations for future reference. This documentation can be invaluable if any issues arise later.

What to Do if Applicants Don’t Have References

Some applicants won’t have any—or limited—rental references, usually due to their age or being prior homeowners. Technically, this may not meet your qualification standards, because you can’t ask your standard reference check questions.

Your options in this case are to:

1. Decline their application.
2. Accept them without references and take the risk, assuming everything else about them is stellar.
3. Require a co-signer.
4. Require an additional security deposit if that is allowed in your specific state.

The option many landlords choose is No. 2: Accept them without references, asking for an additional security deposit.

Final Thoughts

There are many questions to ask tenant references, but these are among the most important. When you combine these questions with the other guidance above, you put yourself in a position to rent your property to a tenant you can trust.

This post originally appeared on the BiggerPockets blog.

Buying a mobile home can be an intimidating task for many new investors, but it doesn’t have to be. This type of investment can actually be easier than you think. Ready to dive into this unique type of real estate? Start with this mobile home inspection checklist.

One quick caveat: Going through this list doesn’t preclude hiring a reputable inspector—ideally one with extensive familiarity with mobile or manufactured properties. No matter how thorough you are, there’s a chance you’ll miss something important if you’re relying on your eyes only.

1. Water Damage

Water is a natural enemy of mobile homes. During a mobile home inspection, always check under every exterior window, as well as on the entire interior perimeter of a mobile home. Overflowing gutters, a leaking roof, or holes in the siding may lead to moisture entering the mobile home and problems/mold in the wall cavities.

Worried you’ll miss something? Don’t be—you don’t need to be a roofing pro to make sure the mobile home is leak-free. Leaky roofs manifest themselves in noticeable ways. Start by simply checking for water stains on the ceiling, which can indicate whether the roof is structurally sound.

Many mobile homes have rolled metal roofs that can crack and rust over time. Oftentimes, mobile homeowners will roof their home with a shingle or steel roof for added visual appeal and water protection. However, this doesn’t guarantee a leak-free roof, so make sure to thoroughly check for water.

Pro tip: Push hard on every exterior wall when walking through a potential mobile home investment. The wall should be very sturdy and not feel loose due to wood rot.

2. Floors and Foundation

A mobile home’s foundation varies from area to area and home to home. Local mobile home movers may follow current local codes—or they may not. Some areas allow for your investment mobile home to sit atop a pier and beam foundation, while others allow concrete block supports atop crushed rock. Still others allow for additional foundation options.

Generally, though, mobile homes do not sit on a traditional foundation, unlike stick-built homes. This means that the bottom side of the home isn’t shielded from the elements. You might see soft spots on the floors—they’re one of the most common mobile home faults. Don’t panic. Soft spots can be remedied quickly and easily. A soft spot is just a piece of the subfloor that has rotted over time for any number of reasons, including appliance leaks, window or roof leaks, or faulty plumbing.

Ensure that you get a good look underneath the mobile home itself. If you notice pooling water or suspect a leak, there could be unseen damage to the interior. If the bottom insulation of the home is torn and the skirting is not properly maintained, it can cause a host of other issues, like pest and moisture problems.

Additionally, if the foundation is not sturdy enough, situated correctly, or on a concrete slab (permanent foundation), a mobile home’s support may sink slowly into the earth over time. Soft ground or wet weather can speed up the sinking.

In most cases, this is not a deal-breaker when purchasing a used mobile home. Raising a mobile home is a common task that may need to be performed every now and again, depending on the location. An experienced mobile home handyman or mobile home mover will be able to raise/level a mobile home in the matter of a few hours or days with the right tools.

3. Vapor Barrier

A mobile home’s vapor barrier functions as the first line of defense from the elements beneath the home. Most mobile homes don’t sit on a foundation, so a vapor barrier is affixed to the underside of the home, keeping out moisture home. This vapor barrier may be a dark blue or black color, and should stretch along the entire underside of the manufactured home.

Inspect the vapor barrier to be sure that there are no signs of sagging, rips, or delamination. If there is evidence of any of these issues, there could be potential damage or mold issues on the wood subfloor above. These issues can likely be remedied by stapling a new moisture barrier to the bottom of the trailer.

4. Air Conditioning Units

Mobile home air conditioning units can also be a costly repair. To truly know how the AC is running, you’ll have to test it. But the general appearance of the unit can gauge its remaining usable life. Start by noting the date of the furnace and air conditioning unit—old units may need to be replaced.

Some mobile homes were not manufactured to have air conditioners, so it should be a big red flag if you see window air conditioner units. If you see window units, you can assume you will be spending a good chunk of money up front to pay for an AC system.

Be aware when a homeowner has multiple cooling systems for their home. Swamp coolers, window AC units, central HVAC systems, and fans all cool down a home’s interior temperature. If a seller has more than one source of air conditioning, then it is highly likely that one of these systems does not work properly.

Pro tip: Unless you are able to verify repairs needed, do not simply trust/believe what a seller tells you about a non-functional appliance. If you cannot physically test this appliance or system, then you must assume it is broken and will need a good deal of money to be replaced or fixed.

5. Doors and Windows

Investigate doors and windows for improper seals. Any area of the home exposed to the exterior is at risk for moisture intrusion. When you close an exterior door, look to see if any visible daylight peeks through. If you can see light, chances are that you will have to replace the seals.

Some mobile homes tend to have only single-pane windows, so be sure that the functionality of the windows checks out and that everything can close and lock properly.

Make sure the doors and windows close properly, too, during your mobile home inspection. In sinking mobile homes, the main front and back doors may not line up or close correctly.

6. Electrical

Electrical and plumbing inspections are best left to the professionals, but there are a few simple checks that can ensure you’re not buying a total lemon. Pick up a receptacle tester—available from most retail stores for less than $10. You can plug the device into the wall outlet and check the functionality of the wiring. The testers help determine the probability of incorrect outlet wiring for an outlet.

