Posts

10 Tax Benefits of Owning a Rental Property

Real estate investing is a lucrative endeavor. It offers a steady stream of passive income, as well as many other benefits. One of the greater benefits is attractive tax deductions. If you’re wondering how to start a rental property business, understanding all of the benefits and hindrances should be an essential component in your decision-making process.  

The IRS has many laws in place to encourage real estate investing and entrepreneurship. Despite this, many real estate investors pay higher taxes than they need to. By taking full advantage of the tax benefits of owning a rental property, you can maximize your profits and enjoy more success. 

So what are these rental property tax deductions? Here’s a list of 10 write-offs to take advantage of this tax season.

What Qualifies For Rental Property Tax Deduction?

Generally speaking, the IRS allows rental property owners to write off any expense that is “ordinary and necessary” to the management and maintenance of their property. 

The following rental expenses fall under that umbrella:

  • Mortgage interest
  • Property taxes
  • Insurance
  • Depreciation
  • Home improvements
  • Maintenance and repairs
  • Utilities
  • Professional fees
  • Travel and transportation
  • Office expenses

As you can see, there’s a ton of expenses you can write off! Let’s take a look at each of these tax deductibles in greater detail.

10 Rental Property Tax Deductions

To enjoy the full tax benefits of owning rental real estate, make sure to deduct these expenses with your accountant before April rolls around:

#1 Mortgage Interest

Many rental property investors take out a mortgage, incurring substantial interest costs along the way. Fortunately, if the property is being used as a rental, this interest is considered a business expense. Therefore, you can write it off. For most landlords, mortgage interest will be their largest deductible expense. 

To determine the deductible amount, simply refer to your mortgage’s monthly statement. It will clearly state your monthly interest payments. By adding these up for the entire tax year, you’ll arrive at your mortgage interest deduction amount. 

Along the same lines, you can also deduct:

  • Mortgage and refinancing origination fees and points
  • Interest on unsecured loans used for rental property improvements
  • Credit card interest of rental property-related purchases

#2 Property Taxes

When you own property, you have to pay taxes on it. These taxes are used to support the local area’s infrastructure and resources. Your tax amount depends on your investment property’s location and value:

  • Location – Property tax rates vary greatly depending on the state. For instance, New Jersey has the highest average property taxes, whereas Louisanna has the lowest. To find out your area’s tax rate, simply look it up online.
  • Value – Furthermore, the more valuable your property is, the more its property taxes will be. That’s because you have to multiply the location’s tax rate by your property’s assessed value. If you aren’t sure what your rental property is valued at, check out our guide on how to value a rental property.

Based on these factors, your property taxes can be a few hundred dollars or reach the hundred thousand range! Fortunately, you get to deduct these taxes when you run a rental property. 

#3 Insurance Premiums

Insurance is another crucial business expense for any rental property. You can (and should) purchase insurance to safeguard your rental property investment against:

  • Fires
  • Floods
  • Theft
  • Landlord liability

As an investment property owner, you also probably provide your rental property’s employees with health insurance and worker’s compensation insurance. 

All of these insurance premiums can be written off since they are ordinary, necessary business expenses. Furthermore, if you experience any loss due to a natural disaster, flood, or theft, you can deduct these losses. 

#4 Depreciation

While real estate values typically appreciate over time, the physical structures are still prone to depreciation. Each year, rental homes experience wear and tear. 

Lucky for landlords, they can deduct depreciation from their taxes as soon as their property is available for rent. The IRS assumes a property’s “useful lifespan” is around 27.5 years, so you must use this time span for your depreciation calculations. Keep in mind that only the structures depreciate —not the land

Determining the annual depreciation deduction amount requires some math and is usually best left to a trusted accountant or tax professional. 

#5 Home Improvements

In all likelihood, you won’t let your rental property depreciate to the point of being unlivable. Instead, you’ll probably make enhancements to the building to increase its value. 

These home improvements are also deductible. Home improvements must fall into one or more of the following categories:

  • They add value to the property, like new granite kitchen countertops
  • They adapt the property’s use, like the addition of a casita
  • They extend the property’s life, like a brand new roof

Most home improvements will depreciate over time too. In turn, they qualify for the depreciation tax deductions, as long as they’re expected to last for a year or more, add value to your rental property, and lose value over time. 

#6 Maintenance and Repairs 

The next deductible expense is maintenance and repairs. Many landlords confuse these expenses with home improvements. Here’s the difference:

  • Maintenance and repairs – Repairs are efforts to maintain your property’s condition, so it’s livable for tenants. However, repairs do not add significant value to the property. (Examples: Replacing a broken window, fixing a leak, repairing damaged flooring, etc.)
  • Improvements – In contrast, home improvements are meant to add value to the home and go above and beyond basic repair. (Examples: Outfitting the entire property with top-of-the-line windows, renovating the bathroom, reflooring the entire property with brand new hardwood, etc.)

When it comes to tax deductions, repairs can be written off in full during the tax year, whereas home improvements must depreciate over time. 

Any labor costs associated with the maintenance and repairs, like a property management fee or Homeowners Association fee, are also deductible. 

#7 Utilities

When you own a rental property, you can either pay for tenants’ utilities or let tenants pay for them on their own. Some common utilities include:

  • Gas
  • Electricity
  • Water
  • AC
  • Internet
  • Cable

If you cover these expenses, you can deduct them from your rental income tax. 

If your tenants reimburse you for any of these utilities, you can still write them off. Just make sure to report the reimbursement as income later on. 

#8 Professional Fees

As a rental property owner, you probably hire various professionals, such as:

  • Real estate investment advisors
  • Real estate agents 
  • Lawyers
  • Accountants
  • Property management firms
  • Advertising agencies

Any fees relating to these professional services can be written off. Likewise, if you use software to prepare your tax returns on your own, the cost of this software is also deductible. 

The only legal fees that aren’t deductible are ones that relate to:

  • Defending your property’s title
  • Recovering or improving your property

#9 Travel and Transportation

As a landlord, you’re entitled to write off your business-related travel expenses. These include any travel expenses that are incurred as you:

  • Show the property
  • Collect rent from tenants
  • Organize maintenance for the rental property

For example, if you drive to your property to supervise maintenance or stop by the hardware store to buy repair equipment, you can write off your gas and car upkeep expenses related to the associated mileage.

The only exceptions are if your travel relates specifically to rental property improvements, rather than necessary and ordinary maintenance, or if you travel to the property as a part of a “regular commute.” 

Overnight Travel

If your property is located far away, you may need to fly to it and spend the night in a hotel. In this scenario, your airfare, restaurant bills, and hotel expenses are also tax-deductible. 

Just take note that IRS auditors carefully scrutinize overnight travel expenses, so make sure to document your transactions properly. Also, be sure to exclude any activities that could be interpreted as “pleasure” rather than “business.”

How to Calculate Travel Deductions

To deduct travel expenses, you have two options: 

  • Deduct the actual travel expenses, based on your recorded transactions
  • Deduct them using a standard mileage rate of 57.5 cents per mile

Your accountant can help you decide which method is better for you. Using actual travel expenses may offer you a larger deduction, but it requires much more extensive record-keeping and calculations. 

#10 Home Office

Lastly, if your rental property business has a dedicated office space, you can deduct its expenses, including:

  • Computers and business software
  • Office equipment, like copiers, phone lines, and printers
  • Office appliances, like refrigerators and microwaves
  • Office supplies, like printer ink and paper
  • Office furniture
  • Rent or mortgage

Make sure to document these purchases for your records. The IRS often looks deeper into these deductions, since they’re easy to abuse. 

Furthermore, if this office is located in your home, it must be used exclusively for rental property business purposes. If it meets this qualification, you are eligible to deduct the associated portion of your home’s mortgage or rent. 

Maximize the Benefits of Rental Property With Great Jones

Rental properties offer a host of attractive tax deductions. As a rental property owner, you don’t want to let any of these slip through the cracks during your tax preparation.

When done right, some landlords end up paying zero taxes when their deductions are all said and done!

If you want help maximizing your rental property’s tax benefits, reach out to the property management specialists at Great Jones. We have teams for property management in Austin, TX to experts in property management in Charlotte, NC, and more places! Wherever you need us, we’re here to assist you with all of your rental property needs, saving you and time and money along the way. 

Are you looking for more information to help you with your investment property? Continue reading to find out how to advertise a rental property

Sources:

IRS. Tips on Rental Real Estate Income, Deductions and Recordkeeping. https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping

The Balance. The Best and Worst Property Taxes by State. https://www.thebalance.com/best-and-worst-states-for-property-taxes-3193328

IRS. Publication 527: Residential Rental Property.https://www.irs.gov/pub/irs-pdf/p527.pdf

IRS. Publication 946 (2019), How To Depreciate Property. https://www.irs.gov/publications/p946

IRS. About Publication 527, Residential Rental Property (Including Rental of Vacation Homes). https://www.irs.gov/forms-pubs/about-publication-527

Nolo. Deducting Landlord Car Expenses.https://www.nolo.com/legal-encyclopedia/deducting-landlord-car-expenses.html

IRS. Standard Mileage Rates.https://www.irs.gov/tax-professionals/standard-mileage-rates

How to Value a Rental Property

Investing in real estate is an excellent way to generate a steady stream of income. It has many added benefits as well, such as rental property tax deductions. In order to fully gain a substantial income from your investments, you must choose your investment properties wisely. If you fail to assess their value properly, you risk overpaying and reducing your overall return on investment. 

So how do you value a rental property? There are many different methods at your disposal. By using these valuation tools, you can estimate each property’s rental income potential, cash flow, and return on investment. Understanding the ins and outs to valuing a rental property is an essential step in determining how to start a rental property business. Valuing a property correctly will set you up for more knowledgeable financial decisions before you make a mistake.

In this article, you’ll learn about four different rental property valuation methods, as well as a few tips on how to maximize the value of your investment.

4 Simple Rental Property Valuation Methods

To estimate rental value, you have a few different methods to choose from. Let’s take a look at each one:

#1 Sales Comparison Approach

The most popular rental property valuation method is the Sales Comparison approach. It’s the go-to method for real estate agents and appraisers alike. 

As the name suggests, this approach assesses a potential investment property’s value by comparing it to other recently sold homes. 

