Passive Real Estate Investing: What It Is & How It Generates Income

Residential rental property investing is on the upward trend, driving people to purchase property to rent out and collect rent from their tenants, while others are buying and renovating homes to resell at a higher-than-purchased value. For many real estate investors, one of the main attractions to real estate investment is what’s known as passive income – i.e. money that you make without having to work. While there is no completely full-cycle source of passive income as even real estate investment takes some initial research and time put in, the long term resource and time allocation can be much less than a lot of other forms of investment.

If you yourself are interested in the concept of passive income through real estate investment, we came up with a list of how you can invest in real estate and the benefits and risks of passive income through them.

Investing Through the Stock Market

The easiest way to begin real estate investing is to buy shares in a publicly-traded Real Estate Investment Trust (REIT). The concept is similar to mutual funds, and it will pay dividends based on the earnings. By buying shares in a REIT, you are not directly investing in real estate. You are investing in a corporation that makes money from a variety of commercial real estate properties, as well as apartment buildings. They are also reasonably easy to sell out of, so in some ways, they offer more liquidity than the other options. 

While you can profit by selling higher than the price at which you bought, the only source of passive income is the dividends these investments pay. You aren’t able to collect rent or control the value of the investment properties the company buys.

This investment strategy can add diversity to your portfolio, but publicly-traded REITs are more affected by the stock market than the real estate market. One of the main reasons buying real estate is a good investment is that it has a low correlation to the stock market. Across the board, real estate tends to gain value in line with inflation, and if you buy in the right area, it can appreciate in value even faster than the rate of inflation.

Private REITS & Crowdfunding

A private REIT is a private group that owns and operates money-generating properties. Private REITs have the advantage of being immune to market trends, but they historically earn less in dividends than their stock market counterparts. They also have an entry barrier: only institutional or accredited investors can buy into REITs. In recent years, dividends have been declining as they buy up investments at record low caps. Still, they are considered a stable investment and relatively low maintenance. 

With a REIT, you don’t ever have to worry about the day-to-day operations of property you’re investing in. However, there are many fees associated with them. A publicly traded REIT doesn’t charge any commissions, while private ones can cost as much as 12%. Since they are private, there is virtually no transparency or oversight, which means you risk buying into a scam. Sometimes, even the legitimate ones don’t make it easy to get investment redemption when you’re ready to back out. So while this qualifies as a source of passive income, the only cash flow that’s readily available from them is through dividends.

A Crowdfunding platform is like a hybrid between a REIT and direct purchase. The JOBS act was signed into law in 2016, which allowed anyone to buy into a crowdfunding platform. It takes a lot less money to become an investor (as little as $500 sometimes), and it isn’t limited to accredited investors. While the field has proven lucrative for many people – who sometimes see gains of 10% or more – it is a new frontier with unforeseen risks. 

That being said, the investor often has more of a say in these risks than one would with a REIT. By managing your own portfolio, you choose where to buy and how much to invest, and can pay as little as 1% in fees. They also generally have thorough exit plans for investment redemption, so within a couple of months, you can buy out.

Direct Purchase

There are ways to directly own property without having to be active in the day-to-day management. You can act as a silent partner with an active real estate investor who will handle the day to day management. You can benefit from their experience and expertise and make a proportionate share of the profits. If you’re buying into residential real estate, you can start seeing rental income as soon as there are tenants. Additionally, with a well-informed purchase into thriving areas with lots of growth potential, the property value and rent amount collected will usually appreciate over time.

You could also take charge and become the sole owner. This will generally require a larger down payment than any of the other options. However, by becoming the direct owner of your investment properties, you will have much more control over what and where you buy, as well as when to sell if desired. On a side note, the opportunity to renovate at your convenience or desired timing can immediately increase the value of your investments. 

An added long term benefit is that directly owning property lets you leverage your assets to acquire new ones. With tenants, the debt you took out begins paying for itself steadily, and every month you have more and more equity in your property. By taking out loans with your equity as collateral, you are able to buy more property. Even if you stick to safe bets over areas with quick appreciation, you’re building your net worth from that first down payment. 

