Managing your property involves a range of purpose-driven ownership decisions and financial goals.
Once you decide to rent out your property, it is now an investment. Professionals know these properties should be treated like a business because rental properties can become a great source of income when managed like a business. From the beginning, you need to consider what needs to be done to the property to rent it out, and then find a good renter. There are several regulations and smart guidelines that should be followed.
If you do your research, you can use the techniques of the pros and can reduce the amount of time you spend managing your property and greatly increase your income, or reduce any losses. It is You who are in control when you acquire a rental property, or you can use professional management companies and software systems to assist you in your endeavors.
Determine your Reasons for your Investment:
- Appreciation – Market cycle values can rise or fall quickly, real estate is an asset class that generally appreciates.
- Passive Income – Holding real estate is a passive investment that provides returns that can be higher than other passive investments (ie. stocks, bonds, etc.).
- High ROI (Return on Investment) – With the ability to acquire high leverage comes the ability to obtain a relatively high return on investment.
- Principle Paydown – A strong benefit of investing in real estate is the fact that your tenant is paying down the mortgage.
- Tax Benefits – Real Estate ownership provides for several tax deductions including, but not limited to, mortgage insurance and depreciation.
- Hedge Against Inflation – Real Estate ownership allows you to use leverage as a great way to hedge against inflation and to protect your wealth.
- Increasing Rents – This allows you to lock in low housing prices and interest rates, and the opportunity to increase future cash flows by increasing rents.
- Retirement Income – Real Estate investing is a long term proposition, the potential to retire on rental income is very strong.
- Exit Strategies – Pre-payment charges are not a factor in the U.S. When it comes time to sell a property, any number of profit maximizing strategies are available to you as an Investor.
Estimating and Calculating your Return on your Investments
Investors calculate return on investment (ROI) in various ways. Rental properties are measured on two important factors – cash flow and annual yield. Annual yield involves your annual profits divided by your up-front cash investment. If you invest $50,000 out-of-pocket, “returns” to you come in the form of profits every year. If you have $5,000 in annual profits from a $50,000 initial investment, that would be a 10% return on investment. There are many possible variables, such as appreciation and vacancies.
You might want to consult with your Accountant, but the internet has various Investment Property Analyzers that can help you evaluate the return on investment for residential property investments. You’ll need a few numbers such as acquisition costs, rental income, interest rate, property and tax rate of any investment property. These calculators can provide you with an estimate of expected 5 year returns on your cash invested and other useful information.
Here is an example of one such investment property analyzer.
Percentage of rent
This is the most common model, and is used by property management companies in the residential space that manage multi-home units and single family homes. The property owner in this case signs a property management agreement with the company, giving the latter the right to let it out to new tenants and collect rent. The owners don’t usually even know who the tenants are. The property management company usually keeps 10-15% of the rent amount, and shares the rest with the property owner.
This is the most common revenue model used by companies when monitoring empty homes or empty land sites. The work here involves monitoring the property and ensuring that it is safe and secure, and reporting back to the owner. As there is no income from these properties, a fixed monthly fee is usually charged to the owner.
Used in small residential units in high demand locations. The company signs a rental agreement with the owner and pays a fixed rent.
The company is given the right to sublet the property for a higher rent. The company’s income is the difference between the two rents.
Apartment space and other commercial establishments, such as retail or business centers use this model to generate revenue. The property manager signs an agreement with the property owner, with the right to convert the property into a revenue generating business such as a business center, service apartment, etc. The management company shares a percentage of revenue instead of paying rent to the owner. Hybrid structures are also available, with a combination of fixed rent and revenue shares.
Maintenance and Repair
One of the keys to effective and profitable operations of any rental property is the careful handling of repairs, renovations and regular maintenance. Your Property Management teams are most everywhere and can assist you with a range of services from refurbishing an older house, to maintaining a house or condo in good condition, to handling insurance claims and much more. Use the many comprehensive management services available that can support your maintenance and repair needs.
