Investing in rental properties can be profitable provided you start out with a strategy and clear goals. Some of the advantages of real estate investing include: Diversifying your portfolio with an asset that will be a hedge against inflation Reducing your tax burden while generating income/steady cash flow Owning hard assets that provide an excellent basis for financing other investment opportunities Mitigating legal risks thanks to a well-defined legal structure, such as a limited liability corporation (LLC) But real estate can be a tough business, and you’ll want to consider the pros and cons before you begin. What are Your Investment Goals? Most people who buy an investment property to rent have one of two main goals: Either they want to invest to generate cash flow (passive income), or They want to achieve aggressive equity growth. Let’s look at the pros and cons of each. Investing to Generate Cash Flow This is usually a longer-term approach. Buy-and-hold properties generate greater cash flow and are less management-intensive. You’ll have more stability with lower tenant turnover, too. However, while property values may grow with time, a more aggressively managed property will see a greater increase in value in the same period. On the other hand, it’s easy to let your attention slip. Because of that, we recommend a compulsory review of the property on a quarterly basis. This will help you preserve your investment, generate top dollar in your market, and avoid nasty surprises. Investing to generate cash flow can be the right choice for you if: Your goal is to have a revenue stream from rental property Investing in and holding real estate is a core part of your long-term financial plan You want to build equity to finance other investment opportunities Investing for Maximum Sales Price or Value for Refinance If you’re looking for a shorter-term gain and are not so concerned about ongoing cash flow, this might be the right approach for you. The advantage here is that you’ll receive a higher valuation for a sale, or to recapitalize and re-invest to generate maximum returns. You’ll realize gains more quickly, freeing capital for other purposes. However, you may see higher tenant turnover because rents will be higher and this will negatively impact the cash flow of the property. You’ll have the challenge of finding tenants and maintaining the property, too. There will also be a higher risk of cash losses because of higher fixed costs and you may not be able to take advantage of long-term capital gains rules. Investing for a maximum sales price or value for refinancing might make sense for you if: You are looking for ways to increase your short-term investment returns You are not looking to live off of, or depend on the cash flow from your investment, in the current period The stock market is not offering good investment prospects in the short term Which Approach Is Right For You? Which approach you take depends on your unique situation and goals.
Savvy investors in residential real estate are always looking for ways to improve their investment property ROI. One approach is to try and increase rents, assuming this option is available to you. If your tenants are paying well below the market, even with COVID-19 concerns, we recommend you continue to raise rents. If you're near the market, then be patient until we better understand the impact the coronavirus will have. Cheaper Isn’t Always Better Sometimes increasing your return on investment isn't just about controlling costs or raising rents; it's about investing in your property wisely. Take the long view: you may need to spend some money to protect your investment for the long term. Periodically review mortgage interest, insurance, and property tax payments with a professional. A good advisor can help you keep these costs down. Don’t settle when it comes to tenant searches. Finding the right tenant can save many thousands of dollars in the long run. There will likely be less property damage. And a happy tenant will stay longer, reducing turnover costs. Determine an acceptable turnover rate and vacancy allowance for your situation based on your goals and pricing strategy. This will help you stay ahead of trends and be prepared should the rental market head downward. When it comes to maintenance, don’t simply choose the lowest bidder. While you should look for competitive pricing, hire a maintenance vendor that is insured and will stand behind their work. What to Look for In a Property Management Firm In addition to the expertise a reputable property management firm can bring, not everyone is cut out to be a landlord. Look for a property management firm that: Communicates with you and with tenants openly and often Stays on top of details and keeps excellent records Identifies and retains good renters Acts promptly and legally when there’s a problem, and can support actions with accurate notes in case a tenant threatens a lawsuit or other legal challenge Has many vendors to choose from and understands when maintenance is priced correctly Borba Offers More to Our Customers Customer service is our top priority. Our team of employees and contractors are knowledgeable and skilled; they work with their heads and hearts. We value relationships and treat everyone with respect because we believe great people make a great company. We believe in doing the right thing, taking ownership, and being accountable even when no one else is looking. In addition to our decades of experience in property management, Borba Property Group offers many conveniences, including: Owner portal where you can view financial statements, access documents, and set up online payment options Resident portal where tenants can submit maintenance requests and pay rent Online rental applications that streamline the application process The ability to pay rent at convenient locations like CVS and 7-Eleven Contact us to learn more about how we can help you improve your investment property ROI.