Over time, your investments will become passive in two ways—by appreciating in value (i.e. building equity that you can leverage) and by earning rent. This will require work and smart investing upfront, but eventually, this income alone can become a livable source of income.

Making Your Investment Truly Passive

As every new real estate owner eventually learns, being a landlord can feel like a full-time job. That means your work as an investor or your own responsibilities might be put on hold every time a tenant needs something.

If it’s your desire to just be an investor and collect monthly consistent rent, there are other options for management. The right property management company can take care of the day-to-day management which includes finding & placing high-quality tenants, collecting rent, handling maintenance, and dealing with evictions if needed. This means you can get the benefits of passive income without sacrificing control for a small monthly management fee.

The Benefits of Investing in Real Estate

How should you invest your money?

In this digital age, it seems like there is an endless number of ways to invest your money. Since we hear success stories from every type of investment, it may seem like a challenge to figure out the right type of investment for you. You might even think that you don’t know enough to be able to make any type of investment. That being said, keeping your money in a savings account may be safe, but with negligible interest rates, a savings account will never actually make you money. If you want to grow your money, you have to start investing.

This goal of this article is not to say that investing in real estate or residential rental properties is the best type of investment. Investing is personal in the sense that it very much depends on the short-term and long-term goals you have and the resources available to you in both time and money. In the case that you’re considering investing in rental properties, we compiled a list of benefits of real estate investment.

Pro Tip:

While we all want to increase our wealth and assets quickly and often have this lofty view of “get rich fast” investing, most people benefit from long-term investing. “Get rich fast” investing often has much higher risk involved and if your goal is to be able to go into retirement feeling secure about your investment portfolio and assets, long-term investing might be the right track for you.

So why invest in real estate? It’s simple. It has a high potential of providing for you steady, passive income that can lead you closer to financial freedom. There are a lot more benefits to owning rental property than you may think. Let’s take a look at some.

1. Passive Income

This is often the first thing people point to when discussing the value of real estate investing. Passive income allows you to earn money, while not needing to put much time and energy into the investment after getting things up and running. It’s a great way to invest if you don’t want it to affect your day-to-day. As soon as you have a tenant paying rent, someone is paying your debt down for you and anything that doesn’t cover your mortgage or expenses becomes profit for you. As long as you have things running smoothly, all you’re doing is collecting checks on a consistent monthly basis.

That being said, purchasing investment rental properties requires a little bit of foresight. You want to make sure that you choose the right location and units that will yield you high-quality tenants and constant demand from those looking to rent.

2. Hedge Against Inflation

History is on your side here. While there may be the fear that a recession can lead to a decreased value of your property, the real estate market has always managed to bounce back, giving you the security of staying on track to increase your initial investment. Additionally, given that your goal is renting out instead of flipping or selling home, finding an ideal location in terms of population and workforce growth will help ensure that your rental properties stay occupied even during a recession. 

On the other hand, residential rental properties actually benefit from high inflation, as your property value increases in correlation to inflation, thus increasing your rental income. This creates a hedge against both the short-term and long-term effects of inflation, as a rise in the cost of living in your property’s location will generally translate into an increase in your cash flow.

3. Flexible Equity

Unlike stocks, rental property is a tangible asset that grants you a lot of flexibility with what you want to do with it. You have the ability to let your property mature and increase in value over time or sell the property whenever you want to. Smart investing will mean that you’ll be able to build equity quickly, meaning that you now have the additional resources to purchase new investments and further increase your cash flow. 

No other investment strategy will give you the kind of leverage that real estate investment will. A loan using your stocks as collateral typically maxes out at 50% of their value, but a loan taken out on a rental property can be anywhere from 75-90% of the total cost. With that kind of money at your disposal, it’s a lot simpler to pay the purchase price on more property, and your income can continue to rise as your investment portfolio grows.

4. Increasing Value Through Renovation

While choosing a prime location can lead to your rental property’s value increasing over time, you can also choose to have a direct effect on its overall value by making renovations on your unit. While it does require more money upfront, you’re able to justify a larger rent charge, which will accumulate and lead to an increase in your cash flow at a faster rate.

