A holistic approach
Return on investment (ROI) is a calculation that helps investors understand how their capital is working. For rental investments, an ROI can be an exercise in making all the parts work together. It begins with the right property for your investment style, finding the right tenants, and the right property manager.
Some investors like to hold a property for a long-time. That way, the tenants pay off the mortgage with increasing amounts of rent going to the landlord in cash each month. It’s like an increasing dividend even as the debt on the property is reduced. Some investors want to hold the property for its prime years, usually the first 10 years after construction, and then sell it. Each approach will have a slightly different management strategy and attract a different type of tenant. Knowing this in advance can help you manage risk and maximize your investment returns.
Location is very important to the overall business plan. Homes near schools and commercial areas will attract families and students. Is there a bus route nearby? Is the grocery store within walking distance? Ask yourself if you would like to live in the area you’re considering for an investment property. If the answer is ‘yes’ then you’re looking in the right area.
The most basic way to increase ROI is to keep the property rented all the time. This is not always practical but it is the primary objective. This makes the tenant the real investment, not the property itself. Without a reliable tenant, the property can become a financial liability for the owner. This is why it’s critical that tenants are screened and have a good on-going relationship with the property manager. We pride ourselves on open communication and transparent business practices that grow trust.
A landlord needs tenants who are stable, respectful, and will observe the rules. A good tenant has a history of social responsibility: a rental reference, a good credit rating, and proof of income from a reputable source. When we advertise your property, we’re looking for the right tenant, not the first tenant to apply who may fit the minimum standards.
To achieve market rents, and justify allowed rent increases, the property must be kept in good order. Take cues from the national REITs on how they manage their portfolios. For example, a REIT will often use vacancies as an opportunity to upgrade a suite to match expectations of renters. It may take a month to do a very basic like-with-like renovation and paint. Replacing cabinets, countertops, fixtures, and flooring allows a property owner to ask full market rent, which may be several hundred dollars more each month than the previous tenant paid.
After we have found a great tenant, the next step is to keep them for the long-term. Constant communication with the renter allows us to monitor the property for maintenance issues and to look after any small problems they might have. A leaky tap or a sticky window can be easily fixed and lends a sense of belonging to the occupants when the small things are looked after promptly. On-going maintenance keeps a rental property in top shape and encourages the tenant to stay longer.
Contact us today to discuss your property and how it can be managed to achieve the best possible ROI. We are your partner in property investing and want to help you achieve your goals.