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Understanding Residential Real Estate Depreciation

Residential real estate is a lucrative investment and has seen an increase in foreign investment in U.S. real estate. If you’re investing in residential real estate, you are mostly focused on property management, cash flow, and increasing the value of your assets for future sale. While it might sound like a bad thing, depreciation is actually an important tool for owners of rental properties that can provide tax benefits. Learn more about the depreciation of residential real estate below.

What is Residential Real Estate Depreciation?

Depreciation refers to the loss of value to a property as it ages and experiences the general wear and tear of life. Much like a car driven off the lot, a building experiences depreciation as soon as it is placed into any type of service or available to use as a rental. Any building experiences this, even when comparing commercial vs residential real estate. The exact depreciation rate varies from property to property, but most residential rental properties are estimated to depreciate at a rate of 3.64% every year for 27.5 years.

Depreciation does not apply to the actual land as it does not get “used up” in the same way, but you can depreciate any improvements to the tangible property even if they are not part of the building, like appliances and carpeting.

While this can seem less-than-ideal, residential real estate depreciation can actually be used as a tool that allows you to write off the property and any improvements you perform on the property as expenses on your taxes. That ultimately means more money saved for you.

Tax Write-Offs and Depreciation

Residential rental properties come with plenty of tax benefits. For example, you can deduct rental expenses from your rental income. This includes:

  • Property taxes
  • Mortgage insurance
  • Home office expenses
  • Travel expenses related to managing the property
  • Professional services such as property management services

These are all deducted in the tax year that you actually spend the money for them, but depreciation deduction works a little differently. You can deduct the costs that go into buying and improving a property, but instead of deducting all of these expenses at once in the year that you actually spend the money, depreciation allows you to spread those deductions over the usable lifetime of that property.

Is Your Property Depreciable?

The IRS has specific rules in place that dictate how you can depreciate property and the requirements for depreciating a rental property. Your property is depreciable if:

  • You are the owner of the property
  • You use the property as a form of producing income or in your business in some way
  • The property can physically depreciate and has a determinable useful life (the property can decay, wear out, get used, naturally lose its value, or succumb to obsolescence)
  • The property will last more than one year

Your rental property doesn’t need to meet all of those requirements, but even if it does, there are still some exceptions. It is not eligible for depreciation if you placed the property into service and then stopped using it for business in the same year. Furthermore, you generally cannot depreciate the costs that go into planting, clearing, or landscaping as they go into improving the land, which, as mentioned, is not considered depreciable. However, you can depreciate the costs that go into management of the property itself. For example, if you enlist a company for property management in Gainesville, FL, the costs of these professional services can be depreciated.

The Lifecycle of Depreciation

A property can be depreciated as soon as it is placed into service or otherwise ready to use as a commercial or residential rental. Say you purchase a property January 1. You perform any necessary repairs and get the house ready and listed on March 1, but a tenant does not sign the lease and move in until May 1. Even though no one has moved in, you can technically start the depreciation March 1, which is when the property was ready to be rented out.

You can continue to depreciate the property until you have deducted your entire cost or other basis value in the property. Depreciation also stops as soon as you stop business or otherwise retire the property from service. A property is considered retired from service as soon as you stop using it to produce income. That includes:

  • Selling or exchanging the property
  • Abandoning the property
  • Converting the property to personal use
  • Destroying the property

You can still continue to depreciate costs when the property is idle, like when a tenant moves out and you are getting the property ready for a future tenant.

What Can You Depreciate?

You can, of course, depreciate the initial costs of buying the rental property, but you can also depreciate any costs that go into improving the property. An “improvement” is defined as anything that increases the value or usefulness of the property, adapts the property to a new use, or restores the property or part of the property to a better condition.

That is a fairly broad definition, which gives you a lot more room to depreciate just about anything you do to your property. Improvements that count in rental property depreciation include:

  • Building a garage, storage, or other addition
  • Installing new utilities
  • Replacing the roof
  • Adding carpeting
  • Installing ramps and other accessibility upgrades

Any routine repairs and maintenance would not be depreciable as they are not considered improvements, but you can still thankfully deduct maintenance costs the year that you spend the money on them.

How to Calculate Depreciation

In simple terms, the IRS allows you to deduct expenses based on the decrease in property value over a 27.5-year period, which is considered the “useful life” of any given rental property. While you should work with a tax accountant or professional who can more precisely calculate depreciation, you can arrive at an estimate on your own with some basic steps. The method of depreciation calculation is as follows:

1. Determine the property’s basis value.

The basis value is simply the amount of money that you paid to obtain the property, whether it’s cash, a mortgage, or some other combination. This includes some closing costs and settlement fees, such as:

  • Surveys
  • Legal fees
  • Transfer taxes
  • Title insurance

2. Determine the building value.

The building’s value is the value of the land subtracted from the cost of the building. You need this amount as you cannot depreciate the value of the land. You can use the fair market value of both at the time of purchase.

3. Adjust the basis value, if necessary.

You may need to adjust the basis if something happens between when you buy the property and when you actually have it ready to rent to a potential tenant. For example, restorations to damage on the property or improvements that have a useful life of at least one year would increase the basis, while insurance payments from theft or damage would decrease the basis.

4. Calculate annual depreciation deduction.

Once you have the building value, simply divide it by 27.5 (the years of useful life for your rental property) to get the yearly allowable depreciation deduction.

This method of depreciation calculation is under the GDS (General Depreciation System), which applies to most properties and is what you should use unless instructed to use the Alternative Depreciation System (ADS). The ADS is required if the property is:

  • Used for any tax-exempt purpose
  • Used for qualifying business 50 percent of the time or less
  • Used primarily as a farm
  • Financed by tax-exempt bonds

With ADS, the useful life of a rental property is 30 years for any building doing business after Dec. 31, 2017, or 40 years for buildings in business prior to that. 

Understanding rental property depreciation can help you save money in your investment and make the right choices for long-term deduction. Consult a professional accountant or property manager to learn more about depreciation. At Great Jones, we believe in equipping real estate investors with knowledge so you can make the best decisions for your property investment. For additional resources, check out our blog post on single family rental cap rates and how it affects your overall investment.

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The Trend of Foreign Investments in U.S. Residential Real Estate

With the advent of globalization, foreign investing in nearly all U.S. markets continues to grow year to year. Estimates suggest that foreign investments account for upwards of $2 trillion per year in the United States, often in spite of earning substantially lower returns. Real estate remains one of the most steadfast of these investments. While domestic investments in real estate still remain a prominent part of the U.S. economy, foreign investment in U.S. real estate has become a growing trend over the past decade. U.S. property investors are now in competition with a larger pool of investors and need to seek out competitive advantages like a great property management company to make their rental property stand out and assist with their acquisition strategy. Learn more about this trend below and what this means for U.S. property investors.

Foreign Investing in Real Estate by the Numbers

U.S. real estate transactions to foreign buyers totaled about $78 billion in 2019. When looking at the numbers between commercial real estate vs residential real estate, a majority of these foreign buyers preferred residential properties in suburban areas, as opposed to properties found in small towns and metropolitan areas in major cities. Most foreign purchases in real estate were in Florida, followed by:

  • California
  • Texas
  • Arizona
  • North Carolina
  • Illinois

So what does this mean for property investors in the U.S.? Well, for example, a U.S. investor that purchases a rental property in Gainesville, FL is not only competing with other U.S. investors for tenants but also a slew of foreign investors. In this case, investing in services for property management in Gainesville, FL, may be a lucrative way to gain a competitive edge in that market.

Over the last few years, the largest share of foreign buyers has consistently originated from China or Canada. Mexico remains the third most common foreign investor in U.S. real estate. However, numbers show an overall decrease in these shares across the board.

In 2018, the number of Chinese investors hovered at around 15 percent before dropping to 11 percent in 2019. Despite the drop, Chinese nationals still accounted for over 19,000 properties in the United States, which generated about $13 billion in sales.

By comparison, Canadian buyers of residential properties in the United States has continued to see a decrease since 2011. However, in 2017, the total property sales to Canadian-based buyers peaked at about $19 billion, the highest it has been over the last decade. By 2019, those sales dropped to about $8 billion.

Why Are Foreigners Investing in Residential Real Estate?

As one of the richest countries in the world, the United States has always been a safe and often lucrative investment for foreigners. Even despite some hiccups and the decreases in investment numbers over the last few years, residential real estate in the United States typically sees consistent and significant appreciation. For foreigners, property is also less expensive in the United States than in similar countries, including Canada and the United Kingdom. Read about some of the reasons why foreign investors prize U.S. real estate below.

Rising Rental Rates

One potential reason for the growing trend of foreign investors in real estate is the increasing rental rates in multifamily properties throughout the United States. Between 2018 and 2019, rental rates in Las Vegas, Nevada, increased by about 7.9 percent. Furthermore, about 61 percent of foreign buyers believed that housing prices in the United States were higher than prices in their respective countries.

Fixed-Rate Mortgages

Even given recessions and housing crises, the United States has remained surprisingly steadfast in providing easy access to mortgages and generally lower borrowing costs than other countries. Many countries similar to the United States, including Canada and the United Kingdom, do not provide long-term fixed-rate mortgages to potential home buyers. Most countries only offer short-term mortgages with an adjustable rate. Being able to maintain the same interest rate over a period of 15 to 30 years is boon to anyone buying or investing in real estate, especially for foreign nationals.