Aside from checking the outlets directly, you can research local electrical codes to ensure that your breaker panels are in compliance and that you have the correct types of outlets in the appropriate locations. Remember, it’s common for mobile homeowners to make their own electrical repairs. You may see electrical outlets that do not work, extension cords running across the home, wires hanging from ceiling electrical outlets, and other obviously “amateur-style” repair jobs—all of which are red flags.

Pro tip: Remember that it is often wise to hire a professional electrician when dealing with repairs.

7. Septic

Typically, you’ll want to hire a pro to check the septic on a mobile home, too. However, you really only need to have the septic inspected if you are purchasing a mobile that will stay on the property.

A septic inspection typically includes a sewer scope, which involves a small camera being fed through the plumbing. This gives you a good view of not only the septic lines but also the tank. Note that if the home is located within city limits, there is a high chance that you will be connected to city sewer lines. This doesn’t negate the need to check the lines, however.

Pay Attention to Pride of Ownership

Amateur repairs—or a lack of repairs—and deferred maintenance are typically the result of a “low pride of ownership.” Sometimes this lack of maintenance is on purpose, and sometimes it is due to accidental neglect. Some mobile homeowners may not have the financial resources to make these repairs, and others may have the money but are simply too lazy or do not care about their property. You can spot these common problems during a mobile home inspection.

Pro tip: A seller’s pride of ownership may help you in negotiations. Typically, a seller with a low pride of ownership will be less emotionally attached to their property. They may sell at a reduced price compared to a homeowner who has taken care of and loved their property.

None of these repair issues are a deal-breaker by themselves. In fact, many of these issues will overlap in a number of mobile homes you look at for investment purposes. If you walk through every inch of the potential investment property with a powerful flashlight to look and test for leaks, you’ll know exactly what you are purchasing.

What else should investors purchasing mobile homes look out for? Have you ever overlooked a major item that needed replacing?

This post originally appeared on the BiggerPockets blog.

Deciding when to sell a rental property can be one of your most challenging decisions. The problem is that real estate markets are constantly changing. Selling a rental property too soon could mean missing out on a property boom. However, holding on to a dud property may result in significant financial losses.

When is the best time to sell an investment property? It all comes down to timing. Market conditions, tax breaks, property appreciation, investment goals, and personal circumstances can affect your decision. And sometimes, a combination of factors can dictate the right time to sell a rental property.

Whatever the reason, deciding when to sell a rental property or other real estate investment can be tricky. Even smart real estate investors cannot predict local housing markets with accuracy.

I'll walk through 15 compelling reasons why it may be the right time to sell your investment property.

1. A Strong Seller’s Market

Selling an investment property is a strong incentive when demand is high. A seller’s market typically means you can get top dollar for your property, and sell it fast. You can sometimes push the selling price higher with multiple interested buyers in a bidding war.

Additionally, selling property in a hot market means you can usually negotiate better terms. For example, a buyer may be willing to purchase a property needing repairs, take on existing tenants, or be willing to cover some or all the closing fees.

Of course, selling in a hot market means you may pay inflated prices on another property. However, it can be an excellent exit strategy to offload a property, diversify your portfolio away from real estate, or cash in on your investment.

2. Property Appreciation

Property appreciation is a significant factor when deciding to sell a rental property. It may be a good time to sell when the market is experiencing high demand, rents have stagnated or decreased, and your property has substantially increased in value compared to its initial purchase price.

To decide if it’s the right time to sell, compare the increase in rental rates with the increase in property prices. When a property appreciates faster than rental prices, your return on equity (ROE) decreases in the long term.

Additionally, suppose there’s a lull in appreciation rates. In that case, it may be time to reap the profits from a rental property sale and invest elsewhere. You can also benefit from the substantial equity in your property.

3. The Local Market Has Stagnated

Timing is everything when selling your investment property. Therefore, if the housing market has stagnated or the rental market is in decline, it may be wise to cut your losses and sell the property. But, of course, you must do due diligence to ensure the market will not recover in the short to medium term.

What are the signs of a weak or stagnated market? The signs could be falling rental prices, high vacancy rates, falling house sales, or high mortgage rates.

Although investing in real estate is generally a “buy and hold” strategy, sometimes it makes sense to sell rental properties if they perform poorly.

4. Negative Cash Flow

One of the most common reasons to sell a rental property is when expenses greatly exceed rental income. However, there can be various reasons why a rental home fails to generate profits.

Here are a few common mistakes startups make when purchasing an investment property:

• They calculate expected annual gross income based on 100% occupancy rates.
• Poor property management results in tenant turnover.
• High vacancy rates cause lost rent.
• The local rental sector is experiencing a downturn.
• High maintenance or repair costs eat into profits.
• Getting rental rate wrong—either not charging enough or charging too much.

Before selling your rental property, it’s crucial to determine the reasons for lost rental income. In many cases, it’s possible to address the issues and enjoy passive rental income again.

However, selling may be the best option if the problems seem long-term or too costly to resolve.

5. The Property No Longer Suits Your Investment Strategy

Some real estate investors decide to sell rental properties when changing or diversifying their investment strategy.

For example, selling a residential investment property could free up capital to invest in commercial real estate or join a real estate syndication. Or it could be that you have identified an emerging real estate market with huge investment potential, and selling your existing property gives you capital to invest.

Another reason to change investment strategy is to diversify geographic location. For example, suppose your primary residence, rental properties, and employment are all in the same area. In that case, your investments and income are at risk from fluctuations in the local economy. Therefore, diversification can help protect your investment returns.

Selling an investment property can be strategic when you aim to diversify your portfolio or seize more lucrative investment opportunities. By reallocating the proceeds from the sale, you can enhance your investment strategy and capitalize on stronger prospects.

6. Property Taxes Are Too High

A hike in property taxes can turn a once-profitable rental property into a loss-making enterprise. The issue is that passing on higher property taxes to existing tenants takes time. Therefore, you may struggle to cover expenses from rental income until the current lease expires and you sign a new rental agreement.