To improve the accuracy of the estimate, you’ll want to start by finding three to five properties that are similar to the one you’re considering investing in, in terms of:

  • Specifications – The features of a property have a notable impact on its value. Try to find homes that have the same:Number of bedrooms
    – Number of bathrooms
    – General square footage
    – Lot size
    – Pool or no pool 
    – Etc.
  • Age and condition – Home appraisals are greatly dependent on the condition of the home. An older house without any upgrades won’t be as valuable as one that’s brand new or recently renovated. Thus, it’s crucial to find comparable properties that are in the same general condition as the one that you’re evaluating. 
  • Neighborhood – If you know anything about real estate, you’ve heard the saying, “Location, location, location.” Ideally, each of your comparison properties should be located in the same neighborhood. This way, their prices will reflect what that neighborhood has to offer, whether that’s good schools, proximity to nightlife, low crime rates, or great views. This will largely contribute to the type of tenant you will attract and the rent price you can charge. 
  • Sale date – Since the real estate market fluctuates constantly, properties sold long ago won’t be of any relevance. Instead, look for properties that were sold in the last few months—the more recent the sale, the better. 

Multiply Square Footage With Comps

Once you’ve found your comparison properties, it’s time to do the math:

  1. Start by dividing the price of each comparison property by its square footage
  2. Next, calculate the average price per square foot of all these properties
  3. Finally, multiply your potential investment property’s square footage by this average

Just like that, you have your estimated rental property value using the Sales Comparison approach. 

#2 Gross Rent Multiplier Approach

Another option for rental property valuation is the Gross Rent Multiplier approach. Gross rent multiplier (GRM) is a metric that assesses whether a property’s selling price is a good deal. In turn, this valuation technique focuses on an investment property’s income potential. 

To calculate a potential investment property’s GRM, you’ll need its asking price and rental income estimate on hand. To estimate your annual rental income, review some local rentals, and see what they’re charging for a monthly rent. Once you have those metrics handy, input them into this formula:

  • Gross Rent Multiplier (GRM) = Purchase Price / Annual Gross Rental Income 

Ideally, you want your GRM to be on the lower side. A GRM between four and seven is ideal. Properties with low GRMs take less time to pay off, so they’ll become profitable much faster. In contrast, properties with a high GRM may not be the best investment option for a real estate investor. 

A GRM Calculation Example

Let’s say you’re thinking about investing in a property that costs $750,000. 

After reviewing similar rental properties in the area, you can reasonably expect to earn $90,000 of gross rental income each year. 

You divide $750,000 by $90,000 to get a GRM of 8.33. This tells you that it will take a little over 8 years to pay off the property if it goes according to plan. That’s not far from the GRM sweet spot, but it’s a little high. Thus, you may be better off finding a property with a lower GRM. 

Take Gross Rent Multiplier With a Grain of Salt 

One downside of the Gross Rent Multiplier approach is that it fails to factor in operating expenses, such as:

  • Property taxes
  • Insurance
  • Utilities
  • Vacancies

As a result, GRM should not be the sole valuation tool you use. However, when used in conjunction with other methods, it can help guide your investment decision. 

#3 Income Approach

The Income approach is another valuable real estate valuation method. It’s more accurate than the Gross Rent Multiplier approach because it factors in operating expenses. The Income approach uses the following formula to compare the potential income of a rental property with its initial investment:

  • Property Value = Net Operating Income / Capitalization Rate

Net operating income is the gross annual income of the rental property, minus all of the operating expenses, including:

  • Property taxes
  • Insurance premiums
  • Management fees
  • Maintenance and repairs
  • Utilities
  • Accounting fees
  • Legal fees
  • Potential vacancies

The capitalization rate is a metric that estimates a property’s return on investment. You can calculate it by dividing the net operating income by the property’s selling price. You can also estimate the capitalization rate by referencing comparable rental properties on the market.  

Important Considerations of the Income Method

When using the income method, you’ll have to estimate operating expenses to the best of your ability. This can be a time-consuming process, and it involves a lot of guesswork. 

Furthermore, you’ll have to estimate potential vacancies. You can get an idea of vacancy rates by looking at comparable rental properties in the area and what they charge as a monthly rent price.

While the Income approach requires some research, it offers a more accurate assessment of a property’s value than other methods. 

#4 Cost Approach

The last real estate valuation method is the Cost approach. This technique compares the cost of the property with the cost of building an identical property from scratch. The premise behind the Cost Approach is that investors shouldn’t purchase an investment property if they could build it themselves for less. 

The Cost approach uses this basic calculation:

  • Property Value = Cost of Land + Cost of Construction (minus) Depreciation

In other words, it adds up the cost of purchasing the land and constructing the building. Then, it subtracts any obvious depreciation to the property, given its current condition. This method is most accurate when the property is new since there is no depreciation to account for. 

Drawbacks of the Cost Approach

Compared to the Sales Comparison approach and the Income approach, the Cost approach is less reliable. That’s because it involves many assumptions about:

  • The value of the land – You may not be able to find an equivalent piece of land for sale on the market. Thus, it can be tricky to estimate the land’s value. 
  • The cost to build an identical home – Building a home is an involved process. Without knowing every detail about the materials used, you may arrive at an inaccurate assessment. 
  • The exact amount of depreciation – Calculating depreciation is also complicated and imperfect, especially when basing your assessment on a shallow understanding of the property. 

As you can see, there’s a lot of subjectivity involved in the Cost approach. However, it can still help you decide whether an investment property is a worthwhile venture. 

How to Increase the Value of a Rental Property

So what if you already own a rental property and want to maximize its value? 

Here are some steps you can take to enhance the rental value of property as a landlord:

  • Spruce up the curb appeal – The first thing potential buyers and tenants see is the outside of your property. It will either impress them or put them off. This first impression is crucial. By giving the property’s exterior a fresh paint job, investing in landscaping, and repaving old concrete, you can easily enhance your curb appeal and make an outstanding first impression on a prospective tenant.
  • Renovate kitchens and bathrooms – The rooms with the greatest potential for increasing your property’s value are the kitchen and bathrooms. By swapping out old appliances for new ones, modernizing the cabinetry, and investing in better quality countertops, you can quickly boost your property’s selling price. 
  • Install new flooring – In rental properties, hardwood floors are coveted due to their sleek look. In fact, in 2019, hardwood floors were the preferred flooring material. Not only are they easier to clean, but they don’t trap any odors. In a rental property, this is very important. 
  • Add valuable features – Renters and homeowners appreciate air conditioning, on-site washers and dryers, dishwashers, outdoor living areas, and off-street parking. If you can add any of these features to your property, you’ll make it much more valuable. 
  • Use a property management company – Lastly, properties that are well-maintained hold their value longer. That’s because they counteract depreciation by keeping up with repairs and improvements. As you know, depreciation reduces a property’s value. By hiring a dedicated property management company, you can maximize your investment value for the long term. 

Once you’ve made all the necessary adjustments to your real estate, it’s important to understand how to advertise a rental property. This is an important aspect as it helps prospective tenants understand the property value and increases its place in the market. 

Great Jones: Property Management Done Right

Now you know how to value a rental property and how to increase its value. If you need help with either task, reach out to Great Jones. 

Great Jones is a premier property management company that provides many services, such as:

  • Investment property valuation, renovation, and management
  • Property maintenance
  • Rent collection
  • Property inspection
  • 24/7 tenant customer support
  • Prospective tenant screening
  • Data-driven marketing

And with services in property management in Jacksonville, FL and property management in Indianapolis and beyond, every real estate investor can feel supported. By partnering with Great Jones, you can maximize your real estate investment and sit back as the experts take these tasks off your hands. 

Sources:

The Balance. Calculating the Gross Rent Multiplier (GRM) and Why It’s Important.https://www.thebalancesmb.com/how-to-calculate-and-use-the-gross-rent-multiplier-grm-2866791

Dumpsters.com. Residential Flooring Trends in The United States. https://www.dumpsters.com/research/flooring-trends

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.

Leave a Comment on How to Value a Rental Property

How To Start A Rental Property Business

If you’re considering starting a rental property business, you might feel overwhelmed by the prospect of turning your investment property into a profitable endeavor. It’s certainly a hefty initial undertaking, but when you consider that over 90% of the largest 100 U.S. cities experienced a rent increase from 2018 to 2020, the benefits of a passive income become incredibly appealing. 

Like any other entrepreneurial pursuit, starting a rental property business takes time and effort. Having a clear plan of action before you start will help you maximize the return on your investment—both in terms of time and money. 

Understanding how to start a rental business can be done by breaking the process down into a few basic steps. 

Whether you hope to include 1 or 50 rental properties in your portfolio, you’ll need to make a few key steps to make your business efficient, sophisticated, and, most importantly, profitable. As you begin the exciting process of considering how to start a rental business, keep the following tips in mind. 

#1 Make a Business Plan

A major draw of owning a rental property business is the fact that, if done properly, your investments can provide a consistent source of passive income. However, achieving this coveted source of cash flow requires owners to be anything but passive in the early stages of starting their business. 

Treating your rental property business the same way you’d treat any other venture is the key to success. You’ll need organization, foresight, and careful planning.  

Take a look at these essential steps:

Find the Perfect Property

The rental property you own is going to act as the backbone for your entire business. This means that finding the perfect investment opportunity(s) is a crucial part of your overall success. 

When purchasing your rental property, keep the following in mind: 

  • Neighborhood Demographics – Understanding the demographics in the area where you hope to buy a property is more important than just wanting to get to know your neighbors. Do your research and seek out markets where renting is advantageous. Understanding the neighborhood demographics can also help you find a fit tenant that meets your needs as a property owner. 
  • Renovations, Repairs, Rentability – If the property you’re considering purchasing needs significant renovations or repairs, you need to factor this into your overall financial bottom line. Unlike a home where you plan to occupy yourself, issues with rental properties have to be addressed to make them attractive to renters. 
  • Stick to Your Budget – There are a few similarities between purchasing your own home and purchasing a rental property. Being tempted to buy more houses than you can afford is one of them. Sticking to your budget will help keep your business on track from the start. 

Strategize Your Financing

Once you’ve found the perfect property, you need to figure out the smartest way to finance it. How to purchase your property is a big decision that’s based on a variety of factors. Even if you already have a purchasing plan in mind, it never hurts to consider all your options. It may also be a good idea to take a crash course in understanding how to value a rental property before buying. This can help guide you on your first rental property purchase and steer you away from making a big financial mistake. 