Cash Flow

Generating high yields can be difficult outside of the U.S., even in hot spots like London. Most investors in foreign markets settle for relatively low yields in exchange for stable (albeit overpriced) markets. In some countries, investors will put money into properties knowing that they actually present negative cash flow. Without a fixed-rate mortgage, that can quickly turn into a gamble that does not present capital gains.

By comparison, foreign investors can easily pay less for properties in the U.S. while getting an assured positive cash flow every month. If you are not paying your own mortgage or rent, that equates to a stable and fairly reliable source of passive income.

Property Value

The actual value (not accounting for residential real estate depreciation) of a property can vary based on age of the home, location, general condition, and a dozen other factors. However, in terms of price per square foot, property in the United States is consistently more affordable. Some beachfront properties in attractive markets still sell for about $200 per square foot. Residential properties get even more affordable as you move inland. By comparison, areas in London sell for upwards of $8,000 to $10,000 per square foot. 

Safety and Protections

While the regulations surrounding residential property investment can feel cumbersome, frustrating, or inconvenient to the average U.S. citizen, those regulations are in place to provide protection for potential homeowners and investors. These regulations ensure the protection of assets, along with various means to prevent a severe loss of money in the investment. All of this just makes for a more ideal investment for foreigners.

Primary Residence

While the cash flow and passive income are perks, many foreigners simply invest in property as a primary residence in the United States.

What Foreign Investors May Not Know

Although there are plenty of benefits to investing in residential real estate as a foreigner, investments can still come with plenty of hurdles for non-U.S. citizens. Here are some things that foreigners should keep in mind if they do plan to invest in real estate.

Higher Prices on Mortgages

Many banks and institutions will gladly lend to foreign nationals who do not live in the United States. However, instead of more conventional mortgages, these institutions may only offer non-conforming loans that have a higher interest rate and different underwriting guidelines. While this may still be at a fixed rate, you would still be paying more than someone living in the United States.

Larger Down Payments

Banks generally consider foreign investors a higher credit risk. That often means that you will have to pay a higher minimum down payment to the lending institution. You can typically expect the lender to ask for at least 30 percent of the sale price before providing the loan.

Approval Processes

For a U.S. citizen, the approval process is simple and usually involves checking credit history and tax returns. Foreigners usually do not have a domestic credit history or American tax returns, so lenders will ask for bank statements, income tax returns filed in your home country, and several months of credit card statements. That all generally means a much more complicated approval process that may potentially take a long time. You can potentially shorten that period by applying for your mortgage through a global bank that has a presence in the U.S. and in your home country. This can potentially help you reach a lower interest rate.

Work Visas and Green Cards

If you are in the U.S. on a work visa (even if it is temporary) or have a green card, you may actually have more options available. You may even qualify for a typical Fannie Mae or FHA loan, but the lender may still ask for information that proves that your legal status or work status will get extended.

Taxes

Different countries have different tax treaties with the United States, so it is worth looking into the tax laws. When you sell your property, you will have to pay a capital gains tax and 10 percent of the gross purchase price will be withheld by the IRS. If you earn any rental income on your property, you will also likely have to file and pay for income taxes annually.

How to Stay Competitive Against Foreign Investors

Foreign investment in U.S. real estate still remains fairly consistent. Because of this additional competition, U.S. investors struggle with maintaining a competitive edge against these foreign investors. Foreign investors capitalize on great single family rental cap rates which make it difficult for U.S. investors to find properties in the best places to buy rental property. Also, once you have invested in property, the rental market is that much more crowded by foreign real estate investors trying to place tenants. As mentioned before, one way to stay competitive is by enlisting professional property management services to help you place high-quality tenants and manage your overall property. This way, you have more time on your hands to make strategic decisions on future investments.

If you have any questions, consult a property management professional to learn how to better handle and compete with foreign real estate investors.

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Residential or Commercial Real Estate: Which is a Better Investment?

Even with the market dips and spikes, real estate remains one of the most consistent and dependable investments in the United States. The benefits of residential real estate even bring on an influx of foreign investment in U.S. real estate. Whether you need a source of passive income or want to take advantage of tax benefits, there’s a wide range of the benefits of investing in real estate.

If you do decide to invest in real estate, you have your choice between residential and commercial properties. Both come with their own pros and cons. So, which makes the better investment, commercial or residential real estate? Read on to learn more.

Commercial Real Estate vs Residential Real Estate: Understanding the Difference

In practice, it’s easy to tell the difference between commercial and residential properties. One is for business, while the other is for people to live in, but that is oversimplifying and ignoring some of the nuances involved within each category.

What is Residential Real Estate?

In terms of usage, residential real estate is designed for individuals or families. It can comprise undeveloped land, houses, townhouses, and condos, which can be occupied by the owner or rented out to others. That includes single family homes and multifamily rental residences. However, any multifamily property that comprises five or more units is considered a commercial property.

What is Commercial Real Estate?

Commercial real estate is leased to businesses. Commercial properties can be freestanding or comprise parts of shopping malls or strip malls. Most all nonresidential structures are considered commercial real estate, including:

  • Office buildings
  • Warehouses
  • Retail buildings
  • Hotels

As mentioned, any multifamily apartment buildings that comprise five or more units are also considered commercial real estate.

However, commercial real estate is separate from industrial real estate, which includes factories, business parks, farms, and mines. These are generally practical spaces for the manufacturing of goods. Industrial properties are much larger in square footage and typically built to include access to rail lines, harbors, and other transportation hubs.

The Benefits of Investing in Residential Real Estate

Low Barrier to Entry

Homeownership is the most common form of real estate investing in the United States, and with good reason. The cost of investing in residential real estate is significantly lower than for investing in commercial real estate. That ultimately makes for a low cost of entry. You may not have enough saved for the down payment on a commercial property, but you can generally work with a bank and invest a minimal down payment on a single-family home. If you happen to get a good single family rental cap rate, then you may even be looking at a very successful investment.

The same applies to experience. If you are purchasing a single-family home or residential property, you can get approved with next to zero experience. Commercial real estate properties require more experience, including knowledge of rent in the area, property maintenance, financial analysis, expense management, and more.

Reduced Tenant Turnover

Tenant turnover is a constant issue with commercial real estate. Businesses that fail inevitably mean that they will not be able to keep the space. Businesses that grow will likely want to move elsewhere to expand their operations. That constant change and growth means high volatility that can contribute to ongoing challenges with keeping tenants in a commercial space. That also means more time spent looking for potential tenants on a regular basis.

By comparison, tenant turnover usually is not something that residential real estate investors need to deal with often, especially if you have a property management company that takes care of tenant placement. If you are investing in a single-family home that is your own primary residence, tenant turnover is a non-issue. For rental residences, you can screen potential tenants and easily find people committed to long-term rentals. Even without these long-term tenants, you can almost always find someone to rent to. Simply put, people always need a place to live, and considering the growth of freelance and self-employment, home offices are quickly becoming as popular as actual offices.

Larger Rental Pool

Related to the above, residential real estate naturally benefits from having a larger pool of potential buyers and tenants. Commercial real estate properties are limited to businesses, while residential rental properties seemingly apply to any living human who can afford it. The growth of online marketplaces and contract and remote work are invariably putting a strain on commercial real estate. On the other hand, the demand for residential real estate is a constant, regardless of the market or the state of the housing market. 

People will always be looking for a place to live and due to this demand, it’s important to seek property management services that can help you make the most of your property with high-quality tenants. For example, if you’ve invested in a property in Gainesville, FL, where there’s a booming market that makes it one of the best places to buy rental property, you’ll want to seek reputable help. Companies that offer property management in Gainesville, FL, such as Great Jones, can help you find the best tenants for your rental property. After all, having high quality tenants is key to ensuring a regular stream of income and limiting the chance of delinquent rent.

Lenient Zoning

Residential real estate typically comes with fewer rules and regulations that are considerably less stringent and at a much smaller scale, making them easier for the average investor to handle and wrap their head around. Commercial properties come with far more red tape, regulation, and oversight. Building permits are harder to obtain, while general zoning laws are strict and often complicated.

Easier Analysis

Investments in real estate usually come down to:

  • Cash flow
  • Building equity by paying down loans
  • Appreciation of property

That means that you need a general understanding of capitalization rates, return on investment, and cash-on-cash returns. It’s more to learn but relatively straightforward and common sense. Other things that are important to consider and can affect the value of your investment is residential real estate depreciation.

For commercial real estate, making money almost entirely comprises increasing net operating income. If you invest in commercial real estate, you essentially have to think of it as running your own small business. You need to consider maintenance records, rental histories, general expenses, and acquisition and value ratios. When you look into properties, you have to look at profit-and-loss statements from at least the last year. All of that ultimately adds up to needing more knowledge and time to fully understand and analyze your finances.

Reduced Maintenance Costs

While residential properties do require ongoing maintenance, it is at a much smaller scale and considerably less money, especially if you are investing in a single-family home. Most daily maintenance is performed by the tenant. For commercial real estate, the ongoing maintenance costs are significantly higher. Cleaning, repairs, and general upkeep are daily finances that tenants expect of you.

Steadfast in Economic Crises

As much as you hope it doesn’t happen, the economy has plenty of downs that could potentially result in a full-blown crisis. Residential properties are by no means immune to economic downturns, but housing is always in demand, regardless of the economy. Businesses, on the other hand, are often the first to get hit by financial crises, which presents plenty of challenges to commercial property owners. Finding commercial tenants during an economic crisis can be hugely daunting, and there is no actual guarantee that any tenants you do find will remain in business through the full terms of the lease. 