Selling rental properties in high-tax states in exchange for a similar property in a more landlord-friendly state is a common practice for rental property investors.

7. Maintenance Costs are Too High

The cost of maintaining a rental property—especially an older building—can make selling it a viable option. Landlords must maintain rental properties in a “habitable condition.”

Of course, responsible landlords budget for regular maintenance and repairs. However, higher-than-expected costs, contractor expenses, pest control, inflation, or unexpected work can make it untenable to maintain the rental property.

What can you do if maintenance is becoming a financial burden? First, assessing if you can cover losses in the short term is crucial. Then it may be possible to develop a better repair budget or adjust the preventative maintenance schedule.

For example, unexpected property damage could be viewed as a short-term issue, and you should quickly bounce back financially. However, a major employer pulling out of the town your rental property is in could severely impact the rental market, cutting your rental income. This situation can make maintaining a rental unit a long-term problem due to lost rent.

Or suppose an old building decreasing in value is becoming a money pit. In that case, it may be best to cut losses and sell your rental property before it loses more value.

8. Low Interest Rates

While low interest rates can benefit investors, it’s important to consider their impact on the rental market.

Cheaper mortgage rates can lead to increased homeownership, potentially reducing demand for rentals and making it challenging for rental property owners to fill vacancies or achieve desired rental rates. In such situations, selling an investment rental property may be a viable option to mitigate potential challenges.

9. Problem Tenants

One of the biggest pain points for landlords is dealing with tenants. In some cases, the stress problematic tenants cause can turn your job into a heavy burden.

For example, dealing with late rent, property damage, or antisocial behavior can take its toll physically, mentally, and emotionally. While it’s possible to evict delinquent tenants, the process is costly, stressful, and time-consuming.

Of course, the occasional problem tenant is normal. And in some cases, hiring a property manager alleviates the hassle of dealing with delinquent tenants. But if you no longer want to deal with bad tenants, selling a rental property and investing your cash elsewhere may be the best option.

10. You Want a Break From Property Management

Owning a rental property is an excellent way to earn passive income. However, managing a rental property or being a landlord is not a passive activity. If you own a single-family home that you rent out, hiring a property management company is probably not worth it. Therefore, you must take on all the property management tasks yourself.

But rental property owners who are landlords know the job can be exceedingly time-consuming. The day-to-day job of a landlord involves being on call 24/7, finding emergency contractors, collecting rent, screening potential tenants, and resolving disputes.

For some investors, selling a rental property makes the most financial sense to get their life back to normal.

11. You Get an Offer You Cannot Refuse

A compelling reason to sell an investment property is when you receive an offer that’s too good to pass up. For example, a real estate investor may be willing to pay more than market value or waive certain requirements like repairs or upgrades. So it can make selling the investment asset a no-brainer for a savvy property investor.

12. Avoid Capital Gains Tax Liability

Selling your rental property to buy a more attractive one can help you defer capital gain taxes. Known as a “like-kind” exchange, section 1031 of the Tax Code allows you to pay taxes on capital gains later. This strategy can be effective in real estate investment to build an extensive portfolio without paying taxes on every transaction.

In general, selling an investment property triggers capital gains taxes, which are calculated based on the profit made from the sale. The Internal Revenue Service (IRS) imposes taxes on the capital gain at a specified rate.

However, utilizing a 1031 exchange allows you to defer the tax liability for capital gains, potentially offering tax advantages in real estate investment. It is important to consult with a real estate tax professional to understand the tax implications and requirements of a 1031 exchange.

Additionally, you can defer paying depreciation recapture taxes when selling an investment property and buying a similar one. Depreciation recapture tax is the taxable amount on deductions you made for property depreciation.

When selling an investment property, depreciation recapture tax has one of the highest rates. Therefore, you can defer taxes on the transaction when you sell an investment real estate asset to buy a replacement property of equal or greater value.

It’s important to note that the capital gains tax rate varies from state to state and your tax bracket. Therefore, if you plan on selling an investment property to lower your tax liability, you should speak to a real estate tax professional.

13. Major Life Event

A significant life event can make you reevaluate priorities, goals, and responsibilities. And let’s face it: Finding the best investment opportunities and managing properties is time-consuming. So when something major happens in life, it’s natural that you ask yourself the question: “Is now the right time to sell my investment real estate assets?”

In certain situations, selling your investment real estate assets may be necessary due to circumstances beyond your control. However, carefully consider the advantages and disadvantages of continuing your real estate investment career. Selling the properties can help mitigate potential financial losses associated with leaving them vacant and provide essential funds to navigate significant life transitions.

Or it could be that you have reached your financial goals and now want to take it easy and regain your work-life balance.

14. You Inherited a House

Inheriting a house can be a valuable asset you can use or sell for financial gain. But maybe you have no desire to become an “accidental landlord” and want to benefit from the sale of the property. In that case, it makes sense to sell the inherited property. However, you will still be liable to pay inheritance tax, estate taxes, and possibly capital gains tax.

On the other hand, you could decide to keep it as an income property. Then you could use the rental payments to supplement your regular income. But if being a landlord doesn’t appeal to you, you could use a property manager to manage the property.

15. You Want Out of Real Estate Investing

If you have achieved your financial goals and chosen to retire from real estate investing, you can benefit from a substantial nest egg by selling your properties. Alternatively, you can consider investing your cash in passive investment opportunities with recurring cash flow.

Should You Sell Your Investment Property?

Some investors say the golden rule of smart real estate investing is to make smart property purchases and never sell. But—as with all rules—there are exceptions. For example, when selling or holding investment property, individual circumstances can dictate that it’s a smart move to sell.

Most reasons for selling investment properties are related to profit. However, holding on to a dud property in a weak housing market can cost you money. So it may not be worth selling a rental property where expenses significantly exceed rental income.

