Investment Property Management has been one of the inclining trends, especially at this time of pandemic and new normal. Everyone is adjusting and needs a source of income for living. Instead of hiring someone to manage the property, owners these days prefer to manage the property themselves. In that way, the expenses will lessen and the income will go to the owner’s pocket.
Investment Property Management for Rentals
Below are the 6 useful tips that will be a help if you wish to get the best possible renters and maximize the rental return.
- Market the Property
- Set the Rent
- Select the Right Tenants
- Follow the Procedures
- Do the Accounting
- Check the House / Inspections
1. Market the Property
Marketing is important in every business, especially in Real Estate. It is indeed important for a reason that it is one way of communicating your business to your target market for them to know what you do as well as who you are. There is strong competition in every business and marketing, it can set you apart from your competition.
We are in a fast-paced world where we are shifting into the digital age in which every business needs to adapt to so it is also effective to market your property digitally. You can use a variety of methods in order to promote your property such as:
- using a website that can accept direct listings
- publicizing the business through the use of both major and minor newspaper
- Being transparent and promoting the location of the property in order to encourage the market to drive by and inspect the property
It is also essential to put your views into the perspective of your tenants whenever you advertise your property. You have to think about the rent weekly, the overall condition of the property, bathroom and the number of bedrooms, privacy, security, parking space, mode of transportation around the area, and the overall convenience of the area.
2. Set the Rent
Renting is a bit more flexible since you are not the one that is so much responsible for keeping up with expenses. So, if you are managing your own property, prepare to make a little adjustment to your rental rates based on the size and features of the property comparing it to competitors. It is important to know who your competitors are in order to make adjustments with prices and to know what to improve with the property.
3. Select the Right Tenants
It is important to set a target market to know what they prefer and to get your property ready according to their needs. Selecting the right tenants for your property increases the success and ease of your business. Quality and right tenant pays on time, has care of the property, and is easy to deal with.
Once you got inquiries from all the advertising efforts, you might want to consider the following tips:
- Clean every corner of the property and make sure that everything is neat and tidy
- Open all the doors and windows before the client’s inspection in order to make it ventilated
- Talk about a reasonable market rent
- Make sure that any damages, as well as maintenance issues, are already repaired
- Add some flowers, cushions and such to make it look comfortable to be at and a little cozy
- Prepare the necessary papers, such as the tenancy agreement as well as the form of the formal application
4. Follow the Procedures
Following procedures are very essential to ensure that everything is on the right track. In order to do that, you have to follow the following right procedures when managing both the tenants and the property.
- A standard residential tenancy agreement should be used to enlist the tenant, and you should prepare a property condition report that both of you sign off on. It is also a good idea to take digital photos of each room.
- If there are any problems or issues with regards to late payment or anything, do not harass your tenants or even get too personal. Keep in mind to always be professional to also keep a healthy relationship with your tenants.
- Always keep the receipts and lodge the bonds you receive to the local authority in case there are any issues or disputes.
- If the time comes that tenants are still not leaving even after the end of the contract, do not push them away yourself for a reason that you may pay a large penalty for. Instead, you should have an order from the tribunal that states terminating the tenancy agreement, as well as a warrant coming from the State Sheriff.
- It is also important to consult the State’s Residential Tenancy Authority if ever there are any damages or late payment for any advice with regards to demand notices and if the problem is not resolved, you can seek assistance from your local tenancy tribunal to terminate the residential tenancy agreement and repossess the property.
5. Do the Accounting
Having the knowledge of accounting helps you determine your asset’s value, and calculate profitability as well as the risks found in your balance sheet. Since you manage your own property, you have to keep track of tenants’ payments, other receipts, expenses, and other payments.
6. Check the House / Inspections
It is important to often visit and inspect your rental property in order for you to know how tenants use your property. In that way, You could discover if they are involved in any illegal activities such as crimes or the use of drugs. You can do inspections around four times each year but also make sure that you give your tenants a written notice a week before. Tenants are responsible for keeping the property clean and if there are any damages, they are also responsible for reporting everything to the owner, so it can be fixed. But keep in mind that you have to consult your state’s inspection legislation in terms of notification, frequency as well as entry process.
How to Choose Profitable Rental Property
There are a lot of factors to consider when choosing a rental property in order for it to be profitable. Below are the key factors you have to remember when searching for a rental property.
- Neighbourhood: Location is a very important factor when choosing a property. The type of tenants which you want to attract and target and your vacancy rate will be determined by the neighbourhood in which you purchase. For instance, buying rental property near universities is more likely to attract students.