With residential real estate investing, you have the peace of mind knowing that housing is a basic necessity and so your rental property may be able to remain steadfast better than a commercial investment property would. 

Benefits of Investing in Commercial Real Estate

Easier to Increase Value

For residential properties, real estate market value usually depends on the value of other similar properties in the area based on raw characteristics. Your two-bedroom home will generally be about the same price as every other two-bedroom home in the neighborhood (with slight variations considering age, condition, and other features). 

While comparing other properties in the area still factors into commercial properties, most of the market value of commercial real estate depends on the amount of revenue that the property generates. A small but strategic improvement can dramatically increase the value of the commercial property as long as it increases the revenue.

Longer Lease Terms

Residential properties usually run about 12 months. Commercial properties usually have three-year leases at minimum with commercial leases commonly going up to 10 years. That ensures a long-term, reliable cash flow, low turnover, and low vacancy rates.

High Returns

The biggest draw to commercial real estate is the high returns. You are renting out more space to more tenants, which naturally means more money for you. However, with potential high returns comes high risks.

Choosing Commercial vs Residential Real Estate

While there’s nothing wrong with investing in commercial real estate, residential real estate tends to be a safer, more reliable, and a less volatile investment. Commercial investment does come with high returns, but it also comes with increasingly high risks, often involving factors that are not immediately within your control.

Residential real estate is simply a much easier investment property to handle, whether you are a first-time property owner or an experienced fix-and-flipper. As you gain experience, you can eventually invest in multiple residential properties for several sources of cash flow.

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Guide to Understanding Single Family Rental Cap Rates

Investing in residential real estate can be a lucrative venture that is low risk while giving you the opportunity to get hands-on with your investment. This is a popular type of investment amongst property investors, which is why there’s an increase in foreign investments in U.S. real estate. Part of the draw is the low barrier to entry, both in terms of cost and experience, though there is plenty of complexity as you get deeper into your real estate investing. While there are things you can learn as you go, one of the most important ideas to understand is cap rates. Aside from property management, understanding cap rates will be key to a successful investment. Here is a guide to help you better understand single family rental cap rates.

What Is a Cap Rate?

Cap rate, or capitalization rate, essentially measures the profitability of any real estate investment. When comparing commercial vs residential real estate, this rate is important to consider. It is characterized as the net operating income (NOI) of any given property compared to that property’s asset value.

The cap rate is represented as a percentage that shows how much of the property’s value that you can expect to receive in profits. It is an estimate of your annual return on investment. The higher the percentage, the more that you can expect to make in profits. The cap rate can also be used as a measure of how risky an investment may be. A high cap rate may denote a high risk.

Why Do You Need to Know Cap Rates?

Assuming you have done your due diligence and performed the right calculations, a cap rate gives you a fairly accurate estimation of the potential profitability of a property (with the exception of residential real estate depreciation). Here is why you need to know cap rates for a single-family rental.

Understanding Your Operating Costs

Whether you are a seasoned veteran or taking your first steps in investing, understanding your operating costs is essential to understanding the potential cash you may get out of your single-family property. Overhead, management, maintenance, taxes, a new HVAC, and other unforeseen costs can easily get bigger than you ever expected.

Calculating your cap rate gives you a much more nuanced picture of your operating costs. You can see the larger picture of how much you are putting into a property while getting granular to see expenditures that may be suspiciously large or otherwise unnecessary and adjust accordingly. For example, you may realize that a property has unexpectedly high utility costs from an outdated, inefficient HVAC system.

Identifying Your Investment Options

As an investor, you likely have multiple properties that you may want to invest in. Among other factors, calculating the cap rate for each property allows you to estimate the potential return on investment of each house. You can then weed out the properties that are not worth it. This is a quick, easy, and relatively concrete method of determining profitability, as opposed to looking at the constantly fluctuating market rents and purchase prices.

When Cap Rates Do Not Apply

Cap rates are an important tool, but they mostly apply to properties you plan to rent out, which is even easier with single-family homes. It is less effective on other property types used for investment, which includes:

Fix and Flip Homes

Fixing and flipping homes is hugely popular, but cap rates are not particularly useful here. Real estate investors wanting to flip properties want a quick profit from selling the property, as opposed to earning a rental income over a longer term, which ultimately makes the cap rate null and void.

Vacant Rental Properties

You can absolutely calculate the cap rate of a vacant rental property, but it may not be the most reliable approach. Estimating the cap rate usually requires some knowledge of the property’s net income. If you don’t know the rental income, you may have to rely on estimates and rough projections. This can still be useful, but it will not be as precise as you want.

How to Calculate the Cap Rate

In its most basic form, calculating the cap rate simply involves dividing the net operating income by the total property value. This cap rate formula sounds simple enough, but the rate calculation gets a little more complicated in practice. Remember, to get the most accurate estimated cap rate calculation, you want to be as comprehensive as possible.

Step 1: Determine the property value.

Determining the current market value of a property usually comes down to checking classifieds or online listings. You can also contact a broker or appraiser to determine the asset value and get a better idea of current market rates in the area.

Step 2: Determine your net operating income.

Determining your net annual operating income is a much more involved step. Start by adding up all of your expenses except for your principal mortgage. That includes:

  • Property management costs
  • Taxes
  • Home equity loans
  • Utilities
  • Insurance
  • Homeowners fees

The exact expenses can vary from person to person but try to be as thorough as possible to ensure accuracy. Once you have added up all of these expenses, subtract that from your gross net income, which mostly comprises rent but may also include any parking fees you are collecting and in-unit laundry, if applicable. That gives you your net operating income.

Step 3: Get your cap rate.

Once you have the two numbers, simply divide your net operating income by the property value. That gives you the rate calculation as a percentage.

Factors Affecting Cap Rate

While your operating costs can affect your cap rate, the two main factors that contribute to the cap rate are the location and interest.

Location

Location is one of the most ubiquitous and significant aspects of real estate, and the cap rate is not exempt. Demand, employment rates, school zones, and median household income all vary based on the location and contribute to what makes certain cities the best places to buy rental property. That ultimately contributes to the market value of houses in the area, which affects the cap rate. For example, cap rates and property management in Gainesville, FL may be quite different than that of in Texas.

Granted, some real estate investors will allow for lower cap rates if the property is in a major market. Others may avoid high cap rates in a housing market that seems risky or lacks in the fundamentals. 

Interest Rates

Debt is one of the biggest contributors to real estate investment, so interest rates naturally influence a variety of metrics. Cap rates can fluctuate widely based on interest rates in a given area. A low cost of borrowing also tends to lower cap rates.

What Is Considered a Good Cap Rate?

Once you have calculated your cap rate, you are probably wondering what actually constitutes a “good” cap rate. Determining a good cap rate can be challenging. Remember, location is one of the most prominent factors that can affect cap rate. A cap rate that seems low in one part of the country may seem perfectly reasonable elsewhere, which is why you should mainly look at the specific market that you plan to invest in.

For most investors of single-family properties, a cap rate around 10% or more is considered ideal. However, many investors can still benefit from properties with cap rates around 7-8%. Some investors can even profit from properties with 5-6% cap rates.

Much of this comes down to the local market. A lower cap rate may be fine if your property is in a larger housing market with constant and high demand, while a higher cap rate may not mean much in a smaller market with less demand. For example, many investors will be fine with a cap rate of 7% or lower in Los Angeles. That same cap rate may not be recommended in other locations of the country.

Equip Yourself with the Tools for a Successful Investment

Cap rates are an incredibly important measurement for investors, but they are just one tool in your arsenal. No single metric will provide you with all the information that you need. That said, cap rates are a great place to start as you gather more information and knowledge for further real estate investing. When looking to invest in a great rental property, make sure that you equip yourself with enough real estate knowledge and a number of tools like property management services. It’s important to remember that there is no single factor that’s responsible for a successful investment. Reach out to our team of property management professionals today if you want to get the most out of your investment.

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How to Be a Good Landlord?

Like many other things in life, being a good landlord doesn’t necessarily come naturally to all of us. In fact, being a good landlord today is far different than it was 10, 20, or 50 years ago. As times have changed, so too have the expectations between a landlord and tenant.

Adapting to these changes is one aspect of how to be a good landlord. Successful landlords expand their toolbox to meet the expectations today’s tenants have. The other aspect is applying some timeless tips to newer property management trends that can help you become not just a good landlord but a great landlord! Servicing a number of areas and offering property management in San Antonio, TX all the way to property management in Raleigh, NC, our team at Great Jones has the resources and expertise to help you become a great landlord. Read on for the top landlord tips that our team of real estate veterans has compiled together.

Being a Landlord is Serious Business

Becoming a good landlord is a process rather than a one-time event, and at the core of the process is how you see yourself. Do you see yourself as a landlord or do you see your role as a landlord as an unpleasant but necessary requirement for reaching your financial goals?

There’s no right answer, but if you are looking to be a great landlord you’ll have to invest the time and energy into the process. If being a landlord isn’t your primary, secondary, or even tertiary concern, you should strongly consider outsourcing your property management to a third-party.

Enhance Your Tenant Screening

One of the best landlord tips we can offer is to get the best tenants possible. It’s easy to be a great landlord when you have excellent tenants, but being a good landlord with difficult tenants can be more challenging. 