However, it’s also worth calculating the costs of selling rental property. Seasoned investors know that selling property isn’t cheap. You must pay legal fees, closing costs, commission, and hefty capital gains taxes. Therefore, it makes financial sense to factor in all costs when deciding whether to sell or hold a rental property.

Strategies to Sell Investment Properties

When you decide to sell an investment asset, it’s vital to consider the tax implications to avoid taking a large tax hit. For example, there is a difference between selling a personal residence or one used for business or investment purposes. Also, the time you own a property can affect your tax bill.

Here are some of the tax consequences when selling a rental property:

• Short-term capital gains: A property you own for 12 months or less before selling. These capital gains are taxable income at the standard tax bracket ranges.
• Long-term capital gains: Property assets you hold for 12 months or more before selling. Tax rates are lower than for short-term capital gains tax.
• Depreciation recapture tax: Filing a noncash depreciation expense can help reduce tax liability. However, you are liable for depreciation recapture tax when you sell your rental property.
• 1031 exchange: You don’t pay tax on the transaction if you sell your rental property for “like-kind” property. You can defer tax payments to a later date.

You may be able to convert the investment property into your primary residence to reduce your taxable net income. For example, the “Home Sale Exclusion Gain” (IRS Section 121) lets you exclude up to $500,000 in profits if you are married filing jointly and $250,000 if you are single.

The post originally appeared on the BiggerPockets blog.

As a lot of real estate investors already know (and newbies may have heard), some tenants are very hard on rental properties. 

One of the biggest challenges is keeping the bathroom as carefree as possible. We all know what goes on in bathrooms and what kind of extra care they need. So, here is a list of things that make turnover quick and cheap.

Dos & Don’ts When Redoing Rental Property Bathrooms

1. Ditch the cheap shower surround

Please don’t buy that cheap five-piece shower surround that you saw at Home Depot or Lowe’s. I promise you it is cheap for a reason and will only cause problems.

First of all, caulk in a bathtub will never last. From mold to people picking at it, caulk will need touched up at least once per year. A typical five-piece surround is held together with glue and caulk, and without maintenance, it will fall apart and just cause you more problems.

Instead, go ahead with a two-piece surround or even a tile surround. Yes, you will have to caulk in some places especially around the tub/wall), but it will be very minimal to what a five-piece surround takes.

I recommend only two-piece surrounds in full gut rehabs. They are my favorite, because they are cheap and snap together higher, which better protects from splashing water. Plus, they look so much nicer than a bunch of panels glued to the wall.

For existing bathtubs, do a tile surround. This not only looks nice but also lasts forever.

2. Get a good exhaust fan

Even if your bathroom has a window, I would still suggest this. Moisture in a bathroom is killer. If you walk into a bathroom and see peeling paint on the ceiling, you know that room was not ventilated while showers were taken.

Wire exhaust fans to the same switch as the light so that the fan has to be turned on. (Go ahead and spend the few extra dollars for the quieter fan; then the tenant won’t notice it as much.) Turning on the fan will also help eliminate bathroom odors and odors from harmful bathroom cleaning chemicals.

Pro tip: Add cleaning the exhaust fan on your cleaning crew’s checklist during turnover. Tenants won’t know there is a problem with the fan until it is squealing. And by this time, it is too late.

3. Use sheet vinyl or luxury vinyl tile

Please don’t use snap together laminate or carpet. Don’t be that guy or girl who likes that it’s cheap, thinks that it’s trendy, or is just plain lazy and puts that stuff in a bathroom. It’s not water resistant, and it’ll just cause a headache of problems.

Instead, go with either sheet vinyl glued down or LVT because of the waterproofing capabilities. I know some investors have used ceramic tile in the past but have since steered away from it due to the cost and grout. (I've heard stories of ceramic tile grout lines that were so soaked in urine that the smell wouldn't come out.)

Although ceramic tile looks nice, vinyl should be your go-to in a rental bathroom. Of course, this varies among different classes of properties. So, make sure you do your research before installing cheaper flooring.

4. Beware of the towel bar

This has to be the number one thing in rentals that gets destroyed. Do some people think this is a pull-up bar?

Most towel bars are 24 inches, but as we both know, most studs are 16 inches on center. Using that little plastic drywall insert is a joke—plus, nobody uses it.

Cut the towel bar down to 16 inches so that the mounting brackets will screw right to the studs and not just drywall.

If this is not possible, buy butterfly nuts and bolts to attach the mount that can’t be screwed to a stud. These are those spring-loaded clips that you collapse and push into a hole in the drywall. When you screw them tighter, they pull against the back of the drywall. They are not as good as screwing to a stud but work a lot better than those plastic inserts.

No matter what you choose to do to your rental property’s bathroom, just make sure it looks good and can hold up to tenants’ wear and tear. Remember, turnover is one of your most expensive costs, so try to eliminate downtime and repair costs by doing it right the first time.

What are your tricks when it comes to renovating or maintaining rental property bathrooms?

This post originally appeared on the BiggerPockets blog.

So, the day has come to finally figure out how much your rental property income will affect your child support payment. You won’t be surprised that many states consider that pretty penny a critical component when calculating these payments.

As with any financial analysis, it’s essential to understand how to break down the numbers, especially regarding child support. In most cases, parental income is calculated in its entirety. You’re going to have to provide proof of all of your finances. For rental property owners, the court will pay particular attention to the total net income of your rental.

So, how is rental income calculated, and how does that play into child support payments? 

What Gets Calculated in Child Support Payments

The main factor that gets calculated in child support payments is parental income—the total amount of any salary or wages. This salary includes both taxable and non-taxable income.