There’s volatility in a stock market and when the market is down, many people sell to cut their losses and wait until the market picks back up to invest again. Your investment options are very much dependent on the state of the market, but with a rental property unit, you can find ways to increase the value of your property regardless of the state of the housing market. Not only does this increase your monthly rent charge, but the value of your rental property when you’ve determined it’s time to sell.

5. Tax Benefits

There are several ways real estate investors can benefit when tax season comes around. It can get complicated, so you should always consult a tax agent to make sure you qualify for the various tax benefits before you file. But overall, investing in real estate has more tax benefits than a lot of other investment strategies.

Put simply, one of the key benefits is the tax exemptions that you are able to receive from being a rental property owner. Since income from your residential rental property is not subject to self-employment tax, many investors purchase real estate to benefit from this. Additionally, you also have the potential to be eligible for tax breaks depending on your property’s depreciation or cost towards property taxes, maintenance repairs, or insurance.

The Bottom Line

There is an appeal to rental property investment as it grants you consistent passive income while allowing yourself to be your own boss. Although it may require the need to attend to tenant requests regarding maintenance, you also have the option of making the income completely passive by hiring a property management company that will take care of finding tenants, handling maintenance requests, collecting rents, etc.

If you’re okay with accumulating wealth over a longer period of time, residential rental property investment may be right for you. Regardless, research and planning out what this might look like for you personally is crucial to increasing your chances of finding a successful investment.

How to Spot the Best Cities to Buy Real Estate

Choosing an investment rental property is very different from choosing your dream home. While it is easy to mix in your personal preferences and emotions when purchasing residential rental property, learning how to set those aside can very much help you get the most out of your investment. If you are able to choose the right location to invest in, your property’s value will steadily increase, while there will also be plenty of opportunities to sell if it ever comes to that.

What to Know Before You Invest

So what makes a certain city or county ripe for real estate investment? There are a lot of signs that will point to growth in an area’s real estate market, and as an investor, you need to keep them all in mind before you buy. Here are some of the major factors to consider:

Population Growth

The math here is pretty simple: when more people move to a city, they need more homes to live in. And because a large portion of the population prefers to rent, owning a house in one of these areas means you can expect a higher occupancy rate. This is crucial for your investment. With rental income, keeping up with the property taxes as the value increases will be much easier. 

Employment Growth

The projected job creation in an area is equally important to the value of your property over time. High-paying, long-term jobs will keep people in the area and give them money to spend on rent. Areas with diverse employers can help add stability to the local economy, so if one particular industry sees hard times, there will be plenty of other jobs keeping renters afloat.

Vacancy Rate

Even if a local economy is strong, too many empty houses can make things difficult for you. Demand for housing will be an important factor that affects the value of your rentals. If there are plenty of places to choose from average rent will continue to be driven down, causing rental properties to be less lucrative as a source of passive income. However, in a market with a higher demand for residential rentals, you can rent your property out for a good price and still afford to make repairs as needed.

Local Demographics

This one goes down to the neighborhood. Are house prices in the area on an upward or downward trend? How do crime rates compare to other parts of the city? What kind of school district does it provide? What local spots or amenities are in the area? For example, nearby universities might draw a consistent flow of tenants that are students, but may lead to a lower tenant lifetime. On the other hand, trendy neighborhoods with a lot of new businesses may bring in working professionals or families with higher quality tenants. Location is one of the major factors that will keep tenants in your property. Additionally, local real estate legislation and taxes can vary by state or county and it’s important to consider how those policies affect you as an investor.

Opportunity Size

Unfortunately, real estate is one area in which expenses don’t necessarily determine the rent you can charge. The local market will set the rates and renters won’t overpay just because you’ve saddled yourself with an expensive asset. Between insurance, tax, local HOA fees, mortgage, and upkeep, a lot of expenses add up to determine your upfront and overhead costs. Before you buy, you need to know how much you will be able to charge for rent and do the math to see if it’s enough to be worth it. Ask yourself whether you’re looking for a short-term investment or a long-term hold and align your personal investment goals to the type of residential property you purchase in a specific area. 