Consider the pros and cons of paying with cash versus taking out a mortgage: 

  • Buying with Cash – If you have the cash to purchase your home outright, this can sometimes be a good option. You’ll likely be able to close the deal more quickly, and doing so means you don’t have to go through the process of getting a mortgage. Additionally, you can mitigate closing costs with a cash payout. 
  • Mortgages – This is where knowing all the facts and doing abundant due diligence is crucial because your mortgage can play a huge role in your overall profits from your property. Done correctly, using leverage can increase your cash flow because the benefits of paying for your investment (and paying taxes) over time, can outweigh the added interest you’ll accrue. Additionally, with 30-year fixed mortgage rates hovering around 3.14%, now [July 29, 2020], might be the perfect time to buy. 

Bonus Tip: Sometimes, getting preapproved on a mortgage is a fantastic way to identify where you stand in the lending market. Not only will your budget be intact, but you’ll also know how much you’ll be able to borrow, further narrowing down your first rental property choices. 

Crunch the Numbers

Another important part of the rental property business equation is how much income you can generate. Determining this requires having thorough knowledge regarding the financial inputs and outputs of your property. 

As you calculate how much you’ll need to plan to input into the property side of your business, take into account the following:

  • Mortgage payments
  • Insurance premiums
  • Property taxes
  • Repairs
  • Maintenance
  • Marketing/Management

Once you determine how much you can expect to put into your property on a monthly basis, you can begin calculating how much you’re going to need to get out of it in order to generate income from your real estate investment.  

Determining the rent on your property is a delicate process because you want it to be high enough to actually make you money, but low enough to stay competitive. Remember, if your rent is too high and it results in vacancies, that means a considerable loss of income that likely outweighs setting the rent at a slightly lower rate. 

Don’t forget the added benefits that do come with your real estate investment. Owning real estate comes with many rental property tax deductions that you can use to your advantage!

#2 Become a ‘Jack of All Trades’

As a business owner, you’re going to need to get comfortable with all aspects of your business. From administration to marketing, to ensuring your company is abiding by the law, starting a rental property business means more than just buying and renting properties. 

Register Your Company

If you’re starting a company for the first time, handling the legal aspects of your business can be daunting. However, in order to protect yourself and your business, it’s important that you stay on top of these kinds of issues. 

Running your rental business as a sole proprietor means you take on the risk associated with the property—and it’s tenants. Incorporating your business takes your personal liability out of the equation, and protects your personal assets. Registering as an LLC isn’t as difficult as you might imagine, and doing so early mitigates your personal risk. 

Start Marketing

Marketing is an important aspect of any successful business. Effectively marketing your properties will help you avoid vacancies and find great tenants. Like many investments, how much effort you put into marketing will determine how much you get out of it.

As you begin to map out your marketing strategy, consider using two main methods:

  • Conventional Real Estate Marketing – Old-fashioned as it may be, there’s still merit in putting up a “for rent” sign in the yard. Tried and true methods like signage, flyers, and word of mouth are old standbys for a reason. These methods are inexpensive and are great for capturing the business of locals and expanding your reputation as a landlord in the community. 
  • Marketing for the Modern World – Using more modern approaches comes with its own set of advantages. Relying on social media, listing sites, and online ads will expand your reach and allow you to tap into markets you otherwise wouldn’t have access to. Consider offering video tours and virtual showings to keep up with the times. If you are considering having your property serve as a vacation rental, choosing a marketing strategy that centers online can help draw in short-term renters easier. 

As a general rule, using a combination of the two strategies above is a good way to diversify your marketing efforts. Keep in mind that if you don’t personally have the bandwidth to tackle marketing, Great Jones offers marketing as part of our property management services. For more marketing and advertising tips, check out our guide on  how to advertise a rental property.

#3 Hire A Property Management Company

Part of understanding how to start a rental business in the most effective, profitable way is knowing just how much time you’re willing to invest in your business once it’s up and running. 

At the end of the day, owning a rental business means you are a landlord, but that doesn’t mean you have to commit to handling repairs, collecting rent, and dealing with tenant complaints if you don’t want to. 

Hiring a property management company can take some of the weight off of your shoulders. Having a strong, proactive team like Great Jones behind you means you can dedicate your efforts to the things that are the most important. 

It will also help ensure that your passive sources of income are exactly that—passive.

At Great Jones, we understand that the last thing you want to do is manage your management company. As a business owner, you already have enough on your plate.

It’s Time to Get Down to Business

Starting a rental property business is a big commitment. Taking on the responsibilities of a business owner requires a lot of hard work, but if you keep the tips above in mind, you’re sure to feel prepared, well-informed, and ready to start your business. Don’t forget—you aren’t alone. 

Experts like the team at Great Jones are here to help you maximize your business’s potential. Whether you need property management in Fort Myers or property management in Raleigh, NC, we’ll help you make your investment a profitable one.

Sources: 

Mash Advisor. Buying a Rental Property: Cash or Mortgage?. https://www.mashvisor.com/blog/buying-an-investment-property-cash-mortgage/

Become a Pro Landlord. How to Start a Rental Property from Scratch. http://becomeprolandlord.com/start-rental-property-business/

Mash Advisor. How to Start a Rental Property Business Like a Pro. https://www.fortunebuilders.com/rental-property/

Bank Rate: Ten Tips for Buying a Rental Property. https://www.bankrate.com/investing/buying-income-property/

Bankrate. Today’s Mortgage Rates, July 29, 2020 | Key rate drops.

https://www.bankrate.com/mortgages/rates/mortgage-rates-for-wednesday-july-29-2020

Forbes. The Benefits of Buying a Home With Cash.

https://www.forbes.com/sites/morganbrennan/2011/11/16/the-benefits-of-buying-a-home-with-cash/#33f2b0de57bf

Apartment List. Apartment Last National Rent Report. 

https://www.apartmentlist.com/research/national-rent-data

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.

Leave a Comment on How To Start A Rental Property Business

How to Advertise a Rental Property

One of the most important aspects of owning a rental property or understanding how to start a rental property business is having the right tenants. Your rental property is an important part of your portfolio, and having reliable tenants who will keep your cash flow consistent is crucial to not only your livelihood but also your mental health. 

No one wants to deal with broken leases, trashed properties, or neighborhood complaints. 

However, vacancies incur a loss of the passive income you’ve worked hard for, meaning you need to know how to find a great tenant—fast. And how do you find a great tenant? 

Through great marketing. 

How to Advertise a Rental Property

Whether you’re renting your property out for the first time, or you’re in between leases, a key skill for any rental owner to know is how to advertise rental property. For instance, did you know that more than 70% of people in the U.S. are no smartphones and that nearly 90% of real estate spend will be on online ads? 

The point: you need to meet your prospective renter where they are. 

Yet, as an owner, having to understand the ins and outs of the real estate advertising world can seem overwhelming. But don’t worry, with a few tips you’ll be well on your way to adding real estate advertising to your already diverse set of skills.  

#1 Know Your Market

As an owner, you’ve probably already done your due diligence in terms of understanding the area where you own your rental property. When it’s time to advertise your listing, your knowledge of the surrounding market and demographics are going to work to your advantage. Whether or not the property should be listed as a vacation rental or a long-term rental is a major decision to be made before finding a new tenant. 

Having a firm grasp on who you’re going to be advertising your property can make a significant difference in terms of the effectiveness of your strategy. 

You’re already wondering how to advertise an apartment for rent, but you also need to consider who you’re going to market a vacant rental property to.  

Consider the Circumstances

When you purchased your rental property, you considered your personal circumstances before signing on the dotted line such as rental property tax deductions. Potential renters are going to do the same, making it important for you to consider the individual situations of your target demographic before making both marketing and renting decisions.

As you begin to think about your advertising strategy, consider whether or not the market which you’ll be advertising in has any of the following potential demographics available for you to target your efforts towards: 

  • College students
  • Workers on short-term contracts
  • Millennials
  • Retirees

Advertise Accordingly

Once you’ve done your homework regarding neighborhood demographics, you’ll be able to highlight certain features that may be more attractive to the kind of renter you’re trying to reach.

Below are a few examples of how to use your knowledge of specific rental market demographics to your advantage when it comes to how to advertise an apartment for rent: 

  • College Students – College students are young and on-the-go. Highlighting your property’s access to campus, proximity to popular dining and nightlife destinations, and aligning your advertising efforts with the academic calendar are all ways you can optimize owning a rental property in a college town. Consider using the Facebook marketplace to reach a prospective renter, such as a college student that is technology savvy. 
  • Retirees – Retirees are increasingly turning to rentals for a variety of reasons. From the lifestyle flexibility renting provides, to being able to better predict monthly expenditures, to the overall desire to downsize, retirees are renting. You can focus on this growing market by taking steps like being willing to accommodate accessibility issues if needed. 
  • Short-Term Contract Workers – A great example of a short-term contract worker who might be your potential future tenant is a nurse who works in a large hospital. In this context, you should highlight your property’s ease of access to the hospital, since nurses often work non-conventional hours. Short-term contract workers may also be less willing to sign a two-year lease, depending on the length of their contract. 
  • Millennials – Marketing towards millennials is going to entail highlighting a different set of features than marketing towards a family of five. Millennials tend to marry and have children later, meaning they’re less likely to want to rent a property based on its school district, proximity to playgrounds, etc. What they do want, however, is up-to-date amenities, plenty of intelligent features, and convenience. 

By narrowing down your target audience, you can tailor your messaging to attract them and find your ideal tenant. In fact, this might even influence some of your home improvement initiatives. 

#2 Cast a Wide Net

Although knowing your market is essential and catering towards the demographics that make sense for your property listing is undeniably helpful, sometimes it’s still smart to advertise to a wide variety of potential renters via a diverse range of sources. 

Knowing where to advertise your rental property can be an extremely important aspect of the advertising equation. 