If your current tenant screening process involves a simple credit check, it might be time to add to your screening tools. While a credit check can provide a basic picture of your prospective tenant’s financial picture, it doesn’t provide enough information to tell you if they will be a great tenant. To develop a fuller picture of your prospective tenants, it’s a good idea to run a background check and get a couple of personal references as well. Taking the time to talk to those references can give you the insight you need to make an informed decision about whether a potential tenant is right for your property.

While the tenant screening process can be time-consuming, it is far better to spend additional time weeding out unsuitable candidates before anyone has signed a lease. Choosing great people to trust your investment with is one of the most effective ways to avoid big problems down the road.

Create a System for Repairs

Giving your tenants the ability to submit requests for repairs or service 24/7 is one important aspect of how to be a good landlord. Your tenants need to feel like their requests for service or repairs are a top priority. They will also want the flexibility to be able to submit a service request through an online portal, rather than having to sit through a phone call. Creating a system for after-hours support is also a great way to let your tenants know you’ll be able to arrange a solution for them no matter what time a problem pops up.

An important aspect of this process is responsiveness. Not only do tenants want the ability to be able to conveniently submit service requests after hours or on weekends, but it’s also important that there is follow-through on those requests. Reducing the delay between when a service request is submitted and when a technician arrives at the home should be a top priority.

It can be challenging and cost-prohibitive to create the kind of responsive, all-hours, online service request portal many of today’s tenants expect. In order to do so, it may be worthwhile to work with a property management company that has the capability to handle such requests. Be sure to choose a property management company such as Great Jones, where you have access to industry-leading tools like our work-order system.

Offer Flexible Rent Payment Options

One of the great things about today’s technological advances is they give landlords access to a wide range of tools they can use to add convenience for their tenants when collecting rent. One of the easiest ways to make this more convenient for your tenants is to offer a variety of methods for them to pay rent. 

At Great Jones, we help property owners give their tenants the ability to pay rent in the way which makes the most sense for them. Tenants can pay their rent with cash, E-Pay or ACH, and with a cashier’s check or money order. We’ve partnered with Zego, powered by Paylease, so cash payments can be made at participating retailers such as Walmart or CVS. Electronic payments can be made through our convenient online portal, and money orders or cashier’s checks can be mailed.

Offering multiple payment channels benefits both your tenants and you as the landlord. Tenants get the benefit of being able to pay their rent in the most convenient method for them. For landlords, removing barriers from the payment process reduces rent delinquency and improves payment consistency, ensuring not only that you get your rent but that you consistently get it on time. 

Perform Regular Inspections and Invest in Upgrades

One easy tip for how to be a great landlord is to ensure your property is in good repair. It might be tempting to avoid repairs until they are absolutely necessary, but it is often far better to be proactive when it comes to your property.

An important aspect of keeping your property in good health is to identify small problems before they become bigger issues. The best way to accomplish this is by regularly inspecting your property. This will give you the chance to identify any potential issues early on and develop an action plan for addressing them before they become larger, more expensive issues to resolve.

Alongside regular inspections, consider investing in your property to increase your rate of return. Adding amenities like energy-efficient HVAC systems, in-unit laundry, and updated appliances can attract high-quality tenants and reduce the amount of time your property stays vacant. 

Utilize a Great Leasing Agreement

Many landlords make the mistake of grabbing a generic lease agreement off of the internet and using it for their rental property. If you want to be a great landlord, it’s time to consider ditching a generic lease and working with a time-tested document.

Your lease provides the structure for the relationship between yourself and the tenant. Through your lease, you communicate what your expectations of the tenant are, and what your obligations as the landlord are. As a legally binding document, it is incredibly important every potential issue is accounted for in your leasing agreement. For example, if you have a situation where your tenant is late paying their rent, it’s crucial your lease clearly outlines the consequences of delinquent rent.

A clearly written, legally enforceable lease/tenancy agreement doesn’t just protect you from a bad tenant. It also protects the tenant from the landlord. Discerning tenants will take comfort in a battle-tested leasing and tenancy agreement because it creates a strong foundation for their living arrangement. 

Work With a Property Manager

Being a great landlord requires a lot of juggling, and it’s not always an easy balancing act. If you have struggled with taking on your role as a landlord you might consider working with a property management company that does all of the heavy lifting for you.

At Great Jones, we firmly believe your success is our success. We understand exactly what it takes to be a great landlord and have created the systems, processes, and structures which facilitate the best possible experience for both landlords and tenants. At Great Jones, we bring the tools and processes used by real estate investment trusts (REIT) to an individual real estate investor.

If you are considering working with a property manager, choose to work with one who has the tools and expertise to help you grow and succeed. Ideally, your property manager will offer your tenants access to a convenient service-request system and multiple avenues to pay their rent. They should have a demonstrated track record of being responsive to both you and your tenants’ needs and have the resources in place to minimize vacancy times and help you get the highest-quality tenants available.

Closing Thoughts

Being a great landlord doesn’t have to be a mystery, but it will require your time and energy. Tenants want a landlord who is responsive to their needs, who communicates expectations clearly and effectively, and who offers conveniences many tenants have come to expect. These include flexible payment options for rent and access to an online work-order system for service requests and repairs.

As a landlord, one of the most effective ways to become a better landlord is to have great tenants. While simply relying on a credit check alone might get you a good tenant, there remains an element of risk. To get a full picture, consider running a background check and communicating with personal references before you commit to a tenant. 

One of the most accessible ways to become a great landlord is to work with a great property management company like Great Jones. We give you access to all of the property management technology and tools many local property management companies simply can’t provide. We offer your tenants features they want like flexible rent payments and online maintenance requests. We also leverage our resources to reduce your properties’ vacancy rates, maintain your property’s value, and place the highest quality tenants.

To begin your journey to becoming the best landlord possible with Great Jones, please contact our team today for property management services.

Sources

  1. https://www.forbes.com/sites/brandonturner/2017/12/09/13-principles-for-being-an-incredible-landlord/#5db49b613ddf
  2. https://www.rocketlawyer.com/article/how-to-be-a-good-landlord-ps.rl
  3. https://www.entrepreneur.com/article/176836

Kahala Bonsignore

Kahala works on the Growth Team at Great Jones where she's dedicated to helping more Property Owners learn about Great Jones and how their partnership can increase profitability and decrease rental stress.

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How to Handle Delinquent Rent?

For many landlords, collecting delinquent rent from a renter can be one of the most difficult aspects of property management short of eviction. Unlike evictions, which have legal action and a formal process that landlords can use as a roadmap to navigate, there is no such formal process in place for how to collect delinquent rent.

This leaves many landlords unsure of how best to handle delinquent tenants. The good news is there are substantive steps you can take to be a successful landlord when collecting delinquent rent, avoiding late rental payments as a whole. By implementing the latest property management trends and practices, you’ll minimize the headaches and stress of dealing with delinquent tenants and create a lasting framework you can apply to each of your rental properties as you continue to grow. Offering services for property management in Raleigh, NC to property management in Austin, TX, we’ve seen it all which is why our team of property management experts has the expertise to help you avoid this common landlord issue.

The Delinquency Problem

Whether it’s a new tenant who misses their first rent payment, a long-term tenant that frequently sends their rental payments days or weeks late, or a tenant who just drops off the radar, delinquent rent can have a big impact on your bottom line and the relationship between tenant and landlord.

If you haven’t dealt with it before, delinquency occurs when a tenant does not submit their required rent payment on time. Delinquent rent can occur for nearly any reason, some of which the tenant may have little control over. Things like an unexpected health emergency, the loss of a job, or a death or illness in the tenant’s family can lead to delayed rent payments.

But there are also more common and mundane reasons for a tenant’s failure to pay rent, which are largely within the tenant’s control. These include simple forgetfulness, inadequate funds for rent, poor time management, and much more.

Most landlords will need to deal with delinquent rent at some point during their property investment tenure. Understanding how to handle tenants who pay late is beneficial even if you have never had a late rent payment. Identifying excellent tenants, setting clear expectations, offering multiple convenient avenues to make rent payments, and outlining concrete consequences for late rent payments are all steps you can incorporate into your property management toolbox to avoid delinquent rent in the first place. Read on for our 7 tips on how to handle rent delinquency.

1. Be Proactive

If your rental payment is even a day late, don’t sit around and wait to find out how late the tenant is going to be. If you have a new tenant, it’s not a bad idea to send a notice to pay before the first rent payment is due. The rent notice should include the expected rent date, and outline how they can pay their rent.

If the rent is late, reach out to the tenant concerning rent collection. A call may be sufficient if you don’t live locally, but if you are nearby, a personal visit may be appropriate as well. An email reminder of the delinquent rent notice has the benefit of also creating a written record, which will be useful if you have to begin eviction proceedings. To avoid these types of proceedings, learn more about common eviction mistakes and how to avoid them.

2. Keep an Open Mind

It may not be wise to immediately jump to conclusions if your tenant’s rent is a bit late. There may be a perfectly reasonable and understandable cause for late rent. Communicate with your tenant to find out why the rent is late during this grace period. Your tenant may not even know the rent is late, but if they do, they should have a clear reason for the late payment. 

However, communication should flow two ways in any conversation with your delinquent tenant. If you come to an accommodation for the late rent, be sure there is clear communication outlining what the accommodation is. Follow up with an in-person or phone conversation or with an email or letter that provides a document trail for the conversation. While keeping an open mind, it’s also important to clarify the path forward and what actions are expected.