The formula for calculating child support payments can vary depending on your state. When determining gross income, many factors can come into play besides salary. These factors may include:

• Rental income
• Business income
• Work bonuses
• Pensions
• Investments

One thing to note is that many states allow for deductions from gross income for things like:

• Property taxes
• Union dues

Aside from monetary obligations, some states also factor in the following:

• How much time the child spends with each parent
• Costs associated with health insurance
• The age of the child
• Childcare costs

How To Calculate Rental Income For Child Support

If you’re wondering how to calculate total rental income for child support purposes, the payments are based on several factors, but in a nutshell, here are the top three steps that should take place.

Determine gross income

First, how much cash is the rental property bringing in? Let’s use $1,000 in rent for each month as an example. At the end of the year, we have a total of $12,000 in gross rental income. We’ll remember this number as we move on to the next step.

Factor In deductible expenses

Yes, you can factor expenses into the equation. To make things simple, let’s consider the following expenses:

• Rental property taxes: $500
• Repairs and maintenance costs: $1,000
• Utilities: $1,200
• Property management fees: $2,500

In this case, the total allowable expenses are $5,200. However, there are still some expenses associated with the property that you can deduct from your gross income, such as your mortgage’s tax and interest. Let’s hold on to that $5,200 as we move on to the next step.

Calculate net rental income

You want to deduct the total allowable expenses from the gross rental income to determine your net rental income. Based on the examples above, we would use the $12,000 gross rental income minus $5,200 of total allowable expenses, equaling $6,800 in net rental income. So, the $6,800 would be used in the calculation to determine the child support amount.

Remember that the amount of child support will vary based on your state. It’s always a good idea to consult with a family law attorney or child support professional for guidance on accurately calculating rental income and child support payments.

Check Your Local And State Laws

Child support will be calculated differently depending on the state where you live. Often, states will provide child support calculators, which are a great starting tool for those strictly looking for an estimation; these calculators tend not to get into the nitty-gritty of finances, however, as they don’t factor in your specific circumstances. When looking into your local and state laws, here are a few formulas or models that you might see:

The Income Shares Model

Forty-one states use the income shares model. So, think of this model as the financial life a child would receive had the parents stayed together. For this, you’ll use both parents’ incomes.

The Melson Formula

Three states use this model: Delaware, Hawaii, and Montana. Think of this as a more extreme version of the income shares model. This formula incorporates additional factors and expenses, many designed to consider parents’ financial needs.

The Percentage of Income Model

Last but not least, six states (Alaska, Mississippi, Nevada, North Dakota, Texas, and Wisconsin) use the percentage of income model. This is a flat or adjusted percentage of the non-custodial parent’s income.

Rental Income And Child Support Payments FAQs

Here are people’s top questions when calculating rental income and child support payments.

Does child support count as income for renting?

It depends. This is an ongoing debate amongst landlords because there is a risk of the recipient of the child support not being paid at all—it happens quite a bit.

If you are a landlord considering counting child support as income, you want to look at the things like the court order and when payments are received. When it comes down to it, let’s say that the child support income is less reliable than you initially thought, and you decide to evict a tenant and collect the balance due. Will the state allow you to garnish the amount as normal income?

Since the Internal Revenue Service (IRS) doesn't consider child support taxable income, I would not consider it in the rent calculation unless you have a HUD-specific home.

According to hud.gov, “[rental property] owners must count alimony or child support amounts awarded by the court unless the applicant certifies that payments are not being made and that he or she has taken all reasonable legal actions to collect amounts due, including filing with the appropriate courts or agencies responsible for enforcing payment.”

So, does child support count as income for renting? It depends on the situation and, if not required, the risk the landlord is willing to take.

What income is counted for child support?

The income counted toward child support can exceed just your salary. In some cases, gross income can include recurring capital gains or unrealized income, winnings from a day of gambling, rental income, and sometimes even interest earned on retirement accounts. Typically, any additional income outside of salary is considered.

Sometimes if C-corporations or S-corporations hold your rental properties, the court may even decide that the retained earnings are subject to child support calculations. If, for some reason, you disagree with the court’s order, perhaps you think an income source shouldn’t have been included, you can elect to go to the court of appeals to review the record. The review is to see if a legal mistake was made and if that mistake affected the overall outcome of the trial court case.

Is money from rental properties considered income?

Sure is, but only the net income from a rental property. So, what does that mean? The term “rental income” doesn’t necessarily mean you go off the total amount of rent payments coming in. You can deduct allowable property expenses from that amount, which will help you calculate net rental income.

This is because the “cash flow” is the amount received in rent minus what is being paid out, including the interest part of the mortgage payment, property taxes, insurance, and maintenance costs. Not all things you consider an expense are honored by the court.

For example, in a Colorado Court of Appeals case, “the trial court found that the principal portion of the mortgage payments did not qualify as ordinary and necessary expenses for purposes of calculating child support.”

It’s All In The Numbers

According to the Census Bureau, “Parents who received regular child support payments received a monthly average of $604 and a monthly median of $396 in 2017.” Although there hasn’t been substantial growth in the average year after year, the number does seem to increase continuously.

If you own a rental property and, for whatever reason, are going your separate ways with a spouse, make sure you truly pay attention to all of the numbers, especially your total allowable expenses. Those expenses are crucial in determining your overall rental income and the amount calculated into a child support payment.

This post originally appeared on the BiggerPockets blog.

Tracking your net worth as a real estate investor can help you make informed financial decisions. It will help you clearly understand your current financial position to see if you are reaching your goals. It can also help you stay motivated as you track your progress in building your real estate portfolio.

What Is a Net Worth Tracker?

A net worth tracker is a web-based or mobile application that tracks your assets and liabilities. It’s a valuable tool to help you know if you are building wealth and progressing toward your financial goals. Net worth trackers are valuable tools that real estate investors can use to evaluate their financial positions.

Your net worth is a value, or dollar amount, that includes all of your assets and liabilities. Someone might say, for example, that “she has a net worth of $3 million.” It’s also possible to have a negative net worth, which means your liabilities are greater than your assets.