Inspection, repair, replacement and ongoing maintenance are provided for individually, or in various service packages.
Cleaning and preparation (gutters, windows, sump pumps, etc.)
Safety or environmental hazard inspections
Plumbing and mechanical systems
Data cabling and security systems
Heating and air conditioning systems
Seasonal, specialty and routine cleaning services
Lawn care, landscaping and grounds care
Historical preservation/restorative care
Painting, staining and refinishing
Masonry, foundation and exterior care
Roofing, soffits and fascia care
Pool, tennis court, and dock maintenance
Selling Guides and Articles
- Zillow Home Seller’s Guide (Zillow)
- Zillow: Home Prices and Values in America (Zillow)
- Pricing Your Home (Zillow)
- How to Price Your Home for Sale (TheBalance.com, E.Weintraub)
- 10 ‘must-do’ steps to sell your home this year (BankRate.com)
- 7 home-seller to-do’s before hiring agent (BankRate.com)
- 10 surefire ways to scare off homebuyers (BankRate.com)
- Where Homes Are Selling the Fastest (DAILY REAL ESTATE NEWS, SEP 12, 2017)
- Trulia’s Real Estate 101 Blog (Trulia)
- How to Sell Your Home Fast in 9 Easy Ways (Trulia)
- How much is my home worth? (Trulia)
- 8 Reasons Your House Isn’t Selling (Trulia)
- Selling Your House? Avoid These Mistakes (Investopedia, March 2017)
- How Selling a House Works (HowStuffWorks.com, Silverman)
Preparing to Sell
- How Much Does It Cost to Sell a House? (Cathie Ericson | Jan 20, 2017)
- What Is Value Range Pricing in Real Estate? (Cathie Ericson | Jan 20, 2017)
- The Secrets to Selling a Home for Over Asking Price (Angela Colley | Jun 14, 2016)
- Selling your home: the 11 most important spots to declutter before the open house,(Apartment Therapy, Jan. 9, 2017).
- 6 Simple Yet Effective Home Staging Ideas for Under $40, (Forbes, May 1, 2015).
- Playing Hardball When Selling Your Home (Amy Fontinelle, Feb 23, 2017).
- How staging made all the difference, (REALTOR® Magazine, Jan. 2015).
- 2015 Profile of Home Staging, (National Association of REALTORS®, 2015).
- How staging made all the difference, (REALTOR® Magazine, Jan. 2015).
- Curb appeal on a budget, (DJ Home Selling Team, Mar. 14, 2017).
- View the same property staged 3 different ways, (Styled Staged & Sold, Oct. 17, 2016).
- The Art of Home Staging, (The New York Times, Jan. 22, 2016).
- Top 5 Most Overlooked Spots When Staging Your Home, (Decorating Divas, May 1, 2015).
- Home staging guide, (REALTOR® Magazine, n.d.).
- Home staging: pro tips for appealing to the senses, (RIS Media, Nov. 24, 2015).
- The 5 Most Important Home Staging Tips for the Kitchen (ProfessionalStaging.com)
- How to sell your home (wikiHow.com)
- Front Entry Tips and Trends for Every Home, (REALTOR® Magazine, Jan. 2015).
- Stage the Bathroom: 7 Simple Ideas, (Styled Staged & Sold/National Association of REALTORS®, Nov. 23, 2015).
- Less is always more when staging your home, (Realty Times, Oct. 26, 2016).
- Home staging ideas to take your basement to the top, (realtor.com, Sept. 16, 2016).
- The 5 most important home staging tips for the kitchen, (Professionals Staging, July 25, 2016).
The Selling Process in America is easy -
"If you know what you are doing."
Selling a home or condo in the United States may be stressful. When your home is on the market, you may encounter weeks of showings that require your house to be presentable at all times. Then you have to vacate within a few days once the deal is final.
Follow a few well defined steps, or connect with an International Real Estate Agent, and you will find that you can sell your property without too much difficulty.