Some Cities with Great Traits for Real Estate Investment in 2020

Now that we’ve laid some groundwork, let’s look at some of the best current areas to get started in real estate. You’ll see examples of the factors listed above working together to make an exciting opportunity with a lot of potential growth.

Raleigh-Durham, North Carolina

The Raleigh-Durham area has a strong economy with a lot of big employers. Median incomes in the area are on the rise, and unemployment is relatively low. The area is known as the Research Triangle, in part because of the three big universities in the area, but also because of all of the tech companies. There are also plenty of government and military employers in the area, rounding out the opportunities for good-paying jobs. 

Because there is a diversity of employers in the area, the economy stays relatively stable. This will be a major factor in the event of any nationwide market downturn. Cities with stable employment are less affected by a bad housing market and the presence of different universities presents a big market for available tenants. Plus, a recent Redfin analysis puts the area in the top five places least likely to be affected by a potential recession. Buying in the area is a safe bet even if the home values might not climb as high as some larger cities.

The housing market in Raleigh-Durham has regularly ranked as one of the top five places to invest in the past few years. There are currently more homes for sale in the area than there are buyers. Combine this with the fact that property prices are a little under the expected market values, and you have an enticing opportunity to purchase homes at an under-market value price. Projections show these investments could increase by 25% within three years.

Orlando, Florida

Orlando is currently considered one of the most lucrative cities in the country to own property. Employment growth has shot up, holding the number one spot in the country for most new jobs in the last four years. Additionally, it hasn’t just been jobs from tourism. Science and Technology jobs are being created faster in Orlando than they are in California’s Bay Area.  

Orlando also claims the number one spot for population growth (and it’s not just retirees). These are working people, many of whom will prefer to rent. That being said, it is a little more expensive than some places as a starting-off point for retail investors. The average price of houses sits at over $230,000, but projections show a 35% increase in your investment within three years, so it has a lot more potential to pay off than some of the cheaper areas.

Because the pay scale for most of the new jobs is on the lower end of the range, Orlando is mostly attracting young professionals at the beginnings of their careers. Finding a property that you can rent out for below the average rent in the area will be key to keeping your property rented. This will maximize your passive income, so you can get the most out of your investment.

San Antonio, Texas

The economy in San Antonio has been growing strong for the past few years, getting a significant boost from technology and cybersecurity companies. Overall, property value has increased by 44% in the last ten years. Last year alone it increased by 7% and is projected to keep rising at a steady rate. 

The city also has a constant stream of visitors, which keeps many of the residents employed through tourism. However, there are many other employers that make it a stable area to buy property in, with jobs in oil and gas, government, finance, and military rounding it out.

San Antonio has one of the fastest-growing populations in the country and a large portion of them being retirees who prefer to rent. Thanks to the low cost of living, nearly half of the population is renters with no desire to commit to homeownership. The median price for homes in San Antonio is little under $230,000, but up-and-coming neighborhoods for longer-term investment often have lower prices. Get familiar with the city to find a good area with below-average home values in an upward trend to make the most of your investment. 

Indianapolis, Indiana

Indianapolis is a big city that’s experiencing a steady population and economic growth, with both new jobs and an increase in average income throughout the city. The unemployment numbers have stayed low for the past few years and are continuing to trend down. Although it might be known for big events like the Indy 500 and NCAA basketball tournaments, the local economy has a healthy diversification. There are plenty of jobs in education, health care, and finance, keeping much of the population employed.

It’s a buyer’s market in Indianapolis, so negotiating can easily turn to your favor. Additionally, the city has one of the highest occupancy rates in the country, with a large pool of prospective tenants. Since so many people in Indianapolis prefer to rent (almost half of the population), homeowners can set rates that keep their profit margins higher without losing out on renters.

As the city continues to grow, so will house prices across the board. Over the last year, home values increased by almost 15%, and in specific neighborhoods, these numbers were higher. Familiarize yourself with the local market to find the most promising communities to buy in and you’ll see a steady check from tenants as well as increasing value on your residential rental property investment.