Examples of assets that may be included in your net worth include:

• Business interests
• Cash and savings
• Investments
• Personal property
• Real estate
• Retirement savings
• Vehicles

Examples of liabilities that may be included in your net worth include:

• Credit card debt
• Medical bills
• Mortgages
• Personal loans
• Student loan debt
• Vehicle payments

Net worth is very easy to calculate: You add up all your assets and subtract your liabilities.

The net worth formula is:

Net worth = Total assets – total liabilities

How to Select a Net Worth Tracker

You can choose from several net worth trackers to help you monitor your financial position. Before you select one, however, it’s important to assess the features and cost to make sure you choose the best one for your needs.

Here are several things to consider when evaluating net worth trackers:

• Features and functionality: Some apps are very basic, while others offer more functionality. Apps that do more aren’t necessarily better, however. An app may offer more features than you need, which could overwhelm you and be frustrating to use. An app with more features may also cost more.
• Ease of use: Some net worth trackers may be easier to use than others. Some apps connect with your financial accounts and automatically calculate your net worth. Others require a more hands-on approach. They may require you to manually enter your financial data and calculate your net worth.
• Customization: If your finances are complex, you may need an app that allows you to customize your asset and liability categories and other information to help you keep up with everything.
• Security: The net worth tracker you select must ensure your financial data is secure. If you connect your bank and other financial accounts, the connection should be encrypted. Two-factor authentication may also help to prevent unauthorized access to your information.
• Accessibility: Do you prefer to access your account with a web browser, or do you mostly use a mobile device? Some net worth trackers offer only one option, so ensure you can access your account with your preferred device.
• Cost: Some net worth trackers are free, while others charge a monthly or annual fee. The free apps usually provide less functionality than the paid ones.
• Reviews: Be sure to read online reviews before making a decision. An online review may reveal information you hadn’t considered about a tracker or couldn’t find anywhere else.

Best Tools to Track Net Worth

Tracking your net worth doesn’t have to be complicated. You don’t have to keep a detailed spreadsheet or a notebook that you must constantly update. You can use one of several budgeting apps to simplify the process and give you current information.

Here are 10 of the best apps you can use to track your net worth. Some have built-in net worth trackers, while others can be used to track your financial information to make it easy to quickly calculate your net worth.

1. Empower

What makes it unique: Empower is a budgeting app with a built-in net worth tracker. You can link your bank and other financial accounts to get your current net worth.

The Empower app is also a useful budgeting tool. You can use it to create a budget, set goals, track your spending, and monitor your progress toward achieving your goals.

Why investors should use it: Empower can be used by real estate investors to track rental incomes. It can also be used to track and pay mortgages, taxes, insurance, and other expenses.

How to get it: The Empower app is available from the App Store for iOS devices or Google Play for Android devices.

Cost: Free

2. Goodbudget

What makes it unique: The Goodbudget app uses the popular envelope budgeting system, which allocates portions of your monthly income to virtual envelopes, or expense categories, like groceries, gas, debt payoff, etc. It’s a handy way to track your expenses, which is helpful in determining your net worth.

The app also has a feature that allows you to sync your data with others in your household so they can help you stay motivated in achieving your goals. Goodbudget does not connect with your financial accounts, so you must enter your financial information manually.

Why investors should use it: Goodbudget can be used to track property-related expenses. It can also be used to track various sources of rental income to help you manage your cash flow.

How to get it: Goodbudget is available from the App Store for iOS devices and Google Play for Android devices.

Cost: Goodbudget offers a free plan with 10 regular envelopes, 10 “more” envelopes, one year of history, and debt tracking. You get one account with the free plan that can be used with two devices.

The Plus plan is $8 per month or $70 annually. It gives you unlimited regular envelopes and unlimited “more” envelopes. It also includes debt tracking and seven years of history. You get unlimited accounts with the Plus plan that can be used with five devices.

3. PocketSmith

What makes it unique: PocketSmith is a feature-rich financial platform that lets you create budgets, monitor your spending, and schedule bill payments. It can also help you forecast your cash flow. The PocketSmith dashboard displays your current net worth.

With the premium version, PocketSmith can connect with over 12,000 financial institutions worldwide to automatically import your financial information. You can also track your assets and liabilities in different currencies.

Why investors should use it: With PocketSmith, you can track multiple income streams, which makes it ideal for real estate investors. It also has a built-in feature to track Airbnb income and expenses.

How to get it: You can access PocketSmith from any web browser or the PocketSmith app, which is available in the App Store for iOS devices or Google Play for Android devices.

Cost: PocketSmith offers four plans, depending on the features you need. There is a free plan with limited features; the most expensive plan is $319.92 annually or $39.95 monthly.

4. Kubera

What makes it unique: Kubera is a simple-to-use platform specifically tracking your net worth. It can also be used to make net worth comparisons at various points and to project your future net worth.

Why investors should use it: Because Kubera allows you to track all of your assets—including real estate, stocks, precious metals, and other investments—it gives you a complete picture of your current net worth. When you connect your bank, brokerage, and other investment accounts, information is updated automatically. Over 20,000 financial institutions are supported.

How to get it: Kubera can be accessed with any web browser or the Kubera app, which is available for iOS and Android devices.

Cost: Kubera is $150 per year for individuals and $225 per year for families. A 14-day trial is available for $1.

5. Tiller

What makes it unique: Tiller is a budgeting platform that allows you to automatically track all your finances in one place, create a budget, and plan for the future. Totals for your current assets, liabilities, and net worth are displayed on the dashboard. You can also connect your bank accounts to import your financial information.

Tiller uses spreadsheets to track your finances, although you don’t need to be a spreadsheet expert to use it. Premade spreadsheet templates are available to simplify things.

Why investors should use it: Tiller can be used to track investment income and expenses. It can also be used to track goals. Because the app is highly customizable, spreadsheets can be tailored to your specific needs.

How to get it: Tiller can be accessed with any web browser.

Cost: A free 30-day trial is offered. After that, it’s $79 per year.