Regardless of where you choose to advertise your rental property, you should still consider investing in the following: 

  • Professional Photos – You may be tempted to snap a few pictures of your property with your iPhone to save money on professional photos, but having professional shots of your rental might help bolster your ROI in the long term. Professional real estate photographers know how to emphasize the best features of your property, which will in turn allow prospective tenants to get a true glimpse of their potential new home. 
  • Deep Cleaning – In a perfect world, your tenants would leave your property just as clean as when they found it. But even if you have the tidiest, most conscious tenants out there, once they move out you still will more than likely need to invest in a professional cleaning service. This will pay off in the long run, since it’s essential that your property makes a great first impression during walk-throughs, open houses, etc. 
  • New Paint – A fresh coat of paint can make a world of a difference both in person and in photographs. Even if your previous tenants left the walls in good shape, new paint can make your space feel bigger, brighter, and newer.  Just remember—regardless of your personal preferences, you ultimately need to rent this space, meaning neutral and classic is always better. 

Once you have your place in tip-top condition, the next question is where to advertise the rental property? 

Traditional Advertising Avenues

Although putting a sign up in the yard may seem like an outdated method of advertising, there’s still merit in attracting potential renters via traditional avenues. Many of these methods are inexpensive, and it never hurts to expand your rental property advertising.

As an added bonus, many of these strategies are community-based, meaning you’ll be upping your reputation as a landlord within the community you’re working within.

 Consider using a few old standbys like: 

  • “For rent” signs
  • Newspaper ads
  • Flyers 
  • Word of mouth

When you consider that 31% of home sellers continue to use yard signs, sometimes it’s the traditional channels that will draw in the perfect local resident.  

Non-Traditional Advertising Avenues

It’s a great idea to include a few tried and true advertising strategies of eras past. However, as a proactive owner and real estate investor you still need to know how to market in a modern world. 

For a more up-to-date advertising approach consider using:

  • Facebook, including specific housing groups
  • Popular rental websites
  • Other forms of social media, such as Twitter and Instagram
  • Video-showings

#3 Let a Property Management Company Increase Your ROI

At the end of the day, you’re renting your property to optimize your cash flow and to generate a return on your investment. 

You aren’t renting your property to have to deal with the administrative and logistical challenges that being a rental property owner can often come along with. 

Though at times these two realities may seem inextricable from one another, hiring a management company can help you achieve the results you desire, without letting renting out your property eat at the time you should be allocating towards generating passive income. 

The Tools You Need to Handle Issues

Management companies can answer your question such as how to advertise rental property or how to value a rental property

Reputable, experienced experts like the team at Great Jones have perfected the art of marketing properties, screening tenants, and filling vacancies. Consider teaming with a professional property management company like Great Jones to help assist you in finding a quality tenant. 

As a real estate investor, you know the value of capitalizing on great opportunities, and hiring a management company is a great chance for you to do so. From providing professional photographers to implementing self-showing capabilities, to having access to rental history reports, a management company can make your life easier. 

If you’d rather let your passive income sources err on the side of passive, then hiring a management company like Great Jones is in your best interest. 

Get the Help of Great Jones 

Being a property owner means running a business. At the end of the day, it’s all about your bottom line. 

Effectively marketing your property to attract great tenants in a timely manner reduces the amount of time your rental isn’t making you money. So whether you want to go it alone, or you want to get some help from a trustworthy, innovative team like Great Jones, it’s time to get advertising! Offering property management in Gainesville, FL to property management in Austin, TX, we’re here to help.

Sources: 

Rent Prep. How to Advertise Your Rental Property. https://rentprep.com/tenant-screening/advertise-rental-property/

Landlord Tips. Digital Marketing for Landlords: How to Market Your Property Online. https://landlordtips.com/marketing-rental-property-online

Mass Mutual. Renting? May be a Better Choice for Retirees. https://blog.massmutual.com/post/renting-maybe-a-better-choice-for-some-retirees

Web Assets. 2019 Real Estate Trends and Insights Report. https://webassets.inman.com/wp-content/uploads/2019/10/FB_realestaereport-1.pdf

National Association of Realtors. Quick Real Estate Statistics. https://www.nar.realtor/research-and-statistics/quick-real-estate-statistics

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.

Leave a Comment on How to Advertise a Rental Property

The Ultimate Guide to Out of State Real Estate Investing

Investing in real estate is one of the most secure additions for a financial portfolio. However, real estate isn’t cheap. It requires a substantial upfront investment. Depending on where you live, nearby houses might not be within your budget. 

However, that doesn’t need to keep you out of the real estate game completely. By investing out of state, you can find a lucrative investment property that fits your budget and offers other appealing advantages.

In this comprehensive guide, you’ll learn everything you need to know about investing in out of state real estate. 

The Benefits of Out of State Real Estate Investing

There are many benefits to investing in property out of state. When done right, you can find:

  • More affordable opportunities
  • Better ROI
  • Diverse properties
  • More effective landlord laws 

Also, consider commercial vs residential real estate before investing. Each has its own set of benefits, however, you might find that residential real estate is easier to manage when it comes to out of state investing. 

More Affordable Housing Options

First and foremost, out of state investing helps you find a property you can afford. There are many different types of residential property options, all of which vary by location. By choosing your investment location wisely, you can buy a beautiful home without steep property taxes or exorbitant home prices standing in your way. 

Choose an Up-And-Coming Area

Not all affordable areas are of equal value. Focus on finding an up-and-coming neighborhood. You can spot a promising area by its:

  • Growing employment opportunities
  • Developing local amenities
  • Good school districts

As more people flock to these areas, home prices will rise, and your investment will appreciate.  

Better Return on Investment (ROI)

ROI is a crucial consideration of any investment. 

Expensive investment properties generally offer lower returns. In exchange, their pricing is more stable. When home prices are already quite high, there’s not much room for them to spike upward—but there’s also not much chance they’ll suddenly dip either.  

The rate that real estate appreciates is largely dependent on a housing market’s local income-to-home-price ratio. If the home prices are 10 times that of the average income, they’re probably maxed out already. Conversely, if they’re only 2 to 4 times as high, there’s plenty of room for them to appreciate in the coming years. 

Portfolio Diversification

Every individual real estate investment is vulnerable to unique risks and market volatility. By diversifying your investments, you mitigate this risk. If your local real estate market crashes, you can take some relief in knowing your investment property is not impacted, and vice versa. 

Better Landlord Laws

Housing prices and market conditions aren’t the only things that matter to real estate investing. If you intend to rent out your property, landlord-tenant laws are relevant too.

Some states and counties have less favorable laws than others. For instance, some areas mandate:

  • Eviction restrictions
  • Frequent inspections
  • Rent control
  • Airbnb limitations

These laws are put in place to protect tenants, but they end up burdening landlords. However, not every state or county has these laws. By choosing to invest in a landlord-friendly area, you can save yourself a ton of money and hassle. 

The Risks of Out of State Real Estate Investing

While investing in faraway real estate has its upsides, there are a few notable drawbacks to consider as well. 

Long-Distance Management

Long-distance relationships are hard, even in the world of real estate. It can be challenging to renovate a property, screen tenants, and supervise a building from afar. 

You may have to travel to the rental property every so often to check up on things. Depending on the distance and your schedule, this can be costly and inconvenient. 

Fortunately, there is an easy solution. Just hire a local property management company like Great Jones. Providing services for property management in Gainesville, FL to property management in St. Louis, we’ll take care of everything, so you can stay in your home state and focus on other matters. 

An Unfamiliar Market

When you invest out of state, you’re essentially going in blind. You don’t know the area intimately. You’re probably unfamiliar with the:

  • Best neighborhoods
  • Demographic trends
  • Local politics
  • Local laws

Fortunately, you can get a sense of these elements by doing some research, visiting the area, and consulting with local real estate professionals. 

Improper Home Value Assumptions

Home valuation is complex. While comparing a house with neighborhood comps can help, it doesn’t give you the full picture. As a real estate investor, you need to take into consideration the following factors:

  • Nearby employment opportunities
  • Proximity to shopping and entertainment
  • School district quality
  • Home size, age, and condition
  • Local real estate market volatility

Keep in mind that online listings only show you so much. Not to mention, these listings are often misleading. They’re crafted to show a property in the best light possible. Without seeing a home in person, you have no idea if it’s located in a noisy area or has an off-putting smell. 

Furthermore, most homes require a few renovations and repairs. When you live far away, you’re at the mercy of your contractor. You run the risk of getting taken advantage of and overcharged.

How to Invest in Out of State Real Estate Rental Properties

While out of state investing has its challenges, the upsides still make it an attractive option for many people. If you’re one of them, you may be eager to get started. 

So how can you invest out of state? Here are a few tips. 

#1 Find Your Ideal Neighborhood

With the entire country as your oyster, the first step to investing out of state is narrowing down your options. Start by researching a few areas that pique your interest or the best places to buy rental property

Next, evaluate each area on the following qualifications: 

  • Proximity to a big city – Big cities offer a wide array of employment opportunities, shopping centers, and recreational activities. By choosing a property that’s close to a big city, you’ll enjoy a large market of potential tenants.
  • Market trends – Monitor the housing market trends in the area. Are the home prices going up? How fast are they rising? Is there any concerning volatility? What are the average rent prices? By analyzing this data, you’ll get a better idea of whether this area has potential. 
  • Vacancy rates – Another indicator of a desirable area is a low vacancy rate. This shows that residents enjoy the area. In turn, you can expect to maintain a low vacancy property too, once you get yours up and running. 
  • Favorable landlord-tenant laws – In high-price markets, local governments often employ rent control and eviction restrictions to protect tenants. As you can imagine, these hinder the profitability of your property. Thus, make sure to review an area’s landlord laws ahead of time.

#2 Establish a Trustworthy Team of Local Professionals

Once you’ve decided where you want to invest, it’s time to hire a team of local real estate professionals. 

Take time and review each person’s reviews and referrals. Ask other investors if they have recommendations. You want to ensure that you can trust your team since they’ll be making a lot of decisions on your behalf. 

Find a Realtor

Local realtors have valuable expertise in their area’s housing market. Once you find a realtor you can trust, have them send over a list of properties that meet your specifications.

Find a Contractor

Once you’ve chosen a property, you’ll need to hire a contractor to implement your desired renovations. As with your real estate agent, you need to select a contractor you can trust. This way, you can rely on them to complete the job on time and within budget. 

Finding a reliable contractor is crucial to any real estate investment project, but even more so when you’re a real estate investor operating out of state. Before partnering up with a contractor, review their licensure and referrals. Also, make sure they are bonded. This way, you’ll be protected if they don’t uphold their end of the bargain. 