Utilizing Property Management

You’ve done your research and narrowed down the areas to where you might maximize your rental income, but there’s one problem. It’s too far from where you live and it doesn’t seem like a feasible option to invest somewhere where it’ll be difficult for you to be present. That’s where partnering with a property management company may be of help to you.

Property management encompasses all the day-to-day operations that are needed to maintain residential rental properties. This takes care of anything from communicating with tenants and repair vendors to meet all the requests and needs of your tenants to taking care of lease contracts and rent collection. With a property management company, it truly becomes a source of passive income, as it takes away all of the logistical and service required components of maintaining and managing rental properties yourself.

While you may be concerned that the monthly fee will eat into your profits, the income potential from a top market may outweigh your losses in the long run. You’ll have to decide what your desires are in investing in residential rental properties, how these desires fit your short-term and long-term goals and decide where to purchase your property and how to manage it from there.

The Bottom Line

There is no one perfect place to invest in real estate, as each has its benefits and risks. That being said, you can take careful stock of an area’s growth, vacancy rate, and local demographics to predict market growth potential. If new businesses are coming to an area with lower property prices and rent is trending upward, you may have found yourself a great starting point to your real estate portfolio. But if there are many properties already sitting empty, you might consider finding somewhere else to buy.

Buying Your First Rental Property? Consider These Key Factors Before Closing the Deal

Investing in your first rental property can seem like an exciting but daunting process. While residential rental properties can be a very rewarding investment, there can also be a lot of risks involved. To help you feel confident when investing in rental properties, it’s important to equip yourself with the right knowledge and tools to help you check off the steps to mitigate potential risks.

Some of the factors you will want to consider include:

  • The property’s condition
  • The property’s location
  • Financing needs and options
  • Financial resources & guidelines
  • Another Option For Successful Rental Property Strategy

This guide to investing in a rental property will clue you into some of those key insights. This will help you avoid unnecessary hassles and common missteps, minimize risk, and maximize your returns as you embark on your residential rental investment journey!

Rental Property Condition

Rental property condition has a major effect on property value appreciation, which directly affects the short-term return and long-term potential return from your investments. 

Having a good understanding of the property’s condition before buying is crucial. Here are the key components you need to know before making an investment:

Fixer-uppers aren’t ideal for beginner rental property investors

Finding a building with “good bones” (but in need of some surgery) for a low price tag may seem like a great opportunity, but keep in mind that renovation projects require their own set of skills to manage, as well as both expected and unexpected time and money to see the project through.

Surprises that are not initially visible are common, as layers of old construction are removed, overrunning cost and timeline. Since units under construction can’t be rented out until the work is complete, this results in negative cash flow right out of the gate. 

It is recommended that beginner investors who intend to focus on rental property avoid taking on this level of risk, uncertainty, and complication for their first investment. Instead, focus on properties that are ready to rent or those that come with already existing stable tenants.

Once you have some real estate investment experience under your belt and a network of contractors you trust, you can consider taking on a more complex project that requires some initial renovations. You’ll be more knowledgeable about the features renters are looking for, what kind of time and cost investment that may be required, who your target renter should be, etc.

Befriend your property inspector

Property inspection is a crucial part of the purchase process and if you’re relying on a mortgage to buy, the bank will require this before closing the sale.

Instead of leaving everything up to the property inspector, you should be more involved in assessing and understanding the condition of any rental property you might purchase beyond simply awaiting an okay from a property inspector or skimming through their report. 

After all, if you decide to purchase the property, maintaining and improving the condition of the rental property will fall on your shoulders and your ability to do so will impact the property’s future value and your rental income. Equipping yourself with all the knowledge you can get about your property will help you maximize the condition of the property, which will influence the rent you can charge, as well as the vacancy rate.

A standard building inspection will describe the state of these building features:

  • Foundation
  • Roof
  • Attic
  • Basement
  • Other structural components
  • Insulation (though generally only what is visible)
  • Major systems: heating, cooling, indoor plumbing and electrical 
  • Walls, floors, ceilings, doors & windows

Find out if you can accompany the building inspector as they walk through the property. Tell the inspector how much you appreciate their work and try to establish a friendly line of communication. 