6. Betterment

What makes it unique: Betterment is an investing platform that provides automated recommendations based on your information. It’s also a great way to keep up with your net worth, which is displayed on the app’s dashboard. Betterment connects with your bank accounts to display current financial information.

Why investors should use it: Betterment’s primary focus is investing for retirement, saving for the future, and investing in stocks, bonds, and crypto.

How to get it: Betterment can be accessed with any web browser or by using the Betterment app, which is available for both iOS and Android devices.

Cost: Betterment offers free checking and high-yield cash accounts for your savings. If you are using the platform to trade crypto, a fee of 1% is charged per transaction. If you use it for stock and bond investing, there is either a $4-per-month fee or a 0.25% annual fee.

7. PocketGuard

What makes it unique: PocketGuard is a comprehensive finance app that allows you to monitor your net worth, watch your cash flow, and track all of your recurring expenses. You can also use it to create a budget and track your progress as you reach milestones.

PocketGuard connects with your bank and other financial accounts for real-time data. A fraud detection feature also alerts your bank when it detects suspicious activity.

Why investors should use it: PocketGuard can be used by investors to categorize and track expenses. It also provides insights into your cash flow to help you make sure you have sufficient funds to cover your expenses.

How to get it: The PocketGuard app is available for both iOS devices in the App Store and Android devices in Google Play.

Cost: A free plan is offered with basic budgeting features. A premium plan is also available with advanced features for $7.99 per month or $34.99 per year. A lifetime plan is also available for a one-time payment of $79.99.

8. Monarch Money

What makes it unique: Keeping up with your net worth with Monarch Money is very easy, since you can view the information right on the dashboard. You can connect your bank and other financial accounts for real-time data to help you manage your money. You can also set financial goals and track your progress.

Why investors should use it: Monarch Money lets you view all your investments in one place and track their performance over time.

How to get it: Monarch Money can be accessed with any web browser or the Monarch Money app, which is available for iOS and Android devices.

Cost: A free seven-day trial is offered. After that, you can choose from either monthly or annual billing. The service is $14.99 per month or $99.99 annually.

9. YNAB

What makes it unique: The You Need a Budget (YNAB) app uses a zero-based budgeting system, where you allocate your money to different categories. The idea is to ensure every dollar you earn has a job to help you stay within your budget.

YNAB can connect to your bank and other financial accounts, and your information is automatically imported, which helps you determine your net worth. YNAB also offers a variety of educational resources like online workshops, videos, articles, and a forum to increase your financial knowledge.

Why investors should use it: YNAB can be used by real estate investors to track their expenses—such as mortgage payments, maintenance costs, insurance, property taxes, and other things—to keep a close watch on their cash flow. Investment goals can also be tracked.

How to get it: YNAB is available from either the App Store for iOS devices or Google Play for Android devices.

Cost: YNAB offers a free 34-day trial. After that, you can choose a $99 annual or $14.99 monthly plan.

10. EveryDollar

What makes it unique: EveryDollar is a simple app that allows you to create a budget and set goals. You can connect your bank account to monitor your expenses and check your balances. Although the app does not track your net worth, you can use it to organize your financial information to help you quickly determine your net worth.

Why investors should use it: EveryDollar can be used to categorize and track your expenses. It can also be used to monitor your cash flow and to establish and track investment goals.

How to get it: EveryDollar can be accessed with any web browser. A mobile app is also available for iOS devices in the App Store and Android devices in Google Play.

Cost: A free version is available that offers basic budgeting tools. The free version doesn’t connect with your bank accounts. A premium version offers more features for $17.99 per month or $79.99 per year. There is a 14-day free trial for the premium version.

Ways to Increase Your Net Worth

With careful planning, you can increase your net worth over time. A higher net worth may make obtaining new mortgages easier to help you grow your investing portfolio.

Here are some strategies you can use:

• Pay down debt: The less debt you have, the higher your net worth will be. Consider using the snowball method to help you eliminate debt. With this strategy, you start with your smallest amount of debt and then move to your next smallest amount of debt. You continue the process until all of your debts are paid off.
• Diversify investments: Spreading your risk by investing in different property types may protect you if something happens. Instead of only buying single-family homes, for example, you could invest in multifamily homes, self-storage facilities, and mobile homes. You could also diversify your properties with a mix of long- and short-term rentals.
• Increase your income: The more you earn, the easier it will be to increase your net worth. Look for opportunities to increase your income, like a higher-paying job, a side hustle, a new business venture, a new real estate investment, or something else.
• Avoid lifestyle inflation: As your income increases, you may be tempted to upgrade your lifestyle, but not everything you buy will increase your net worth. You can increase your net worth by investing in assets that appreciate instead of spending your money on vacations, expensive vehicles, designer clothes, and other luxuries.
• Cut unnecessary expenses: Many people spend more than they realize on daily expenses like eating out, buying coffee and snacks, unused subscriptions, and other things. A simple way to identify unnecessary expenses is to track your spending for a month. Write down every purchase you make. At the end of the month, look for things you can either cut back on or eliminate.
• Take advantage of tax deductions: The less you pay on taxes, the more you will have to invest in new properties. Be sure to use a CPA each year to prepare your taxes for you. A good CPA will identify legal deductions you can take to minimize your tax obligation. There are several ways to reduce W-2 taxes with real estate.
• Contribute to retirement accounts: Regularly contributing to your retirement account will steadily increase your net worth. Be sure to max out your contributions if you work for a company that offers 401(k) matching. It’s essentially free money that you can use to help you grow your net worth and prepare for the future.
• Buy assets that appreciate: Not all assets increase in value over time. Some assets, like vehicles, usually go down in value. Investing your money in assets that increase in value, like real estate, will help you grow your net worth on autopilot.

Tracking Net Worth as an Investor

As a real estate investor, it’s important to track your net worth to help you make informed decisions and evaluate the appreciation of your properties. It will also help you know if you are progressing toward your investing goals.