#4 Create an In-State LLC

If you’re using your property as a rental, it’s beneficial to create an in-state LLC. This will provide you with tax advantages and limit your personal liability. 

Creating an LLC is easy. Once you review your state’s requirements, you can do it all online. While you’re at it, consider opening a separate business bank account for your property’s income and expenditures. This will separate your personal finances and offer a degree of protection should any deal go south.

#5 Choose a Property Management Company

Once you’ve gone through the other steps for investing in an out of state property, you have one last decision to make: self-management or outsourced professional management?

Outsourcing your property management can drastically simplify your life, especially if your property is located far away or if you simply don’t have the time to do it yourself.   

Benefits of Outsourcing Property Management

By choosing to outsource, the following tasks will be placed in the hands of a professional management team:

  • Adhering to local laws
  • Managing contractors as they implement renovations
  • Performing background checks and credit checks on tenants
  • Providing 24/7 resident support
  • Collecting rent and handling evictions
  • Conducting property inspections

Outsourcing saves you the trouble of doing it yourself and ensures your rental property is run well. 

Great Jones: Professional Out of State Real Estate Management 

Now that you know how to invest in real estate out of state, are you ready for the challenge? 

It’s a great way to bolster your investment portfolio and take advantage of diverse opportunities. To make your investment journey a little easier, reach out to the property management professionals at Great Jones. 

Whether you need a team for Orlando property management or Austin property management, Great Jones will make sure your property is renovated appropriately, managed well, and occupied with the highest quality of tenants. In turn, you can enjoy peace of mind and a profitable investment property. 

Sources:

Landlordology. Landlord-Tenant State Laws & Regulations.
https://www.landlordology.com/state-laws/

Open Door. 8 critical factors that influence a home’s value.
https://www.opendoor.com/w/blog/factors-that-influence-home-value

Zillow. United States Home Prices & Values.
https://www.zillow.com/home-values/

Types of Residential Property

Interested in investing in real estate? When it comes to commercial vs residential real estate, residential is the way to go. Residential properties offer many perks, including the simple fact that they have a lower cost of entry than their commercial counterparts. 

Furthermore, residential properties are easy to get financing for. With some home mortgages, you can put down as little as 3.5%! In turn, residential real estate is more accessible than you’d think. 

To maximize your residential investment, however, you must choose your property wisely. Not every piece of real estate has the same investment potential. This article will review each type of residential real estate and explain its pros and cons. 

What Are The Different Types of Residential Property?

Residential real estate comes in many forms. While single-family homes are the first property type that comes to mind, you can’t forget the others:

  • Apartments
  • Condominiums
  • Multi-family homes
  • Townhomes

Types of Residential Real Estate Properties and Their Investment Potential

Whether you’re interested in in or out of state real estate investing, you should understand each type of property available. To help you make the right choice for your real estate investment, let’s review each type of residential property’s pros and cons. 

Single-Family Homes

When you think of a house, you probably picture what’s known as a single-family home (SFH, for short). These properties are characterized by:

  • Private lots
  • No shared walls
  • No shared utilities
  • On-site garages

As their name suggests, single-family homes are a popular option for families. Often located in the suburbs, they provide more privacy, storage space, and peace and quiet than other forms of residential real estate. 

Another advantage of single-family homes is that they’re yours to do with as you please. As long as you follow city, county, and state housing regulations, you can renovate your home to your heart’s content. 

The Investment Value of Single-Family Homes

As an aspiring real estate investor, keep these pros and cons in mind:

  • Pros – Single-family homes hold their resale value quite well. They also attract high-quality tenants. You’re more likely to get a family that lives a quiet lifestyle than a rowdy group of college kids. Lastly, you’ll enjoy full autonomy over your property.
  • Cons – With great freedom comes great responsibility. Unlike apartments and condos, single-family homes place all the maintenance burdens on the owner. You’ll have to take care of the yard work, plumbing, roofing maintenance, and repairs. Furthermore, single-family homes cost more to buy than other residential options, due to their lot size. 

Of all the types of residential real estate, single-family homes are arguably the best real estate investment. That’s because SFR real estate holds its value and is always in high demand. They make it easy to maintain an attractive, low vacancy property

Apartments

Apartments are residential units located in apartment complexes. They’re one of the most common types of residences, with 36% of Americans living in them as of 2018. 

While apartment units can range in size, they’re usually smaller than your average single family rental. Apartment units may have a patio or balcony, but they rarely have any private yard space. 

Despite this, apartments stand out for their convenient on-premise amenities, including:

  • Swimming pools
  • Fitness centers
  • Laundry facilities
  • Covered parking
  • Game rooms
  • Computer lounges
  • Shared outdoor spaces

The Investment Value of Apartment Buildings

If you’re up for the challenge, you can purchase an entire apartment building as an investment property. Here are the pros and cons:

  • Pros – Apartment complexes are easy to get financing for since they guarantee a steady stream of rental income. By choosing quality tenants and keeping vacancies low, apartment complexes can also be incredibly profitable.
  • Cons – From unexpected repair requests to problematic tenants, running an apartment complex is no small undertaking. Apartments require continuous marketing campaigns to keep them occupied. Lastly, apartment buildings have less liquidity than houses do, since they’re harder to sell. 

Managing an apartment building is a big task, so many investors choose to outsource their property management to a team of professionals. This way, you can enjoy the profits without the burdens. 

Condominiums

Condominiums, also known as condos, are single units within a larger residential building. If they sound a lot like the apartments you just read about, you’re right. 

The difference between condos and apartments is ownership. Each residential unit is owned by individuals. Each condo owner has partial ownership of the condominium’s shared spaces and amenities. Conversely, apartment buildings are owned by a single person who rents out the individual units. 

Since condominiums are owned by a group of people, they require oversight and management. Thus, they often come with a Homeowners’ Association (HOA) and Board of Directors. These groups decide the property rules, manage the maintenance, and charge fees to cover the costs. 

The Investment Value of Condominiums

Here are the pros and cons to be aware of as an investor considering a condominium:

  • Pros – Most notably, condos are cheaper than single-family homes. They give residents access to many attractive amenities that may not be affordable with a single-family home, like pools and gyms. Also, condos require less maintenance, since the building’s management takes care of most of it. As an owner, you just need to worry about the interior and immediate exterior of your own residential unit.
  • Cons – Since condos are located in a complex and share walls with neighbors, they’re less private than single-family homes. They also have more restrictions on renovations. You’ll be beholden to the complex’s rules. For instance, the complex’s Board of Directors has the right to enforce pet and rental limitations.

In general, condos are a riskier investment than other forms of residential real estate. Since you share ownership with your neighbors, if they get foreclosed on, the value of the residential building could be impacted. 

Additionally, many condominiums don’t allow condo owners to rent out their units. If that’s your investment plan, it may not be possible in certain condominiums.

Multi-Family Homes

Multi-family homes are houses that have been divided into 2 to 4 separate residences. Depending on the number of units, multi-family homes are referred to as duplexes, triplexes, and fourplexes. Typically, the entire multi-family home is owned by one person. 

Each residence within a multi-family home has a:

  • Unique address 
  • Kitchen
  • Set of bedrooms
  • Private entrance

If you own a multi-family home, you can live in one of the residential units and rent out the others. 

The Investment Value of a Multi-Family Home

Even though multi-family homes are the least common type of residential real estate, they offer some compelling investment benefits:

  • Pros – Getting financing for a multi-family home is easy, since you can expect a steady stream of income from rent. If you choose to live in your multi-family property, you can keep a close eye on building repairs and upgrades, all while lowering your personal living expenses. Your tenant’s rent can easily offset your property’s mortgage payments and taxes. Lastly, you can write off your home maintenance costs as a business expense. 
  • Cons – Compared to single-family homes, multi-family homes offer less privacy, while requiring the same amount of maintenance and responsibility. If you live in your property, tenants may reach out to you more often, since they know you’re close by. The boundaries between you and your tenants can easily get blurry if you’re not careful.

If you’re comfortable living amongst your tenants, multi-family homes are a sound investment. They can bring in a substantial return and neutralize your living costs, saving you a great deal of money. 

Townhouses

Townhomes are a cross between a single-family home and a condominium. While they look like a standalone house, they share one wall with the townhome adjacent to them. 

Despite this, each townhouse is a unique residence with its own address and entrance, completely separate from the townhouse next door. Thus, townhome owners are responsible for all of their own maintenance expenses. 

Many townhouses are located in communities that have Homeowners Associations, which set rules and charge fees. In turn, they also enjoy appealing community amenities, like clubhouses and swimming pools. 

The Investment Value of Townhomes

Here are the investment benefits and drawbacks of townhomes:

  • Pros – Townhomes are more affordable than most single-family homes. Since they’re smaller and have less yard space, they also cost less to maintain.
  • Cons – The HOA fees and regulations that come with townhome ownership may be undesirable to some investors. Townhomes also provide less privacy than a single-family home, due to their shared wall. 

If you’re investing on a budget, townhomes might be the perfect piece of real estate for you.

Great Jones – Professional Property Management

Each type of residential property has its benefits and drawbacks. The ideal investment for you will be based on your personal preferences and budget. 

If you’re ready to invest in a lucrative rental property, consider partnering with the property management experts at Great Jones. Once you’ve purchased your investment property, they will take the following tasks off your hands:

  • Marketing your property 
  • Screening tenants with background checks
  • Collecting rent
  • Providing resident support services
  • Maintaining the property
  • Organizing inspections and repairs
  • Handling evictions
  • Providing investment advice

Whether you seek out Great Jones for property management in Indianapolis or property management in Fort Myers, you can sit back, relax, and watch your investment earnings multiply. Whether it’s an SFH or triplex, Great Jones keeps everything running smoothly for you. 

Sources:

The Street. How Much is a Down Payment on a House? Do You Need 20 Percent? https://www.thestreet.com/personal-finance/real-estate/down-payment-on-house-14686280

Bankrate. What is an apartment? https://www.bankrate.com/real-estate/what-is-an-apartment/

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.

Leave a Comment on Types of Residential Property

Single Family vs Multi Family Rental Investments

When entering the real estate market, deciding between a single family rental (SFR) or a multi family rental (MFR) investment is no simple task. Like all things, there are distinct pros and cons of each, and it’s a good idea to consider all of them instead of taking a leap of faith.