Accompanying the inspector will give you a chance to see potential issues up close, and ask a few questions to ensure you understand the implications. (“Yes, I see the damage you’re referring to there – how much does something like that usually cost to fix? How soon do you think that needs attention? What will happen if I wait to address it?”)

There are lots of other advantages to accompanying the inspector. As a professional who spends lots of time looking at different units and buildings, they will likely notice many aspects of a unit beyond what will make it into their official report – things that may be outside the report’s scope but still very helpful for you to know. Get them chatting during the walk-through and you’re likely to get alerted to other maintenance items needing attention.

At the end of the building inspection, ask the inspector to level with you: What is their personal opinion of this property? The property inspector likely has that bird’s eye view, a useful comparative take on this property from someone with an informed perspective. Accessing that, if possible, can be very helpful in your decision-making process, allowing you to have a comprehensive understanding of your property and its needs.

Gather as many informed opinions as you can

If you are especially concerned about a certain aspect of the building, like the roof or the plumbing, it may be worthwhile to have a specialized contractor assess that element separately. 

Contractors generally have an interest in identifying problems so they can offer their services to do the repairs, so it’s best if you have established relationships with contractors you can trust for this purpose. If not, ask for recommendations from other nearby property owners, property managers, and local hardware stores (they often keep referral lists). 

Word of mouth and reputation are incredibly important in the realm of contractors and home repair professionals. Find out all you can through the grapevine about who’s trustworthy and who to avoid. 

Additionally, if you are able to have a contractor prepare an estimate of repairs they believe are needed before purchasing the rental property, you may be able to use that in the sale negotiation. 

Other Key Property Characteristics

There are some other essential property characteristics to consider before you purchase a first rental property. Here are some insider tips:

Start small

Small, single-family homes are usually recommended for beginners investing in rental properties. The complexity, risk, and workload is generally lower and will allow you to get your feet wet investing in real estate and handling rental property to grow your knowledge, skills, and contacts. Later, you can expand your rental property portfolio with more confidence.

Keep a professional perspective as you shop

Unless you’re considering buying a duplex or other multi-family real estate that you plan to live in yourself for a long time, you should keep your personal preferences out of your decision-making as much as possible. At the end of the day, it is an investment, not your dream home.

This can be challenging with residential real estate. Everyone has strong feelings associated with their experience, ideas, and preferences. For most of us, that emotion can easily get entangled with our assessment of a residential property as a potential investment. 

It’s wise to be aware of these feelings and how they might be influencing your judgment during the shopping process. You want to invest in a property that potential renters will find appealing to call home and that could mean that the property doesn’t appeal to your specific sense of an ideal home. Don’t pass up a great investment property because of your own biases about what kind of home you prefer when that’s not likely to be relevant.

Location Key Factors

Local market knowledge is crucial to making a wise rental property investment. Here are the key factors to consider:

What is your strategy for gathering local insights?

The longtime wisdom in rental property investing is to invest where you know, ideally close to where you live. This makes it more likely you have a built-in sense of market conditions while facilitating maintenance calls (assuming you plan to manage your rental property yourself).

However, it’s becoming easier to invest in rental property farther afield, with online tools and marketplaces that facilitate this. Additionally, it’s likely that your best investment opportunity isn’t in your own backyard. That being said, If you invest far from where you live, you will need to gain local market insights and assistance from others – i.e., a trusted local real estate agent, a great property management company, and other locals with good insight into the residential rental property market.

Consider location at the neighborhood, city, and regional level

You should know the relevant economic and demographic trends for the overall region, municipality, and neighborhood. Is the region adding jobs and population? What about in specific pockets? What big civic infrastructure is planned or being built? What transportation, entertainment, parks, and other amenities are available? What kind of development is underway? 

Get to know the neighborhood through research, networking, and by simply spending time there at different times of the day and different days of the week.

Get the data: vacancy rates, average rents, etc.

Learn as much as you can about market conditions through hard data like average rents in the area, vacancy rates, etc. 

