One of the great ways to create not only current income but future wealth is with Portland rental properties. Rental income can be generated in houses, duplexes, apartment buildings, retail and office buildings, among others. Regardless of the type of property, in this article we will take a look at how you can buy, hold, and sell rental properties in Portland for cash flow now, and lump sum cash windfalls later.
Buying Portland Rental Properties
Purchasing properties in Portland is not as straightforward as it used to be. Back in the 50s & even 60s, a house could be purchased with 25% down, and monthly rent from a tenant would be more than enough to cover mortgage, taxes, insurance, and maintenance and still leave a little something left over to spend on the family.
Nowadays however, it is extremely difficult to find a property to cash flow using the typical “down payment + bank loan” option. Today, many investors have to get creative to figure out how to invest in Portland rental properties, to earn enough rent to pay all expenses and come out with cash flow. Here are a few ways I recommend to my partners and students:
- Use money partners, credit partners, or private money to provide the cash down payment
- Get interest-only bank loans to reduce monthly payments
- Acquire seller financing with preferential finance and position terms
Increasing Income from Portland Rental Real Estate
Sometimes you can consider purchasing Portland rental properties that are running at break-even, knowing you can create cash flow over time. Here are some strategies to increase the monthly net cash flow:
- Improve the properties’ value to increase monthly rents
- Separately meter units so tenants pay their own utilities
- Add amenities that generate additional income, such as paid laundry facilities or parking
- Adding or enforcing late fees, on-time payment discounts, etc.
- Instituting referral programs to maximize occupancy
- Accept pets or smokers for additional fees
- Accept government program tenants
Cash Out for Retirement
Although some investors hold their properties their entire lives, the vast majority of investors will sell some or all of their properties all at once or over time for cash infusions, or to continue to derive monthly income without the commitment and continuous presence required by property management. Here are a few exit strategies commonly in use in Portland:
- The seller joint ventures with a buyer to maintain partial ownership and cash flow
- The seller sells the property for cash
- The seller sells the property to a home owner or new investor and “carries the contract” or “sells in installments”
- Provides continued control or even ownership of the property
- Increases monthly cash-flow
- Generally decreases vacancies and maintenance costs
The first two methods are fairly straightforward, but let’s talk about carrying the contract.
First, what does it mean? To “carry a contract” or “sell in installments” essentially means that the seller – in this case you the investor – is providing seller financing to the buyer, who may be a homeowner or another investor. There are two primary ways to provide that financing; one that maintains ownership of the property, and one that maintains control without ownership.
In an installment sale like a contract for deed or land sale contract, the deed (and ownership) of the property stays in your hands until the contract has been paid in full. However, the buyer assumes all expenses including taxes and insurance. This arrangement can turn a break-even rental property with lots of labor or expense management overhead into a hands-free cash-flow machine.
In another, more sophisticated installment sale model, the first seller (Party A) sells the property to you (Party B) with seller financing; an A to B transaction. Then you (again, Party B) sell the property also on seller financing to the final buyer (Party C); a B to C transaction. However, the financing from Party A and Party B (you) are both included and paid by the final buyer, so that both Party A and Party B receive payments on their financing until paid off. This method of passing on the financing without extinguishing it is technically called an “all-inclusive trust deed,” but is referred to in the investor community as a “wrap note.” In this case, you’ve transferred ownership to the final buyer as in a standard sale, but you continue to earn cash flow in the form of principal and interest payments.
As you might suspect, each of these variations of investor-seller financing require the type of understanding and forethought that can only come with solid education, support, and experience. This is why many newer investors should strongly consider working with a joint venture partner their first few times engaging in these types of transactions.
Regardless of investment strategy, as long as the City of Roses continues to be one of the best places on Earth to live and work, it will continue to draw in new residents who need housing and new investors to provide that housing for many of them. Begin investing in Portland rental properties with intelligence, planning and the right support today, and you could build your own empire and your own fortune tomorrow.
Portland Rental Properties
How to Invest in Real Estate Portland
Portland, OR 97225