The most effective way to look at the advantages and disadvantages in real estate investing is to first identify your goals, budget, and timeframe. Then, you can juxtapose how your personal criteria align with the single family vs multi family rental investment process. 

To ensure you make a confident decision, this pros and cons list will describe each path—that way, you can determine the best fit for you.

What is a SFR?

SFRs are single, standalone units on its own lot—houses, condos, or townhomes that often come with a yard, patio, and garage. They aren’t meant for multiple families or groups of people, and zoning laws typically enforce that, even if you’d like to transform your one-unit property into a multi-unit home.

Pros of Investing in Single Family Rentals

This fact alone could be seen as either a pro or con, although many people see it as a pro. After all, taking care of one unit is easier than taking care of many, no matter what the square footage is. 

Keep reading to see the full list of SFR real estate pros.

1. Less Expensive Upfront

For people who are new to the real estate investment space, picking a type of investment property that costs less money to get started is incredibly important. Multi family buildings are a more expensive business venture, so it’s less of a risk to start with a SFR property.

2. Opportunities for Resale

Single family rental investments are low risk for another reason: easy resale. SFR properties are easier to buy, which means that they’re easier to sell. Besides their lower price tag, you can sell to other real estate investors or to families looking to buy a home, making the buyer pool much larger than duplexes, triplexes, and other multi-unit buildings.

3. High (and Growing) Demand

According to data from Urban Institute, following the 2008 housing crisis, the single family home rental market became increasingly popular. In 2010, it surpassed single family homeownership and became the fastest-growing sector of the US housing market. It’s still the fastest-growing sector today and is predicted to continue its high demand for the foreseeable future—here’s why:

  • Credit card debt is at an all-time high
  • Outstanding student loan debt has reached record levels
  • The job market needs to recover from the global pandemic
  • Cost of living is increasing in most major cities

People still want their own space and to have a true home experience, rather than live in a multi family complex. But they can’t afford to buy a home themselves, leaving SFR as the best option.

4. Less Dependence on Local Economy

Local economies fluctuate regularly, so putting tons of money into a multi family rental property could be financially devastating if the local housing market takes a steep dive. Since SFR homes cost less, have a larger buyer pool, and depend on fewer tenants for rent payments, your revenue stream will take a much smaller hit, and if need be, it can be sold to someone else.

5. Low Tenant Turnover Rates

Every time a tenant moves out of a rented property, you and your property manager have a lot of work to do. This involves coordinating cleaning and repairs, stage the place to look more attractive to potential renters, list the property, screen applicants, and go through the entire move-in process.

All of those services can add up, especially if you’re doing it yourself and don’t know the most cost-effective way to tackle the tenant turnover operations. In addition, you also have to factor in the loss of income from rent payments while the unit is vacant. 

The single family rental turnover rate is roughly half that of apartment dwellers—most tenants stay for an average of three years, according to Market Watch. These are some of the reasons why:

  • Many SFR tenants have kids, and moving houses could put them in a different school district, forcing them to go somewhere else, which parents are often reluctant to do.
  • With homeownership less affordable than ever, people are renting properties and treating it like their own home, and become established in the area.
  • A positive landlord experience is less common than you would think. When people find a rental situation they enjoy, they don’t want to risk leaving, having a negative experience, and needing to move again.

What is an MFR?

As the name suggests, multi family rental (MFR) properties are buildings with more than one rentable space, designed to house multiple families or groups. All units are either contained in one building, or several structures within one complex. 

Multi family rentals, such as a duplex, triplex, or apartment complex, don’t come with an individual yard and garage per unit, but do often come with a patio or balcony, as well as shared amenities. This could be anything from laundry facilities to fitness centers, a pool and hot tub, parking garage, or communal workspaces. 

Pros of Investing in a Multi Family Rental

With SFRs making a strong case, what are the advantages of the MFR route?

1. MFR Scales Faster

If you want to grow your real estate investment portfolio as quickly as possible, you could either buy multiple single family homes or one multi family rental home. For the sake of quick expansion, multi family properties are a great way to own many units—purchasing 30 units of SFRs in an afternoon is nearly impossible, but you could easily complete that task with just one MFR.

2. Reduced Cost Per Unit

The idea of economies of scale can be explained by using the same 30 unit example. If you renovate or repair the shared outdoor amenities at your 30-unit multi family rental building, you’ve effectively updated the outdoor space of 30 properties. Outdoor renovations on all 30 units of your single family homes will cost more and take longer. 

Essentially, for many repairs, your cost per unit is lower when all units are under one roof. Here are the other ways this scaled economy works to the advantage of MFRs:

  • You need only one insurance policy, rather than 30, per the example
  • All showings, inspections, repairs take place at one location
  • You only have to hire one property manager, rather than 30—unless you work with a property management company that serves multiple locations 

3. High Cash Flow Can Mean Flexible Financing

Without owning multiple SFRs, an MFR will usually result in a higher amount of rental income. With more units, vacancy is also less of an issue. If one unit of your 30-unit investment property isn’t currently being rented, your property is 3% vacant, but if one unit of a SFR isn’t being rented, your property is 100% vacant.

It’s important to remember that greater cash flow doesn’t mean greater return on investment (ROI). ROI is defined as gains on investment minus cost of investment, divided by cost of investment, according to Investopedia.

Here’s how to calculate your potential ROI:

First, calculate your profit by taking your total return on investment (rent income), and subtracting the original cost of the investment (purchasing price), and then divide that number by the original cost (again, purchasing price).

This seems like a con, and in some ways it is, but it does open up the possibility to more flexible financing options. While SFR’s value fluctuates with the real estate market, MFR’s value is based on the income it generates, so higher cash flow means a lower risk of foreclosure, which appeals to lenders. You can also calculate single family rental cap rates or multi family rental cap rates to measure the profitability of your investment. 

Single Family Rentals vs Multi Family Rentals: Cons

It might be apparent that the SFR pros are the MFR cons, and vice versa—they’re directly related to one another. A brief overview from the cons perspective can still be helpful for the sake of clarity.

SFR: Cons

  • SFR scales slower if portfolio-building is your goal
  • With many SFRs, cost-per-unit for maintenance is more than units in the same building
  • SFR’s value is linked to the real estate market, which can be unpredictable

MFR: Cons

  • MFRs are much more expensive upfront
  • The MFR buyer pool is much smaller, making it harder to resell
  • More tenants mean more occupations to account for—if local businesses close, there’s a higher percentage you have a tenant who is affected
  • MFRs have double the tenant turnover rate of SFRs 

Navigating the Market with Great Jones

For most people, the single family rental investment risk is much lower than that of a multi family rental. Most investors in the single family home rental market only have one or two properties, but the issue of running those properties and juggling management companies is still a major concern. That’s where Great Jones can help.

With professionals in many states with up-and-coming real estate markets, Great Jones can handle all the difficult parts of running your rental property—or properties. Whether you are looking for property management in Memphis or property management in Gainesville, FL, here’s how Great Jones can assist you:

  • Photograph and list your unit
  • Thoroughly screen all applicants
  • Take care of maintenance and repairs
  • Offer 24/7 emergency support for tenants
  • Collect and deliver rent to you quickly and free of fees

Beyond regular property management duties, if you decide you want to expand your portfolio later on, Great Jones will be there to guide you. 

Sources: 

Urban Institute. Five things that might surprise you about the fastest-growing segment of the housing market. https://www.urban.org/urban-wire/five-things-might-surprise-you-about-fastest-growing-segment-housing-market

MarketWatch. The new housing play: helping priced-out renters become long-distance landlords. https://www.marketwatch.com/story/the-new-housing-play-helping-priced-out-renters-become-long-distance-landlords-2018-07-30

Investopedia. How to Calculate ROI on a Rental Property. https://www.investopedia.com/articles/investing/062215/how-calculate-roi-rental-property.asp

What is SFR Real Estate?

Breaking into the real estate market can be challenging for an investor. You have to go into the purchasing process knowing what kind of real estate you’re interested in, and what specific type of rental property will give you the biggest returns. On top of that, there’s the property management and tenant relationships to consider. 

One type of residential property that should be on your radar, if it isn’t already, is single family rentals, or SFRs.

SFR real estate is a booming market that has stood the test of time, making it a great entry-level business decision for property investors. As a property management company that handles Raleigh property management to Austin property management for single family rentals, we know all the benefits of this type of real estate. Keep reading to learn more about the SFR real estate meaning for investors—what it is, why it’s profitable, and how to get involved.

SFR Real Estate Questions, Answered

First, let’s break down all the moving parts, so you’ll have a clear answer to the overarching question: What is SFR real estate?

What is a SFR Property?

Single family rentals are a one-unit, detached residence, as in a standalone property on its own lot. SFR properties can be houses, condos, or townhomes, and oftentimes come with a yard, patio, and garage.

The SFR property type has no units, meaning it isn’t zoned as a duplex, triplex, or other multi-family setups. It’s meant to be a living space for one family or group of people—it isn’t meant for, and typically isn’t allowed to be a space to house multiple families or commercial business ventures.

What Does the SFR Market Typically Look Like?

SFR real estate took over as the fastest-growing segment of the housing market in 2010, surpassing single family homeownership for the first time, according to data analysis site Urban Institute. They also noted that due to the investment potential, the SFR market players are also different in the following ways:

  • The majority of SFR units are owned by sole investors rather than giant institutional investors
  • Institutional investors only make up 2% of the market
  • Roughly half of today’s market is made up of investors who own only one unit

In comparison to all other commercial and residential real estate segments, SFR investments are typically the most affordable, stable, and profitable. SFR real estate is a strong market due to its necessity, and that demand has only increased in recent months—both in terms of property investors and renters. 

How is the SFR Market Doing Right Now?

SFR real estate is expected to be one of the few asset classes to experience a growth in demand following the coronavirus pandemic. Investment advisor Jeff Cline divulged that in April alone, he saw a number of stunning trends in the SFR market. Here are some of the most notable figures for April 2020, as reported by the real estate news site Globe St:

  • Buyer and seller activity increased by a whopping 650%
  • SFR homes outperformed multi-family rental homes (MFR) on early rent collections
  • SFR rent collections totaled at about 5% uncollected, while MFR rent was an estimated 24% uncollected
  • Record high credit card debt, student loans, and unemployment rates, alongside the job market and stock market hitting record lows, means more people will be renting

Beyond the scope of April, these upward projections of the SFR real estate market ring true for the entire year—and there are specific trends to be looking out for.