- School: If you are dealing with a family-sized home, think about the quality of the local schools around the area. If there are no quality schools nearby, the value of your investment may suffer. Even if your monthly primary concern will be the cash flow, the total value of the rental property will come into play when you sell it.
- Statistics of crime: No one wants to be near dangerous areas. Everyone wants safety and security, especially at home. Check the rates with the police about serious crimes or anything related. It is also important to know if there are any authorities in presence nearby.
- Job Market: An area with a lot of great opportunities when it comes to employment, attracts more tenants. Employees and other workers are most likely to search for a place to live near their office which may also cause the prices to either go higher or lower.
- Property Taxes: Property Taxes vary depending on the location of your property. High property taxes are worth it if your rental property attracts long-term tenants. Make sure as well if there is a probability that property tax will increase in the near future.
- Natural Disasters: In locations that have a high risk of natural disasters and floods, your income might go to the insurance coverage.
- Amenities: Check the areas of the neighbourhood and look for parks, gyms, restaurants, movie theatres, public transportation, malls and any other attractions and places to go that will attract tenants.
- Future Development: Always check out the area and see if there are any constructions going on which may mean that the area is growing. But it is important well to know if there are new developments that may affect the price of other properties around.
- Average Rents: The income you will gain from your rental property is indeed important to you, that is why it is essential to know the average rent in the area. Ensure that it can cover your mortgage, taxes, and such expenses. Keep in mind as well that it is important to do research with regards to the area in order for you to know where it will be a few years from now.
- Available Listings and Vacancies: When a neighbourhood has an unusually large number of listings, find out whether it is the result of either a seasonal cycle or a decline in the neighbourhood. A large number of vacancy rates will result in landlords lowering the rental price while low vacancy rates will result in high rental prices.
Every business person wants to get high profits and in order to do that, it is essential to know where to invest. That is why considering these key factors will be a big help for you to know whether you will gain so much with your rental property or not.
Rules to Know to Achieve Success
There are a couple of rules to follow to calculate your profit or return. You would benefit from these rules as they will guarantee you success.
- Do the Math: Remember not to ignore your finances. A little numerical computation can help you assess your current financial situation and know how to achieve your short-and long-term financial objectives.
- Recognize and deal with lifestyle inflation: Most people are spenders as long as they have more money to spend. As these people get their salaries increased, their spending increases as well which is called lifestyle inflation. This can be a cause of damage in the long run since it limits you in saving money for things that are much more important.
- Be mindful in spending and know your needs and wants: Be mindful of the differences between needs and wants. Not everything that you want is worth buying. Your needs should be your top priority when it comes to budgeting. If there is excess within your budget allocated for your needs, then that is the only time you can spend the excess for your wants but do not overspend.
- Save early: It is essential to start in the early years to save for retirement. The sooner you begin to save, the better you will be in the future.
- Create and keep an emergency fund: The funds will help you to pay for things that are not included in your budget such as unexpected car repairs or any emergency that might occur. It is essential to be financially prepared.
- Know the 1% Rule
- Know the 50% Rule
The 1% Rule
There are a few factors to evaluate rental income but one of those is considering this 1% rule in order for you to see if the property is a viable option. This 1% rule states that your gross rental income must be a minimum of 1% of the purchase price of the property. With that, the property will generate income that is enough to cover such expenses.
The 50% Rule
The 50% rule simply states that the owner of the property can budget for 50% of gross income to go toward operating expenses. The said operating expenses include property insurance and landlord, property taxes, Maintenance expenses, repairs, vacancy loss, management fees and owner-paid utilities.
How to Calculate Returns for a Profitable Rental Property
In order to get the best and most accurate expenses representation, you as an owner might want to consider these two types of properties that you should evaluate.
- Operating Expenses: Operating expenses are the items that are recurring in nature such as insurance, property taxes, maintenance, costs of management of the property as well as vacancy costs.
- Capital Expenditures: Unexpected and high expenses compensate for capital expenditures which means that this can be fixing damaged roofs or any irregular expenses.
Cash-on-cash performance is important for a reason that it dictates a property’s profitability and to calculate that, the formula will be:
- Gross Income – Operating Expenses = Annual Net Income
- Annual Net Income / Purchase Price = Cash-on-cash return (convert to percentage)
A good move is to aim for a return of around 8% to 12% since it is considered reasonable but still, keep in mind that the mentioned percentages do not account for any unexpected expenses, capital expenditures and mortgage payments monthly. That is why it is important that before making a purchase, carefully consider all factors.