To maximize the income and total return opportunities from real estate investments, while also minimizing the potential disruption associated with it, requires that you take an institutional approach to managing your rental properties. What do institutions do differently?
Here are seven tips to get you started:
Today’s trends indicate that single-family homes are the best for generating high revenues. To price rent correctly and capitalize on investment, landlords and investors should know the market trends and forecasts inside and out. If priced too high, you are stuck waiting for a tenant. On the other hand, priced too low and each month the tenant is in the home, you lose valuable revenue. Institutions determine the prime price based on extensive knowledge of the local housing market, reviewing comparables, and through real estate software and tools.
Calculating cash flow incorrectly could mean a struggle to make a profit or break even. In layman’s terms, cash flow is the amount of income left after all the bills have been paid - often expressed as a monthly dollar amount. In real estate rental, cash flow is what remains after expenses (such as mortgage, taxes, insurance, vacancies, repairs, capital expenditures, utilities and any other property expenses) have been paid.
Income from real estate is a “zero-sum game.” Every dollar of expense is a dollar less in return. Institutions are extraordinarily disciplined when managing costs and collecting revenue. As the saying goes, ‘time is money’ and institutions look to accelerate revenues while delaying, deferring and minimizing costs.
Pushing a bad tenant out of your rental unit once they are in is both difficult and expensive. Institutions use a thorough screening process to ferret out bad tenants and you should too. A high-quality tenant pays on time, causes fewer problems, typically rents longer and takes better care of the property. Institutions know how to attract better quality renters.
Knowing which warning signs to look for and getting to the truth about a candidate’s past rental history comes with time and experience. However, identifying these warning signs can help landlords avoid rental scams and discrimination lawsuits geared toward the inexperienced and often vulnerable landlord - no matter how innocent they may be.
Owners tend to be emotionally attached to their properties and the people living in them for various reasons. As a result, they often overvalue what they have and pander to their tenants. It’s important to remember that a tenant is not the landlord’s best friend. A good institutional management company will always be courteous to the tenant but at a polite distance. Of course, the goal is to have a happy tenant so that they will renew the lease, but tenants are a business client, first and foremost.
Institutions have an infrastructure in place (either an in-house maintenance staff or a network of licensed, bonded and insured contractors) with access to better pricing and high-quality work from vendors. Working in volume and forming mutually beneficial relationships with maintenance workers, tradesmen, contractors, suppliers and vendors, delivers discounts and incentive for contractors to provide their best work.
Institutions that use their infrastructure to save a couple bucks here and there, realize a big difference in total return over time. While a landlord of a single property or two can’t possibly wield the same amount of leverage, negotiating and managing repairs wisely can be the differentiator between success and failure. Whenever possible, form ongoing relationships to get better pricing and better service.
Presence with the tenant, including overseeing the move-in and checking back in a week or two to make sure tenants are okay, sets the tone for future, good-tenant behavior. And while we don’t advocate treating your tenant like your best friend, managing the tenant-landlord relationship properly by providing good customer service (such as handling routine and emergency maintenance and taking care of routine inspections) is all part of the landlord’s duties.
An experienced property management institution knows how to write an ad that stands out and sells and reaches the largest audience - all with the goal of shorter vacancy cycles. Institution marketing works on a unit, rather than a floor plan level, where talented photographers showcase the unit to its best advantage, highlighting all of the positives and de-emphasizing any flaws.
Don’t see your dreams of a steady, annual rental income disappear through mismanagement of your rental property. If you are overwhelmed by the process, tired of late night emergency calls or simply want to concentrate on building your rental business rather than performing landlord duties, a property management group can help.