Your Financing Needs & Options

If you don’t plan to buy your first investment property in cash, you’ll need to obtain financing. Here are some key items to consider before you finance your first rental property investment:

Lenders usually require a larger down payment for a property you don’t plan to live in 

Twenty percent is standard and if you have the cash, it’s smart to use it. It will lower your interest rate, monthly payments, and the overall cost of borrowing. 

However, for those who don’t have twenty percent of the purchase price on hand as a down payment on investment property, there are workarounds.

Many beginner rental property investors take advantage of owner-occupied financing

Down payment requirements are generally much lower for the properties you plan to occupy. FHA-backed (U.S. Federal Housing Administration) financing allows for down payments as low as 3.5 percent of the purchase price. 

That includes multifamily properties, where you can live in one unit and plan to rent the others. This is a great way to gain a foothold as a rental property investor without having to save up for a 20 percent down payment.

Whether you opt for single-family or multi-family real estate, one year of occupancy is standard in mortgage terms, so after a year you can convert the property into a rental and keep the original financing.

This is a general guideline, but be sure to check any specific mortgage terms before closing a deal.

Financial Guidelines & Resources to Ensure Success

You will more than likely need more cash on hand than just the down payment to start investing in rental properties and will need to know what to expect in terms of operating expenses and cash flow. Here are some rough guidelines for your success:

The 50% rule

This rule offers a quick-and-dirty guideline for what operating expenses are likely to be on a single-family home. According to the fifty percent rule, operating expenses will be about half the gross rents. That means the other half can go toward a mortgage on the property or profit. 

The 1% rule

This investment rule for rental properties holds that the gross monthly rent should be at least one percent of a property’s price tag. This means that a property will take 100 months to pay for itself. 

If you buy a property in need of some urgent, expensive repairs, it’s a good idea to add the cost of those repairs to the purchase price for purposes of analysis using the one percent rule. Some investors prefer a 2% figure instead of one percent to maximize profit.

The other 1% rule

There is another 1% rule you might hear about in rental property investing. This one asserts that you should set aside one percent of a property’s value each year for maintenance costs. 

Rules don’t give you a full picture!

While these high-level guidelines can be handy for running rough numbers, specifics really matter. Here are some other financial preparations to consider:

You should always have enough cash on hand to cover mortgage payments for at least a few months in case of unexpected vacancies. 

You should put enough rental income aside each month so that you can cover known annual expenses, like property taxes and insurance. 

You should put aside enough rental income each month to save for repairs needed over time due to regular wear and tear. Many components of your home have a defined lifespan – water heaters, appliances, the roof, etc. To get the most accurate savings target, estimate the cost for replacement and expected lifespan of major items and put aside a share of rental income every month to cover replacement costs. 

You should keep an emergency reserve for unexpected damage and repairs. Buildings, especially older ones, are full of unpleasant surprises. Expect occasional major expenses to crop up suddenly – and be prepared to remedy them right away. Vacancies cost you money, so you can’t let damage be a barrier to turning over a rental unit. At the same time repairs can’t wait when it’s not you, but your tenants that will be impacted. Laws protect your tenants’ rights and happier tenants are likely to stay longer, reducing your vacancy rate and the cost and hassle of turning over a unit.

Another Option For Successful Rental Property Strategy

The hope of earning passive income is what makes rental real estate investing so alluring to many people. However, being a landlord can be time-consuming and demands a variety of different skill sets – often making your rental property investment a far cry from “passive” to manage at times.

Consider what it takes to service tenant needs in terms of handiness, schedule flexibility, and hours away from your other obligations and activities. Consider the work involved in marketing and showing a vacant rental unit. Consider what sort of demeanor you’re likely to show a tenant (i.e. your customer) when they call you at 2 AM about a plumbing disaster they may have inadvertently created.

How good are your people skills in that context? Do you have a strong network of contractor contacts to quickly and affordably resolve problems you can’t handle alone? How well do you know landlord-tenant laws and regulations at the municipal, county, state, and federal levels? 

Many beginners in residential rental property investing with one or two rental units try to do this work themselves. This may or may not be possible or pleasant for you depending on your circumstances and availability. That being said, if you plan to grow your real estate portfolio, it’s likely you’ll want to look into a good property management partner to help smooth and streamline day-to-day management. 