3. Set Clear Expectations

Setting clear expectations is essential for effective property management, and is a great way to minimize delinquent rent. The most important aspect of this is creating a clearly written lease and ensuring your potential tenants understand exactly what is expected of them throughout their tenancy. If there are any questions, clarify those expectations before the tenants sign the lease. 

If you are already dealing with a delinquent tenant, defining clear expectations throughout the process is a fundamental best practice. If you have come to an accommodation, there should be no ambiguity for the tenant about when the late rent payment is expected and what the consequences of late rent payment are.

4. Enforce Consequences

As the landlord, it is important to enforce consequences for late rent payments as they are outlined in the lease. This may be uncomfortable, but remember the tenant voluntarily committed to abiding by the terms of the lease. A critical aspect of those terms is the consequences for failing to meet their end of the lease agreement.

A key component of enforcing consequences for delinquent rent payments is clearly outlining the consequences for late payment in the lease such as a late fee. Before enforcing any consequences or fees, be sure to consult with the lease agreement to ensure those consequences are clearly spelled out in the text of the lease. Assuming they are, enforcement of those consequences will communicate to the tenant that you will follow-through on the requirements set forth in the lease, which may help you avoid any delinquent payments in the future.

5. Enhance Your Tenant Screening

One of the most effective ways to avoid dealing with delinquent rent in the first place is to have a robust tenant screening process in place. At Great Jones, we firmly believe our tenant screening process minimizes headaches and maximizes income on your investment. Our screening process includes a credit check, background check, and personal reference checks.

If you haven’t implemented a stringent tenant screening process yet, you should strongly consider doing so. Though tenant screening requires an investment in both time and money, it is an essential requirement for placing consistently high-quality tenants in your rental properties. If you find the process is too time-consuming or hasn’t been as effective as you’d like, consider investing in property management services with Great Jones.

6. Expand Your Rent Payment Options 

An important substantive step you can take to decrease delinquent rent is to make it as easy as possible for your tenants to pay rent you are owed. Your tenants are more likely to pay rent on time if the payment process is as convenient as possible.

Great Jones’ property management technology that offers the ability to pay their rent in multiple ways. These include collecting rent by cash, electronically or through Automated Clearing House (ACH), and by cashier’s check or money order. By integrating multiple payment options into your property management toolbox, you ensure there are easily accessible payment avenues for your tenants. Tenants can choose the payment method they find most convenient, which will save you time and money tracking down tenants to collect late rent.

7. Outsource Your Property Management

Dealing with delinquent rent can be difficult, and this process becomes exponentially more difficult if you are juggling multiple rental properties. Relying on an iron-clad lease agreement, selecting the best long-term tenants for your properties, maintaining multiple convenient payment avenues, reaching out to delinquent tenants and following through on consequences for delinquency, and handling eviction if it is necessary are all very time-consuming.

One of the most effective ways to maximize your income from your rental properties, while also maintaining an ideal balance between work and life outside of property management, is to outsource your property management. 

At Great Jones, we have the tools, expertise, processes, and resources to minimize how often delinquent rent occurs. We start by placing the highest-quality tenants possible to ensure you are investing in one of the best places for rental property. In addition, our iron-clad lease agreement clearly outlines expectations and consequences for delinquency. If delinquency occurs and the tenant is advised to vacate the premises, we handle eviction notice and outreach to the tenant and follow-through with escalation steps if necessary. If eviction ends up being the only recourse available with a tenant we’ve placed, our team at Great Jones will handle the legal processes.

Why choose to work with a property management company like Great Jones? At Great Jones, we can leverage our scale, resources, and expertise to find you the best tenants available. We’ll help keep occupancy rates high through effective marketing of vacant properties and keep your tenants happy through industry-leading responsiveness.

Closing Thoughts

Dealing with delinquent rent tends to be one of the most frustrating and dreaded aspects of rental property management for landlords. Many of the most effective methods of dealing with delinquent rent involve creating the structures and processes which enable you to avoid it altogether. By setting clear expectations and adopting a clearly written and legally enforceable lease agreement, enhancing your tenant screening process to develop a more informative picture of your potential tenants and adopting multiple rental payment avenues to enhance convenience, you’ll be able to avoid this common landlord issue.

Once a tenant has gone delinquent, it’s important to be proactive with your communication. Document communication to your tenant, and clearly communicate escalation steps as they occur. Enforce delinquency provisions as they are outlined in your lease agreement, and maintain consistency in enforcement. Of course, it’s also important to be flexible. If the reason for delinquency is outside of the tenant’s control, working with the tenant to navigate the issue can help you maintain an amicable and beneficial working relationship moving forward. 

If you have found yourself frustrated dealing with delinquency issues or simply don’t have the time or resources to create the structures and processes we’ve outlined here, consider outsourcing your property management to Great Jones. Our expert team has developed clear and consistent processes and structures that will minimize occurrences of delinquent rent and a formalized response for when delinquency does occur.

Even if you’ve invested in one of the best places to buy rental property, your investment won’t be successful if you don’t prevent rent delinquency. With the investment of professional property management, you can increase tenant satisfaction and free up your bandwidth. To learn more about how Great Jones’ property management services can help your real estate investments succeed, please contact our team today.

Sources

  1. https://www.rocketlawyer.com/article/steps-for-collecting-late-rent-before-issuing-an-eviction-notice.rl
  2. https://www.nolo.com/legal-encyclopedia/what-to-do-when-your-tenant-is-late-with-the-rent.html
  3. https://www.zillow.com/rental-manager/resources/tenant-stops-paying-rent/

Laura Fayer

Laura works on the Finance & Analytics Team at Great Jones. She's eager to help Great Jones scale as a business and make our services readily available to more investment property owners across the country.

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Property Management Trends

As a real estate investor, keeping your finger on the pulse of the most important property management trends can deliver valuable insights to drive your portfolio growth in the real estate industry. By utilizing technology in property management, the boundaries are removed between tenant and property manager and a property management company and owner. 

The top tools offer easy-to-access, real-time data on each of their units. Adjacent tools in the property manager’s toolbox empower tenants and streamline common property management processes such as filling vacancies and completing service requests.

At the same time, demographic shifts in the rental market are driving change in the rental market itself. These forces will contribute to where the best place to buy rental property is and continue to inform how effective property managers need to evolve to meet the needs of current renters and appeal to the next generation of renters entering today’s market. Utilizing smart technology to enhance convenience, property managers can help attract high-quality potential renters and drive down vacancy rates. As the industry is changing, you will need to also be a successful property owner. Our team at Great Jones provides property management in a number of high yield real estate markets. From handling property management in San Antonio, TX to property management in Charlotte, NC, we’ve seen and done it all and have developed the operational efficiencies at scale to prove it. This is why we invest in proprietary tools and technology to better serve our property owners, their residents, and the preservation of their assets. Keep reading for landlord tips and trends to keep an eye on.

Embracing New Property Management Tech

New technology is set to revolutionize the property management industry, and these impacts are already being felt. A proliferation of mobile apps and self-serve platforms designed to manage and track daily property management activities like delinquent rent,  maintenance requests and management, and more are being used to meet tenant demands, increase retention, and improve communication between parties.


New property management technology allows for streamlined tenant work order requests, and even speedier work order assignments so repair vendors can automatically be paired up with jobs and property managers can confirm the work was completed. By streamlining these processes using technology, tenants, property managers, and real estate investors gain greater visibility into the work order process on-the-go.

Many property managers are also meeting the needs of tenants by offering flexible payment options for their rent and utilities. Options such as Zego, powered by Paylease, allow tenants to make cash payments at select retailers like Walmart, offer convenience for tenants. At the same time, electronic and mobile payment options will continue to be attractive for millennials and Gen Z renters, while keeping options like cashier’s check and money order will better fit those renters who are uncomfortable carrying cash around or entering their payment information online. 

For real estate investors, effective property management will also increasingly include the use of  technology in the relationship between property managers and landlords. Using data-driven analytics, these tools will provide investors with more accurate, real-time data about their properties’ financial performance than ever before. At the same time, investors can more effectively stay in-the-loop with their properties, including being able to approve and monitor repairs and work orders for their properties on-the-go.

Landlord Insurance, Renters Insurance, and Security Deposits

One trend that is sure to continue to grow is the layering of safety nets for both real estate investors and tenants. An increasing number of real estate investors are relying on landlord insurance policies to provide additional peace of mind and protect their investments.

If you aren’t familiar with them yet, landlord insurance policies offer coverage for property damage, lost rental income from things like mold or pest infestation, and liability protection if a tenant incurs an injury due to a maintenance issue. 

The benefits of these policies for real estate investors can be enormous, and policies can be customized with additional levels of coverage. For example, if your rental is in a flood-prone area, you can augment your landlord insurance policy with additional flood insurance as an added layer of protection. The ability to target insurance coverage is particularly beneficial for multi-property investors who have unique needs at each unit.

One thing to note about landlord insurance policies is they tend to have lower premiums for properties with long-term tenants and higher premiums for properties with faster turnover. The logic for insurers is that tenants in short-term rentals are less likely to notice routine maintenance issues and more likely to have an accident or problem in an unfamiliar house.

Alongside landlord insurance, expect the requirement for tenants to carry a renter’s insurance policy to continue to rise. Renter’s insurance can help protect your tenant’s personal effects in case of an accident. These policies tend to be very affordable, and offer an additional layer of security for tenants.