What are the SFR Trends for 2020?

Staying on top of trends as a real estate investor is important, but analyzing them before entering today’s market is critical. Knowing where to look for opportunities is a huge part of figuring out where to get started. Here are some elements to look for when choosing a city for a SFR property:

  • Employment opportunities
  • Good quality of life
  • Surrounding activities
  • Population growth rates
  • Rapid development of city infrastructure
  • Expansion of airports
  • Colleges and universities nearby
  • Technology industry growth
  • Suburbs with easy access to city life
  • Revamping of downtown area
  • Access to nature and outdoor sports
  • Bustling nightlife and regular events
  • Travel destinations

Not all of these boxes must be checked to be considered a good real estate investment. For example, a city with increasing employment opportunities and a revamping downtown area doesn’t have to be a travel destination to be a quality investment. To predict the profitability of a SFR investment, be sure to measure single family rental cap rates. 

Trending Cities for SFR

Here are some examples of cities that fall in line with this list, as reported by PricewaterhouseCooper’s Emergency Trends in Real Estate research:

  1. Austin, Texas – Austin is number one in terms of SFR investment and overall real estate, proving itself a highly desirable place to live. With colleges and universities, suburbs not far outside of downtown, access to nature, artistic style, and thriving business and tech scene, its unique mix of features amounts to a high quality of life for many different people.
  1. Raleigh-Durham, North Carolina – With colleges, universities, and some 90,000 tech jobs, there’s a constant stream of renters in this city. In terms of current properties, suburban office spaces and multi-family homes are seeing the largest investment right now. But as an up-and-coming city, Raleigh-Durham topped the charts for homebuilding prospects, which is a huge element of the SFR market (more on this below).
  1. Nashville, Tennessee – This city slipped from first to fourth place in terms of homebuilding, but continues to climb in terms of real estate prospects due to its continued investment and development. Known for its music scene and local culture, Nashville’s high population growth and low cost of living make it a leading 18-hour city.
  1. Charlotte, North Carolina – Moving up in the charts in every sense, including homebuilding prospects, where it now places second, this city has proven to be a massive attraction for technology, manufacturing, and start-up companies, diversifying beyond its banking reputation. Plus, with a leading research university just a 20-minute drive from a developing downtown scene, more students are looking for off-campus housing.
  1. Boston, Massachusetts – Boston seems like a comparatively small metro market due to its population size, but its top-tier economic performance has resulted in a flouring real estate market. While downtown is more business and multi-family oriented, the city’s successful job market, family-friendly suburbs, and proximity to some of the country’s top universities make Boston a growing SFR hotspot.

Trending State: Florida

If the cost of investment is your priority, you should consider one state in particular: Florida. 

With average home prices below the national average, low cost of property tax and insurance, and no state income tax, Florida homes are an easier real estate investment. Plus, with amusement parks, beaches, and universities, there will never be a shortage of tenants—the Sunshine State is the known retirement capital of America, after all. 

If you invest in Florida real estate, here are the three best cities for SFRs, according to the Real Wealth Network:

  1. Orlando, Florida
  2. Tampa, Florida
  3. Jacksonville, Florida

Build-to-Rent Market

The build-to-rent market, also called build-for-rent, is a huge player in the SFR real estate market today. According to Cline, build-to-rent properties can have even higher margins than other SFR properties, and subdivision sell-out is 75% faster.

Building a home with the sole purpose of renting it out is a relatively new idea. What was once a niche market is now seen by investors as an additional long-term revenue stream that appeals to renters.

What Are the Benefits of SFR Real Estate?

From an investing point of view, there are several reasons why SFR real estate has become the fast-growing sector and primary strategy within the housing market. Here are some of the major benefits:

  • Appreciation potential – Traditional homes have some of the strongest appreciation, so you can expect the value of your purchase to increase over time.
  • Positive cash flow – Tenants’ rental payments typically exceed your usual rental expenses, so you can put the remaining money toward mortgages, property management, or in the bank.
  • Higher rent than MFR units – When comparing SFR property to apartments and smaller multi-unit property, SFR rent is usually higher—people pay to have more space, a garage, yard, and to not worry about the behavior of the tenants next door, below, or above.
  • Lower entry price – Not having to spend as much money upfront is a less stressful decision, and it makes bills easier to pay off sooner.
  • Easy ways to boost returns – Being able to customize each investment property is a huge advantage of SFR properties, and without tons of small apartments, your property manager will easily be able to handle the job. From the exterior paint, to appliances, to interior decor, you can keep your rental property up-to-date at a lower cost.
  • Tenant consistency – Long-term SFR homes are known not to have the quick turnover rates that multi-units have. SFR tenants that stay for longer periods of time means less incurred costs and guaranteed rental payments.

Getting Started with a SFR Property

If you’re looking to invest in an existing property, you’ll be surprised by how easy it is—you can quickly find SFR properties for sale online. The hard part is what comes next: setting your rental rates, finding tenants to rent, and learning all the skills of managing a new investment property for the first time. 

Thankfully, Great Jones can take care of all that.

The property management experts at Great Jones offer a number of services that make the SFR renting process simpler, including the following:

  • Taking professional photos of your property
  • Listing your property across multiple sites
  • Finding and screening all applicants
  • Handling upkeep and repairs
  • Providing 24/7 support for SFR tenants
  • Collecting and delivering rent with no hidden fees
  • Helping you find new ways to increase revenue

Located in many of the best cities for SFR real estate, Great Jones will ensure you have reliable, long-term occupancy—and they have a 0% eviction rate to prove it. Whether you need property management in Fort Myers or property management in St. Louis, contact Great Jones today to learn more about how they can help kickstart your residential real estate goals.

Sources: 

Urban Institute. Five things that might surprise you about the fastest-growing segment of the housing market. https://www.urban.org/urban-wire/five-things-might-surprise-you-about-fastest-growing-segment-housing-market

Globe St. Demand Jumps in Single-Family Rental Market. https://www.globest.com/2020/04/29/demand-jumps-in-single-family-rental-market/?slreturn=20200517130918

PricewaterhouseCooper. Top Five markets to watch in 2020. https://www.pwc.com/us/en/industries/asset-wealth-management/real-estate/emerging-trends-in-real-estate.html

Real Wealth Network. Best Places to Buy Rental Property in 2020. https://www.realwealthnetwork.com/learn/best-places-to-buy-rental-property/

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.

Leave a Comment on What is SFR Real Estate?

What Does a Property Manager Do?

If you’re new to the real estate investment, you may be reluctant to spend any extra money on property management. Between property taxes, insurance, and mortgage, But once you start getting the 2 a.m. Saturday night emergency calls, it will start to sound like money well spent. 

So what does a property manager do for you on any given day? The short answer is: everything. And the best property management companies can actually save you money in the long run. At Great Jones, we provide best-in-class property management services to real estate investors across the U.S. Offering property management in Fort Myers to property management in Indianapolis, we have teams on the ground dedicated to making your life as an investor easy.

So how does property management work? Learn what property managers and property management companies do below!

1. Arrange Informed Renovations

A property management company can guide your choices as you improve new assets and make them ready to live in. From connecting you to the best contractors to creating a budget that will maximize your income, an experienced property manager will have the expertise to help you improve the value of your assets without overextending yourself on the budget. An expert will fully understand the responsibilities of how to manage multiple rental properties at once.

When you purchase a new home, you’re depending on the rental income to pay your mortgage, insurance, and property taxes, and still leave you with a profit. Unfortunately, the local market determines the amount you can charge for rent each month. If you spend too much on your renovations, you’ll increase the appraisal value, as well as the amount of property tax you pay each year, without collecting enough rent to make it worth your while. 

2. Conduct Property Maintenance

Of course, your rental property will continue to need work even once tenants are placed. Without regular maintenance, little issues, like missing shingles or cracked masonry, can become much bigger problems. There are many benefits of using a property manager and an excellent property manager will stay on top of these repairs for you, and keep you in the loop so you know exactly where your money is going. 

When it comes time to fix big-ticket items, like busted water heaters or aging air conditioners, your property management firm can contact service companies, schedule repairs, and send you estimates via text so you can approve the expenses. And because they have established a relationship with these vendors, they can get you wholesale rates on parts and discounted labor. 

3. Handle Emergency Calls

When you’re the property owner, you’re responsible for responding promptly to all kinds of issues your tenant may face, whether it’s a leaky faucet or faulty outlet. And if you want to know how to be a good landlord, responding promptly is key. Sometimes, though, things require immediate action, no matter when it happens. 

Luckily your property manager can be on call 24/7 to handle emergencies, no matter what the scope. If your tenant has a burst pipe, they will get it taken care of without having to wake you up in the middle of the night. 

Property management teams have the staff to handle the move-out inspection, cleaning, and repairs efficiently. This will significantly reduce the cost of tenant turnover, as well as remove a ton of stress from your plate. 

4. Serve as the Face of Your Business 

A property management firm will handle all day to day communication with your renters. This includes everything from applications, rent collection, tenant complaints, and any other questions that come up. For larger apartment complexes, they can provide onsite managers to keep things running smoothly and ensure your vacancy rate stays low. 

They’ll also handle showings, move-in, and move-out inspections, and return the security deposit to your tenant within the legal time frame. They even have the power to sign a lease for you, so you are only as involved as you want to be for your investment property.

5. Find High-Quality Tenants

Your property management team will market your property to quickly and efficiently fill vacancies on your properties. That includes everything from taking photographs, writing compelling listings, and using every available app and website to put your property in the sights of potential renters. 

Through careful tenant screening, a property management company can maximize your rental income. They will follow through with personal recommendations, contact old landlords, and verify employment and income to minimize tenant turnover and prevent a costly eviction proceeding. 

A property manager will put in the work to find the best potential tenant for your property. It’s in their best interest to keep your monthly rent flowing—after all, their paycheck depends on it. And it’s worth every cent to you. A bad tenant can cost you thousands of dollars in damage to your home, delinquent rent, or the cost of legal proceedings. 