By using a web or mobile application to track your net worth, you can automate the calculation to get current net worth information. Instead of tracking your assets and liabilities on a spreadsheet or paper, an app can also help you stay organized. It will save you a lot of valuable time so you can concentrate on growing your investment portfolio instead of crunching numbers.

This post originally appeared on the BiggerPockets blog.

The 70% rule in real estate can be helpful when comparing properties and making a final determination on which one is the best investment. Understanding the ins and outs of this rule is imperative to using it to your advantage.

What Is the 70% Rule?

The 70% rule is a formula commonly used by real estate investors as a barometer when purchasing distressed properties for a profit. The formula calculates the maximum amount to pay for a given property once two key factors—the after-repair value (ARV) and estimated repair costs (ERC)—are considered.

The 70% Rule Further Explained

The 70% rule states that real estate investors shouldn't pay more than 70% of the ARV minus the repairs needed. For example, if a house is $150,000 and needs $20,000 in repairs, the 70% rule states that no more than $85,000 should be paid. The math looks like this:

• $150,000 (ARV) x .70 (ARV percentage) = $105,000
• $105,000 – $20,000 (ERC) = $85,000 (buying price)

This formula is commonly used by house-flipping investors to decide how much to pay on a fix and flip.

70% Rule: Formula and Example

The formula itself is rather simple: Once the ARV and ERC are calculated, you then plug in the numbers.

Take a house that has an ARV of $100,000 and needs $20,000 in rehab. The last variable to figure out is what discount to buy at. In this case, we'll use the traditional 70% rule, so 0.7 is plugged in.

• Formula: (ARV * 0.7) – rehab
• Example: ($100,000 * 0.7) = $50,000

Why Is This “Rule” Critical?

This "rule" is critical because the ARV and rehab costs are used in conjunction to calculate the formula. If either of these numbers is inaccurate, there's the potential to operate on less-than-desirable margins. If the wrong price is calculated, profit margins can quickly diminish or be wiped out completely.

ARV and rehab should always be fixed numbers based on the investment exit strategy. However, the ARV percentage amount minus repairs should be variable. Furthermore, this rule may be disregarded as investors become more creative.

For instance, if investors intend to buy and make a long-term hold play, betting on appreciation, they may be able to afford to pay more. In this situation, investors may be able to buy at 101% ARV if the financing is favorable and the area is desirable.

Application of the 70% Rule

With this in mind, let’s examine the application of the 70% rule.

Housing inventory price point

The 70% rule can be adjusted, depending on the price point of the housing inventory. For instance, if lower-end housing is purchased in Texas with an ARV of $70,000 to $90,000, you may be able to negotiate a deeper discount—say, 65%.

The best way to get in tune with the local market is to review what recent cash sales have been in the same community as the subject property. For rehab properties, it will show what margins everyone else is operating on. If wholesaling is the exit strategy, this will show how much of a discount is needed to buy.

Major market area

All real estate is local, but major market areas influence the formula. The formula will need to be adjusted based on the market it is in.

In California, the 70% figure could go as high as 80% or 85%. In Dallas/Fort Worth, Texas, where housing is more affordable, 70% to 78% should serve well.

Even more important are the hyperlocal factors based on the subject property itself. The ARV percentage will fluctuate from ZIP code to ZIP code, subdivision to subdivision, even within the same major market area.

Exit strategy

This rule varies depending on the exit strategy. For example, landlords can usually afford to pay more than house flippers because flippers incur higher costs for renovations and must cover agent fees and related expenses.

On the other hand, landlords can pay more, as their strategy focuses on short-term cash flow and long-term value appreciation. For instance, landlords in northern Texas often purchase properties for their rentals at 76% to 80% of the ARV.

Other models

Other investors may prefer a different formula, such as calculating offers based on what they want to earn on the project.

For example, if an investor wants to rehab a house and net at least $18,000 after accounting for factors such as holding costs, closing costs, and real estate agent commissions, other models are a viable alternative to the 70% “rule.”

Is the 70% Rule a Good Guideline?

The 70% rule can be a good indicator—but not the only tool—used to make a decision on a fix and flip. As with any type of investment, investors should list the estimated costs to calculate their potential profit.

Costs to consider on fix-and-flips

• Repairs (always be conservative)
• Carrying costs (interest, points)
• Monthly costs (utilities, HOAs, insurance, taxes)
• Buying costs (back taxes, cash for keys, liens, code violations)
• Selling costs (commissions, closing costs, transfer fees, title insurance)
• Unexpected costs (add $5,000 to be safe)
  

These are the basic costs investors should consider. From there, take the ARV, subtract these costs, and subtract the minimum profit ($20,000). This is what the purchase price should be.

When Can Properties Be Bought for More Than 70%?

The No. 1 reason a property can be bought for more than the 70% rule is when a real estate agent is also the investor. As agents, they receive a commission of 2.5% to 3% on the purchase and save an additional 3% when selling, as they can list the property themselves. Although this 5.5% to 6% is taxable, it still enables them to offer above the 70% guideline.

Experience also plays a key role. Seasoned investors have a deep understanding of the market. Their ability to accurately estimate the after-repair value (ARV) and confidence in their pricing allows them to exceed the 70% rule by 1% to 2%.

Finally, experienced investors often have advantageous financing arrangements with banks. They might not be able to finance the entire purchase amount like other investors using hard money or private money, but they have been doing it long enough to build up a bankroll that can pay for down payments and repairs.

Final Thoughts

The 70% rule is more of a guideline, not a hard-and-fast rule. The percentage of ARV minus repairs will vary based on local markets, exit strategy, and housing type. All these details should be taken into consideration when calculating an offer.

Investors who stay in tune with the local marketplace and apply the 70% formula as a guideline instead of a blanket rule will make their offers more competitive and their investments more lucrative.

This post originally appeared on the BiggerPockets blog.