Resident Amenities

The end of the last decade saw an increasingly competitive space for securing long-term, high-quality tenants. For multifamily housing developments, the availability of attractive amenities will continue to be a powerful force for attracting tenants. Amenities catering to burgeoning families, such as day-care centers or fitness centers with child-care rooms, or community movie theaters are becoming increasingly common. 

Amenities catering to busy young professionals are also becoming a way to attract both Millennial and Gen Z renters. These include on-site conference rooms and business centers with workstations and internet access, which will attract remote workers.

Increasingly, cultivating a sense of community is becoming the central purpose of many amenities. Shared spaces with multiple entertainment options, such as community pools with adjacent lounges featuring cooking areas, gaming tables, and multiple TVs create dynamic gathering spaces that are attractive to young professionals and families. Community sponsored classes, such as wine and paint nights, yoga, or community movie nights, are also increasingly popular.

Expect resident amenities to track closely to shifts in the larger retail space. Among the biggest factors that will impact property management is creating a package management system for their residents. Multifamily developments are beginning to incorporate smart locker systems to accept and hold packages for their residents. This corresponds to an ever-increasing volume of packages stemming from the boom in online retail shopping that occurred over the last decade. 

As mobile-shopping becomes more common, property managers will need to adapt to an even higher volume of packages. If left on doorsteps, those packages are attractive for would-be thieves, so the security that package concierge services offer residents will be a major selling point. At the same time, as grocery delivery services increase in popularity, property managers will need to offer refrigerated smart lockers for grocery pickup for their busy, professional residents. 

The Changing Rental Market

The next decade will see the rise of the Gen Z renter. According to the Pew Research Center, Millennials include anyone born between 1981 and 1996, so currently individuals between 24 and 39 years old. Gen Z is currently being defined as individuals born between 1997 and 2012, or between the ages of 8 and 23 currently. 

Generation Z is more diverse than any previous generation. Gen Z, unlike Millennials, grew up entirely in an internet-connected world. As they are beginning to emerge in the rental market, Gen Z renters will expect technological integration in the rental space. This includes things like mobile apps to communicate with property managers or submit service requests, in-app or online bill paying, and self-showings when they are searching for properties. 

At the same time, explosive demand for affordable housing from both Millenial and Gen Z renters is driving growth in a number of cities. While Florida’s rental market remains hot in Orlando and Tampa, new growth in Texas and North Carolina is attracting investors to the areas, which is why there’s an influx in demand for property management in Raleigh, NC or Austin property management.

Charlotte saw the population grow by nearly 2% the preceding year, and household growth is expected to top 2.5%. Growth in Houston remains strong, with forecasts placing the Houston area population at 7.1 million in 2020 and up to 8.7 million by 2028. Alongside Houston, the Dallas-Fort Worth-Arlington area was the top metropolitan area for job growth in 2019, and home values experienced growth of 8.1% during the past year with projected growth expected to top 4.5%.

A smaller inventory of lower-priced starter homes may lead to increased pressure on rental properties in metropolitan areas like Houston and Dallas-Fort Worth-Arlington. Though home inventory has actually been rising in these areas as new buildings have expanded, availability of starter homes at lower prices may delay the entrance of younger professionals into homeownership. 

Closing Thoughts

As property managers and real estate investors adapt to a changing rental landscape characterized by younger, busier, and more tech-savvy individuals, the rise of powerful tools to increase responsiveness, collapse boundaries between tenant and property manager, and offer convenience throughout the rental lifecycle will only continue to grow in today’s market. Renters are increasingly expecting tools that give them flexible payment options, the ability to submit and track repair requests, and the ability to access customer service when it’s convenient for them. 

The amenities a property offers is increasingly becoming a deciding factor in where individuals choose to rent. Property managers are also responding to demand services that facilitate the lifestyle of younger renters. These include the adoption of smart locker services to accept the increasingly large number of packages stemming from the growth of online retail shopping. As online grocery delivery and the shipment of perishable goods grows, expect to see property managers incorporate refrigerated smart lockers.

Lastly, the renter market itself will continue to experience shifts that will require property management to adapt. Foremost among these changes will be the entrance of the Gen Z renter, who will be younger and more technologically integrated than any previous generation. 

Keeping up with these property management trends effectively will require having the right tools in your property management toolbox. At Great Jones, we understand what modern renters are looking for, and have created the tools, expertise, and processes that promote more consistent cash flow for real estate investors.

Sources

  1. https://www.mashvisor.com/blog/property-management-industry-trends-expect-2020/
  2. https://www.investopedia.com/articles/personal-finance/061515/quick-guide-landlord-insurance.asp
  3. https://www.pewresearch.org/fact-tank/2019/01/17/where-millennials-end-and-generation-z-begins/
  4. https://learn.roofstock.com/blog/best-cities-to-invest-in-real-estate
  5. https://www.zillow.com/research/data/
  6. https://www.houston.org/news/houston-population-expected-exceed-71-million-2020
  7. http://www.homebuyinginstitute.com/news/dallas-2020-outlook-mostly-positive/

Noah Jeong

Noah works on the Growth Team at Great Jones. He's just as frustrated as you are with the status quo in the property management industry and is passionate about making contributions towards raising the bar for property management.

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Property Management Technology

The last decade saw an explosion in the proliferation of technologically connected devices and specialized applications that power and shape the way we engage with both technology and ourselves. For real estate investors, this fact is perhaps most visible in the growth of property management technology.

Property management technology is both driving and reshaping growth trajectories in the property management industry for the coming decade. Understanding what these technology trends are and how they are disrupting and shifting the property management industry can help real estate investors better understand the property management landscape.

From facilitating the connection between the property manager and tenant to empowering property management experts to identify trends and promote growth in developing real estate markets, property management technology is changing the way both property managers and real estate investors do business. Ultimately, these technologies have proven to be an aid to savvy real estate investors who can leverage these tools to provide a fuller picture of their investment properties and drive informed growth. At Great Jones, we offer assistance to property management in Raleigh, NC all the way to property management in San Antonio, TX. We’ve been able to leverage our team’s expertise and help property investors make the most of their rental properties with our technologies. If you’ve invested in one of the best places to buy rental property, you can maximize your investment’s potential by integrating the following property management technologies.

Repair Portals and Web-Service Options

In the past,  the use of enterprise work-order management software to submit repair requests was solely the domain of Real Estate Investment Trusts (REITs) who had the scale and resources necessary to create and maintain proprietary work order systems for their properties. This is no longer the case. An increasing number of individual real estate investors now have access to the same level of software, often through regional or national property management companies that leverage their scale to bring enterprise property management software to each rental they oversee.

The use of accessible and convenient repair management software is appealing to tenants. With web-based or app-based repair and work-order systems, tenants are able to submit a ticket at any time, track their ticket’s progress, and get real-time updates for when their ticket has been assigned, is in-service, and has been completed. Many of these systems offer multiple avenues through which tenants can submit service tickets, including over the phone, via email, through an app interface, or through a tenant web-portal.

For property managers, the use of these tools allows them to streamline the repair and work order system while driving down repair costs for real estate investors. Work order tools allow property managers to automate the process of accepting new cases and assigning them to technicians. A simple call to the tenant can allow a technician to provide guidance over the phone, in many cases resolving the issue before someone ever has to be dispatched to the property. 

By increasing responsiveness, smart work order tools drive tenant retention. By streamlining and automating the process as a whole, landlords can save money by increasing efficiency and creating more cost-effective response scenarios.

Convenient Payment Processing

In the past, it was not uncommon for tenants to have only two options for paying their rent: by cash or by check. Today’s tenants expect more flexible payment options for their rent, and some property owners have struggled to meet this demand. Fortunately, technologically integrated property owners are deploying technologies that allow for flexible payment processing to enable tenants to pay their rent in a way most convenient for them.

For example, at Great Jones, we offer tenants an online payment option to pay their rent through E-pay or ACH through a web portal, by cash at local participating Paylease retailers, and by money order or cashier’s check through U.S. Mail. 

For real estate investors and successful landlords, the goal should be to make paying rent as convenient and easy as possible for tenants. By leveraging property management technology, this is now feasible. By offering tenants convenient payment options, including paying cash at local retailers such as Walmart or CVS, delinquent rent payments are minimized.

Clear Financial Picture

As a real estate investor, you want to be able to check on the health of your investments. Using modern property management technology, investors can now access real-time information about their investment properties. These tools take into account transactions at the unit level, allowing investors to track expenses and revenue at a moment’s notice.  

With these tools, investors no longer have to remain in the dark or reach out to their property managers to track transactions at their properties. These time-consuming efforts are a thing of the past. Rather, with access to a property management owner portal, investors can easily view or retrieve invoices at their individual units while also gaining insight into their property management investment landscape as a whole. Real estate investors can then leverage those insights to identify trends, further invest in their properties, or drive new growth.

Increasing Tenant Retention

Long-term and dependable tenants are ideal for both property managers and real estate investors. Modern property management technology better enables property managers to consistently attract and select high-quality tenants. One way this occurs is through a more rigorous selection process. Rather than conducting a simple background check, it is preferable to gain a fuller picture of the prospective tenant rather than just a snapshot of their financial health. This includes conducting a full background check and requiring and contacting personal references.