6. Keep Your Documents Organized

Keeping track of your paperwork is crucial to your business. This includes everything from invoices, rent payment recipes, lease agreements, and move-in inspections from your tenants. This can keep costly rent disputes at bay. 

Beyond keeping your files organized, your property manager can provide you instant access to all your financial information with property management technology or software. Plus, they can send you quarterly 1099 documents to help you make your tax payments throughout the year. 

Not only does this make your accounting simpler, but it can also provide key insights into your business and inform your financial decisions. Knowing exactly how much money each property is generating and how much equity you have at your disposal is key to deciding when to buy more properties. 

7. Expand Your Reach

A property management company allows you to own and purchase homes to rent out in the best cities for real estate. They can connect you with an experienced local real estate agent and research neighborhood demographics to find incredible deals on properties where the potential tenant renters want to live. In fact, quite a few property management companies have a real estate agent on staff, and many of them operate in burgeoning markets across the country. 

Even during a recession, real estate is a great investment that can appreciate in value while hedging your assets against inflation. As soon as you fill new rental properties with tenants, your investment starts to pay for itself. With enough research and a little luck,  your property can increase in value dramatically in a few years. A property management firm can give you valuable insights into some of the best markets in the nation, regardless of where you live. 

8. Grow Your Investment

Now that you’ve got someone to handle the day-to-day operations on your rental properties, you’ll have more time to focus on growth. When you work with a property management business, they can help with market research so you can analyze the cost of purchasing a new rental unit against the projected rent price you can charge.

They will know the neighborhoods that are trending upward so you can rest assured your new property will increase in value over time. They can also advise you on which properties would benefit from major renovations and help you sell off assets if you want to transition out of a specific neighborhood.  

9. Keep You Protected

A property manager has the knowledge and experience to make sure you follow the letter of the law. Local regulations on tenant and landlord rights vary wildly from state to state and even from one city to the next. Lawyers are incredibly expensive, and even one lawsuit can wipe out your entire annual profit in legal fees alone. From ADA compliance to building code, a property manager can help you do your due diligence and keep you out of court.

Who Needs a Property Management Company?

Property management is beneficial for any rental property owner who wants to maximize revenue on their investment property. Even if you only own one property, they can provide you invaluable advice on growing your portfolio with your real estate equity.  

If you own property in another city or state, a property management company can keep an eye on your rental unit and ensure you remain compliant with local fair housing laws and other regulations that differ from city to city and state to state. They’ll also have trustworthy contacts for quality service and repair work at a reasonable price. 

Having income from a full-time job is a huge asset when you’re growing your investment portfolio. Unfortunately, if you own multiple rent houses, your nights and weekends start to disappear. A property management company can free up your time to let you relax and enjoy the benefits of all the work you’ve put into your investment. 

Great Jones is Here to Help

Our property management team has helped real estate investors buy, manage, and sell thousands of properties in some of the most lucrative markets across the US. Whether you need property management in Gainesville, FL or property management in Charlotte, NC, we have teams ready to help all over the U.S. We are dedicated to placing high-quality tenants for every one of your properties, and we will handle every aspect of tenant placement, from marketing to move-out day.

The average landlord pays as much as 23% of their rental income in property management fees. We use transparent pricing, with no hidden fees, and we never upcharge for parts and labor. That means you can expect to pay as little as half of what other landlords pay for their property management service. 

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.

Leave a Comment on What Does a Property Manager Do?

How to Manage Multiple Rental Properties

Your charge into real estate may start with the simple decision not to sell your starter home when you move. But with patience and steady cash flow, you can build your equity and borrow against it for a downpayment on multiple investment properties.  As you expand your investment portfolio, there may come a time when it makes sense to hire a property management company.

So once you’re there, how do you find the time to keep up with them all? In order to maximize your revenue, you’ll need to keep multiple rental properties occupied, collect rent, and stay on top of property maintenance and repairs. If you can’t efficiently manage your time, it won’t take long before you’re in over your head. 

Meanwhile, every moment you spend dealing with them either comes from your free time or keeps you from researching potential properties to add to your portfolio. So unless you’re ready to hire a property manager, here are some tips to keep in mind:

Keep your files organized

For every rental property, there’s a slew of paperwork to keep track of. Lease agreements, inspection checklists, invoices, and applications—all of which you may need to reference at any given moment. 

There’s no one size fits all approach here—some landlords may use file cabinets organized either by property or by tenants, others may prefer a digital approach. Find a system that works for you and don’t let things get out of hand. It can lead to some seriously costly consequences down the road. 

Screen your tenants

Do your due diligence with every prospective tenant. Verify their employment, follow up on their personal references, and check their rental history. It may take more time, but a few extra days in lost rental income is worth it to find an ideal tenant who will pay rent on time, stick around for a while, and help you keep the property in good shape. 

The major red flags you need to check for are income, credit score, criminal record, and frequent moving in their history. You should also be wary of a potential tenant that’s in a hurry to move in. If you’re not thorough, you can wind up with a bad tenant with a history of delinquent rent or that might cause damage to the property.

Use a written lease  

Maybe you prefer to do business through handshake agreements, but renting out an investment property on a handshake is a bad idea. The lease agreement defines everything from rent collection procedures, late fees, ground rules, and what’s expected of the tenant. Without clarifying those terms, there’s no guaranteeing either of you will remember the terms of your arrangement. 

The property owner’s responsibilities should be laid out just as clearly as the tenant’s responsibilities. Make sure you take the time to go over the lease agreement with them so they understand their rights and respect the rules you have in place for your property. 

With every lease agreement you have, you need to include an inspection sheet for the new renter to fill out. This will give them the chance to request any repairs and review the state of the place, for your benefit as well as theirs. Keep track of this checklist to reference when it’s time to do the move-out inspection. That way there won’t be any surprises when it’s time to return the security deposit. 

Stay consistent from one property to the next

Some aspects of a property may require additional language in a lease agreement, but it’s best to stay as consistent as possible for each of your investment properties. Rent should be due on the same day for everyone, and there should be consistent rules for late fees, visitors, pets, maintenance requests, and smoking.

The same should hold true for your tenants. It doesn’t matter how close you feel to a particular tenant–offering them special treatment leaves you vulnerable to discrimination lawsuits and can make it extremely difficult to begin legal proceedings against a tenant if the relationship ever turns sour. 

Schedule routine visits

Vigilance is key for successful landlords if you want to fix problems as soon as they crop up. Ideally, you should inspect your properties once every three months, and work these inspections into the rental agreement so your tenant isn’t surprised when you call to schedule your visit. 

These visits also give you a chance to build a good rapport with your renters. Additionally, they’ll help you keep an eye out for people living in your property without permission. Still, even if it’s on the lease agreement, you need to give your tenants proper notice and work with their schedule to find a time that isn’t inconvenient for them.   

On top of the regular inspections, it’s a good idea to drive by your property whenever you’re in the neighborhood. You can make note of extra cars that are always around or check for any evidence of an unauthorized pet. It can also save you a ticket from the city’s code enforcement if you spot something in the front lawn that doesn’t belong. 

Respect your tenants

On that note, It’s crucial that you treat every tenant with decency. Respond to their concerns in a timely manner, be patient, and never drop in without notice. Remember, it may be your property—but it’s also the tenant’s home. They have a right to privacy, and not only is violating that right rude, but it’s also against the law. 

Beyond that, you need to take the utmost care to respect people regardless of gender, race, religion, and sexual orientation, and be very mindful about how you speak to your tenants. If you remain professional at all times with the people in your rental units, you’ll greatly reduce your chances of facing a lawsuit. 

Budget for disaster 

Sooner or later, you’ll run into some unforeseeable expenses. You may purchase a house that needs a lot more work than expected, or one of your current properties may be severely damaged, whether it’s from a natural disaster or a negligent tenant. If you overextend yourself, you won’t have any room in your budget to deal with these expenses, and you may have to liquidate some of your assets to get back on track. 

Rental property insurance is crucial for protecting your real estate investment. They can cover everything from fire or flood damage,  lost rental income, and rehoming expenses for your tenants. The more properties you have, the higher the risk you face from a lawsuit if one of your tenants suffers a serious injury. An umbrella insurance policy can protect you if you’re liable for a tenant’s injuries.

It’s also a good idea to shop around for local vendors you can count on. Air conditioners and heaters need service regularly, and sooner or later you’ll have to replace a roof on every property. If you establish good relationships with local businesses, you’ll get quality service and save a lot of money in the long run. 

Quit your day job 

Okay, this may not be an option for everyone. But at a certain point, your investment properties will require so much of your attention you won’t have time for a 9-5. With smart purchasing and low vacancy rates, you’ll have a steady, predictable cash flow each month. It should be fairly clear cut when you can afford to walk away from work. 

There are ways to help speed this process along. Every time you consider purchasing a new property, you should always make sure there’s about 10% in the budget to put towards property management. If you’re going to do all the work, you should compensate yourself fairly, and use the extra income to walk away from your other work. If you can’t afford the operating cost, don’t buy the property. 

That way, if you do start to get overwhelmed with the day to day operations, you can easily afford to outsource your work to a rental property manager. If you love your job, you don’t have to quit when it all becomes too much for you because of the many benefits of using a property manager.

Hire a Property Management Company

Maybe you love being a landlord. But if your goal is to generate passive income and work towards financial independence so you can retire, is all this running around really worth it to you? So, what does a property management company do, and can certain management services help grow your business overall? A property manager has the expertise and resources to keep things running smoothly so you can enjoy a little rest and relaxation on the weekends. 

At Great Jones, we are committed to placing quality tenants for every property we manage using data-driven analytics. And that’s just the beginning—we’ll be on point for all your tenants’ needs through every step of the way, so you can focus on growing your investment portfolio. From routine maintenance to big-ticket repairs, we’ll keep you in the loop, get your permission to go ahead when we need it, and otherwise stay out of your hair. With teams on the ground for property management in Gainesville, FL to property management in St. Louis, our company is well versed in assisting with day-to-day operations for a number of properties.

Want to increase revenue and expand your investment? We’ve got you. Our team has bought, renovated, managed, and sold thousands of properties in each area we operate in. We’re more than happy to help you research the market and vet any investments you want to make.

Learn more about all the ways Great Jones can make your passive income truly passive.

Suggested: Hiring a Property Manager Property Maintenance Rental Income