A second way to attract and retain high-quality tenants is through property upkeep. Conducting regular inspections can identify necessary repairs that allow property managers to save landlords money while ensuring properties remain attractive to quality tenants. At the same time, the use of regular property inspections and the integration of real-estate experts into the inspection and upkeep process allows investors to glean insights into potential upgrades into their existing units. Amenities such as energy-efficient appliances and windows or smart lighting and heating are attractive to the savvy renter.

Multi-Platform Marketing

Perhaps no space in the property manager toolbox has been so fundamentally transformed by technology as it is with marketing their properties. Today’s effective property managers market units on dozens of sites to reach the widest possible audience. At Great Jones, we use professional photographers to create appealing listings and syndicate those listings to over 50 sites such as Zillow, HotPads, Facebook, and more.

Alongside casting the marketing net wider, property managers are integrating technology into the showing process to give prospective tenants greater flexibility for when and how they view rental units. Self-showing technology, such as the use of keycode access with auto-generated one-time passcodes to registered renters, boost viewing rates and traffic to units by allowing prospective renters to view a property when it is convenient for them as opposed to when the leasing agent can make time for them. In addition to increasing showings, self-showing technology also removes pressure from the rental process and allows prospective renters to take their time viewing the unit and more comfortably submit feedback about the home, generating key insights to get your property rented faster and for a better rate.

Enhanced Communication

One of the most important trends in property management technology is that the communication between tenant and property manager, and property manager and real estate investor is becoming more convenient and streamlined. This is a direct result of property management technology which actively facilitates communication between parties in the rental process.

The use of web and app repair portals, a hotline for 24/7 maintenance requests, and round-the-clock access to customer service teams allows tenants to directly communicate with their property management team whenever they need to. By collapsing boundaries between tenants and property managers, these tools create a responsive relationship which boosts tenant satisfaction and retention.

At the same time, the boundaries between property managers and real estate investors are also collapsing. Tools like an online owner portal can provide real-time insight into their investment properties. The use of work-order management software intelligently integrates investors into the process by allowing them to approve or deny work orders for repairs while not requiring them to manage every detail of the process. Real estate investors stay informed at every step of the rental process and can check on any one of their units at any time to gain a full-field view of each of their investments.

Closing Thoughts

Property management trends in technology are revolutionizing the relationship between tenants and property managers and between property managers and real estate investors. Technology-driven tools such as web-based work order management systems allow property managers to create more efficient processes for work order management while increasing responsiveness and turnaround time for tenants. 

Due to the proliferation of multiple payment processing options elsewhere in the retail space, tenants now have an expectation for flexible rent payment options. Leveraging technologies like Paylease, property managers are empowering tenants to make their rent payments through multiple, convenient channels, driving down late rent payments.

For real estate investors, property management technologies are streamlining communication between property managers and investors. These technologies are being used to provide real estate investors with a full-field view of each of their investment properties along with the ability to dive into the financial picture of each individual unit. These technologies provide real estate investors with more real-time information about their properties than ever before, allowing for more informed decision making and creating the circumstances for more actionable insights.

To learn more about how property management technologies are transforming not only the property management landscape but the real estate industry, please contact Great Jones today for property management services. At Great Jones, we have consolidated the above tools, processes, and expertise that real estate investors need to achieve success in today’s competitive marketplace. 

Sources

  1. https://www.ccim.com/cire-magazine/articles/changing-face-property-management/?gmSsoPc=1
  2. https://www.mashvisor.com/blog/property-management-industry-trends-expect-2020/
  3. https://www.propmodo.com/7-property-management-technology-trends-to-look-out-for-this-yea

Kahala Bonsignore

Kahala works on the Growth Team at Great Jones where she's dedicated to helping more Property Owners learn about Great Jones and how their partnership can increase profitability and decrease rental stress.

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Best Places to Buy Rental Property

For real estate investors, identifying the best places to own rental property is a fundamental component of growth and expansion. Not all cities are created equally when it comes to rental properties. If your city’s cost-of-living or home prices are too high, it can be challenging to break into the rental market. 

Factors to Consider

To maximize your profitability as a real estate investor it is sometimes necessary to explore opportunities in cities that are geographically, culturally, and economically distinct from your own. But how do you know as property investors which cities host the best rental market and are among the best places for a rental property?

Though there is no single formula for determining the best places for rental property, there are some key factors you should take into account when investing in real estate. Broadly speaking, rental properties in cities with a high degree of economic vibrancy tend to do well. Factors that indicate a vibrant economy include:

  • Year-over-year growth
  • Low unemployment rate
  • Diverse resident demographics
  • Population growth
  • Job rate growth

Comparing these to national averages can provide insight into cities with strong growth potential.

There are of course many other factors that must be taken into consideration when making a real estate investment. For real estate investors, mortgage rates remain at near all-time lows, making further investments in vibrant economic cities even more attractive. Nationwide, the real estate market continues to expand. With a current home value index of $245,193, home values grew 3.8% over the previous year. Projected growth over 2020 is expected to top 4%.

With these factors in mind, we’ve compiled a list of states and the best cities to own rental property in them.

Texas

Texas as a whole remains a good investment for economic growth in the United States. Growth in Texas is centered around the vibrant metropolitan areas, which are adding jobs and attracting workers from higher cost of living areas. However, property investors should keep in mind economic growth isn’t evenly distributed across Texas. Cities like Corpus Christie have experienced slow population and employment growth, and a cool housing market.

Texas continues to see a huge influx of out-of-state residents. Domestic migration accounted for total population growth of over 563,000 new residents throughout the state. The largest portion of domestic immigration came from California, followed by Florida, Louisiana, Oklahoma, and New York. Most of these residents tend to be relocating to the bigger cities boasting strong job markets, including Dallas-Fort Worth-Arlington and the greater Houston metropolitan area.

Arlington

Arlington, Texas is sandwiched between Fort Worth and Dallas. The greater Dallas-Fort Worth-Arlington area boasted the top employment growth in the country in 2019 by adding over 120,000 new jobs. Though influenced by its proximity to Dallas and Fort Worth, Arlington is an economic powerhouse on its own. The 7th largest city by population in Texas, Arlington has grown quickly in recent years, and its growth isn’t expected to stagnate.

By the numbers, Arlington is an excellent candidate for one of the best cities for property owners to own rental property. Year-over-year growth in Arlington topped 3.5%, and job growth neared 2%. Homes remain affordable, with an average home value index of around $219,000, as reported in February 2020. This is great for a city with a median age of 33 years, indicating growth which will continue for years to come. With an unemployment rate of 2.8%, lower than the national average of 3.6%, Arlington’s economy shows no signs of cooling down in the near future.

San Antonio

San Antonio was one of the fastest-growing cities in the country towards the last half of the decade. At over 1.5 million residents, the second-largest city by population in Texas remains a vibrant economic powerhouse.  

Home values in San Antonio remain low, with a home value index of roughly $185,000, as reported in February 2020. Other indicators, such as a lower-than-average unemployment rate of 2.6%, median resident age of 33 years old, and a job growth rate of 1.8% are all strong indicators San Antonio will continue to experience economic growth in the coming years. These factors make this city popular for investors, with the demand for real estate and property management in San Antonio continuing to rise.

North Carolina

North Carolina remains one of the hottest states for real estate investors. North Carolina experienced economic growth in 2019 which shows few signs of slowing in 2020. However, growth wasn’t evenly distributed across the state. The most economically vibrant areas in the state tend to be in metropolitan areas like Charlotte and Raleigh-Durham, which experienced the highest rates of non-farm job growth during 2019 and continued population growth. 

Charlotte

Charlotte remains one of the top places to buy rental property in 2020. With a low median resident age around 33 years old and a job growth rate of 3.10%, Charlotte added both jobs and new residents over the past year. This continues a trend of strong growth in the city, which has seen its population rise nearly 20% over the preceding decade. 

Home values remain affordable in Charlotte, easing entry into the housing market for real estate investors. With a home value index reported in February 2020 of roughly $249,000 and a rent index of $1,538, Charlotte is a top area to invest in. For property investors looking for a good return on investment, consider investing in real estate and a great partner for property management in Charlotte, NC.

Raleigh-Durham

The cities of Raleigh and Durham are economic powerhouses in the state of North Carolina, and should not be overlooked as some of the best places to buy rental property in the United States. Home values in the area rose nearly 5% last year and are projected to rise another 4.2% this year in Durham. They rose 3.4% the previous year with projected increases of 3.3% in the coming year in Raleigh.

Home prices in both metropolitan areas remain accessible for real estate investors. As reported in February 2020, the average home price in Durham sits around $250,000, while the average home price Raleigh is a bit higher at $284,000. Both cities boast a low unemployment rate hovering slightly over 3%, while Durham boasted a population growth of 4.2% and an employment growth rate of 1.4%. These numbers indicate an economically vibrant metropolitan area and no signs of slowing. If you consider making an investment in SFR here, be sure to do your homework for property management in Raleigh, NC. A good property investment means nothing if it isn’t managed well. You’ll need to know how to be a good landlord and manage your investment well. 

Florida

Florida continues to be a strong market for real estate investors looking to capitalize on regional economic growth. Year after year, the metropolitan powerhouses of Orlando and Tampa have experienced strong population and job growth, while still boasting home values that make these cities accessible for investors. 

Orlando

Over the previous decade, Orlando’s population has grown by nearly 20%. What’s the draw to this Sun Belt city? Besides the great weather and beaches, the greater Orlando area has affordable home prices, a strong tourism industry, and an attractive job market for young professionals. The median age for residents is 33 years old, belying the idea that Florida remains solely the province of retirees. 

Looking at the numbers, Orlando continues to project economic strength into the coming years. With a very low unemployment rate of 2.7% and a job growth rate of 3.4%, there are plenty of jobs for young professionals moving to the city. While not the city with the nation’s top population growth any longer, Orlando still experienced a staggering 4.8% growth in population last year, demonstrating that the longstanding trend of population growth over the last 60 years will only continue. The attractiveness of this city as a place for investment has even been seen with the demand for Orlando property management.

Tampa

With low unemployment rates, strong job growth, and blistering population growth, the greater Tampa area remains a top market for real estate investors. Also located in Florida’s Sun Belt along the Gulf coast, Tampa has the beaches, a strong economy, and affordable housing that attracts both young professionals and recent retirees. This is reflected in the median age of 35.6 years old, which is slightly higher than many of the other cities we have touched on.

Tampa’s job growth rate neared 1.8% over the previous year and saw its population grow 4.6%. Housing remains affordable in the area, according to Zillow in February of 2020, with a home value index of $245,000 and projected growth of 4.4% over the next year. The rent index is right around $1,550, making this an excellent choice for real estate investors to consider as a place to invest in. Once property owners find a rental property to invest in, finding a partner for property management in Tampa will help increase the value of that investment.

Final Thoughts

The hottest states for real estate investors to look toward are Texas, North Carolina, and Florida at the moment. Economic growth isn’t spread evenly in these three states, so real estate investors would be wise to stay focused on the major metropolitan areas which have demonstrated sustained economic vibrancy as a place to invest in.

In Texas, Arlington and San Antonio are both economic focal points in the state. Arlington has grown alongside the adjacent cities of Dallas and Fort Worth to become the 7th largest city in the state by population. Boasting strong job growth, great population growth, and affordable home prices, Arlington and San Antonio are both worth consideration.

The North Carolina regions of Raleigh-Durham and Charlotte are booming as well. Both locations feature strong population growth, unemployment lower than both the national and state average, and housing prices which make entry into the real estate market feasible. Growth in all three cities is projected to continue, even as growth in non-metro areas across North Carolina has slowed.

Located in Florida’s Sun Belt, the cities of Orlando and Tampa should remain top areas to consider for real estate investors. Both cities feature excellent population growth, low unemployment, a diverse employment sector, and a strong tourism industry. 

If you are a real estate investor looking to expand into these hot markets, working with Great Jones’ property management services can help you realize your property’s potential. We’ve established the resources and expertise you need to succeed in each of these markets. From our multi-platform marketing used to drive down vacancy rates to our industry-leading property management technology platforms, which give you and your tenants the tools they need in today’s rental market, Great Jones is ready to help you achieve your financial goals and stay on top of the current property management trends. To learn more about how Great Jones can help, please contact us today.

Sources

  1. https://www.moneycrashers.com/best-cities-buy-rental-property-investment/
  2. https://www.fool.com/millionacres/real-estate-investing/rental-properties/10-best-places-buy-rental-property-2020/
  3. https://finance.yahoo.com/news/best-worst-cities-own-investment-090000378.html
  4. https://www.dallasnews.com/business/real-estate/2020/01/23/california-moves-to-texas-up-36-in-latest-count/
  5. https://www.zillow.com/research/2020-hot-markets-south-26293/
  6. https://cals.ncsu.edu/agricultural-and-resource-economics/wp-content/uploads/sites/12/2020/02/Economist_2020_Economic_Outlook.pdf
  7. https://therivardreport.com/san-antonio-ranked-again-among-fastest-growing-cities-in-u-s/

Noah Jeong

Noah works on the Growth Team at Great Jones. He's just as frustrated as you are with the status quo in the property management industry and is passionate about making contributions towards raising the bar for property management.

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The Pros and Cons of Rent Control

For property investors, landlords, and tenants alike, rent control is a complex (and often contentious) subject. Even if you currently live in a state without rent control, that may soon change. In 2019, two states passed rent control laws; major cities and municipalities strengthened existing regulations, and countless local governments (including ones in Florida) proposed and debated initiatives. Although it may not affect property management in Jacksonville, FL, property management in West Palm Beach, or other places across the U.S. quite yet, it’s needless to say that the topic of rent control is likely not going away. Rent control in Florida and Texas may not exist now, but the initiatives have been discussed, which is why staying informed on potential rent ordinances is important as a property investor, landlord, or tenant. 

So, what does this mean for local housing markets? It’s a more complex picture than you might imagine. Although the laws are intended to keep long-term residents from being priced out of their neighborhoods, some analysts argue that they create housing supply shortages and drive up housing costs for other residents. Some even claim the laws make it difficult for landlords to maintain rental properties, which affects the quality of available housing. 

Whatever the long-term effects are on property management, rent control ordinances are a reality for many real estate investors — and it isn’t all bad news.

Let’s delve into the rent control pros and cons from a real estate investor’s perspective.

Benefits of Rent Control

While rent regulation is largely developed to protect tenants, there are still some ways that property owners benefit from these practices under the right circumstances. Here are a few of the advantages of rent control. 

Lower acquisition costs

Because rent-controlled buildings are generally less profitable, these properties often come at a much lower purchase price than their non-regulated counterparts. You’ll also face less competition from other landlords bidding on them. This can make them great bets for long-term investments and great entry purchases when you’re trying to get a foothold in the market. With some patience, luck, and work, you can raise the value of the land to lift the rent to fair market rate (and in some cases, deregulate it). 

Fewer vacancies

Residents in rent-controlled properties will stay a lot longer than other tenants. That means fewer turn costs and less time spent placing tenants. As long as you’re in the black, this steady stream of income requires less work, even if it’s not as much income as you might make without the regulations. 

Though it’s not always in pace with the market, the steady rent increases you are allowed will help you earn more the longer you own the property. Plus, tenants are much more likely to be able to keep up with rent when the increases are predictable, so you are less likely to deal with late payment or non-payment.

Greater ROI for building upgrades

Many cities will allow a landlord to raise rents for major improvements. For example, some cities allow you to raise the rent as much as 10% to cover the cost of these upgrades, meaning you are increasing the value of your investment as well as your cash flow. Local laws differ widely on how much you can benefit from this, so you should always do your homework before you spend too much capital on upgrades.

Rent will virtually never decrease

Because you are almost always charging below-market rates for a property, it’s a safe bet that you will never have to lower your rent to keep residents in place. In an unregulated property, on the other hand, economic slumps may force you to lower the rent to stay competitive and avoid high vacancy rates. 

As long as you purchase a rental property that is profitable, you’ll have a steady stream of income that can increase over time. Even if you can’t raise rates as quickly as other properties, the predictability of rent-controlled properties make future revenue projections easier than ever.

Drawbacks of Rent Control

Of course, all these regulations can make things difficult for property owners and can eat into profits considerably if you fail to account for them in your bottom line. To follow are a few of the significant concerns with owning rent-regulated apartment complexes.

You can’t charge market rates

While neighboring properties might be increasing rent by as much as 10% annually, you will still be restricted by the allowable increases, which are often much lower. That translates into lost income and ultimately puts a ceiling on how much you will be able to make on your investment. You’ll need to carefully consider your projected income and expenses before you purchase a new property, and be wary of areas ripe for new developments that will drive up the prices. 

Property taxes can be a burden

Local regulations often fail to account for the burden of property taxes. The amount you are legally allowed to raise the rent each year won’t always cover any increase you have to pay in taxes, and you’ll be on your own to cover the difference. 

Maintenance can eat into your profits

Because most rent-controlled properties are older, it can take a lot of money to keep them up to code. For the most part, the burden of repairs is on you. No matter how much it costs, you will be required to keep the building up to code or face severe penalties. Of course, it’s in your best interest to keep your property in good shape to protect your investment, but this can be hard to afford if you don’t plan for it properly. 

Difficult residents can stick around

Most city rent control ordinances require you to renew a tenant’s lease, no matter how difficult they make your life. Typically, when a resident has found such a good deal on housing, they will want to stay put. Rent control laws often limit the reasons you can evict a tenant. This can include what you are allowed to put in the lease agreement — so factors like constant noise complaints might not be enough to remove difficult residents from your property. 

Thorough tenant screening can curb this problem. Make sure you are contacting previous landlords, running background and credit checks, getting personal references, and more. Great Jones can help property investors by providing reliable tenants that fit their needs while handling the daily hassles of routine maintenance and rent collection.

What Makes a Good Investment?

Buying a rent-controlled property can be a great way to add stability to your investment portfolio, and there are a few ways to avoid falling into a money pit. Much of this has to do with local legislation. If you are allowed to raise the rent upon tenant vacancy, then you want to avoid properties with residents who have stuck around for more than three or four years. Smaller units will generally have higher turnover (as residents age out of the space) and thus give you more opportunities to raise the rent.

Remember – markets with consistent, low cap rates aren’t always a bad thing, especially in neighborhoods where the market rent rate has held steady for a few years. The ‘slow and steady’ approach to property investment isn’t always exciting, but it gives you a stable income stream that boosts your investing power. If you’re trying to build a portfolio, rent-controlled or rent-stabilized properties are a reliable asset you shouldn’t overlook.

Kahala Bonsignore

Kahala works on the Growth Team at Great Jones where she's dedicated to helping more Property Owners learn about Great Jones and how their partnership can increase profitability and decrease rental stress.

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