A property manager will handle many of the day-to-day chores of operating rental units in exchange for a small cut of your monthly rental income. Terms and quality of service vary widely among property managers, so it’s important to shop carefully for a partner you can trust with fair, affordable pricing. Beware especially of property managers who cash in on maintenance by charging per-visit or marking up costs on parts and labor.

A low-quality property manager will cost you a share of your profits and you’ll end up chasing them to get things done. A great property manager can pay for themselves by finding better-quality residents who stay longer and care for your property better. Remember – happier tenants result in lower turnover and fewer vacancies, with faster unit turnaround when vacancies do occur to reduce the impact on your rental income.

The Bottom Line

Investing in rental properties can be an effective way to increase your income. But getting out of a bad investment decision can be tough and potentially disastrous, so it’s better to understand common pitfalls and risks before you buy your first property. 

The more you know about the property itself, its context in the local market, financing options, the likely operating expenses and cash flow, and what resources you’ll need to succeed in rental property investing, the more prepared you will be when you purchase your first rental property. 

Gathering as much information as you can on the key factors mentioned above will go a long way toward making your rental property investment a success!

The First-Time Buyer’s Guide to Investing in Rental Property

Investing in rental property can be a great way to start accumulating passive income. However, like any investment opportunity, it can come with its own challenges and risks. Making sure that you are well-informed before you make any decisions is the best way to ensure that your properties don’t end up costing you more than making a profit.

The guide below will help you:

  • Determine whether investing in rental property is right for you
  • Understand some important practical differences between owner-occupied property and rental property
  • Choose your first rental property investment in a methodical and deliberate way

Is rental property right for you?

The lure of passive income has motivated many people to invest in rental property. That being said, being a homeowner doesn’t necessarily prepare you for what’s involved in operating a rental unit. Without careful consideration, many real estate investors end up finding out that their rental properties cost them more time and effort than anticipated.

Being successful in the long run as a real estate investor requires efficient allocation of short-term and long-term resources in the form of money, time, and skills. Ask yourself the following questions to help you invest in a rental property that is a good fit for you:

  • What city/state provides the best short-term and long-term income potential regarding both growth and cash flow? 
  • Do I have a financial cushion to help me handle both the initial and time-to-time expenses when repairs or renovation are needed?
  • Am I handy enough to take care of repairs and requests on my own or do I need to hire someone for that? 
  • Do I have time to take care of regular maintenance? 
  • Do I have relationships with contractors that I trust? 
  • Do I understand the legal responsibilities as a landlord? 
  • Does my lifestyle allow me to perform all the necessary tasks? (Marketing your property, screening tenants, responding to maintenance calls, collecting rent, turning over a vacant unit, etc.)

A note on property management:

Investing in rental properties and managing rental properties are two very different things. You may be very well-equipped to find properties in a location that has high growth and cash flow potential. However, you may want to partner with a property management company to execute the management component of your investment in the most efficient way possible and help you get the most out of your investment.

Before you buy rental properties, consider whether you have the skills and time required to manage your property yourself. If not, find a trustworthy and experienced property management company to ensure you have a partner you trust.

Be aware of the different financing and tax implications of rental properties

Investment property is treated differently by lenders, taxing authorities, and insurers than owner-occupied property. Exactly how can vary by location, so it’s important to check state and local laws and investigate the specifics of tax and interest rates that would apply to your investment.

This will help you make accurate financial projections and better understand the likely risks and benefits before you buy. In general, compared to owner-occupied properties, rental properties can often have:

  • Higher property taxes
  • Higher down payment requirements for mortgages
  • Higher interest rates on mortgages
  • Different insurance requirements (landlord insurance rather than homeowner insurance)
  • Greater tax write-off opportunities for expenses (that’s the good news!)

Choose your first rental property carefully

As a first-time buyer of rental property, you should target investments that minimize risk and complexity. This will give you the financial and mental breathing room to build your knowledge and skills as a landlord and investor over time. 

Here are some effective ways to reduce risk and expenses:

  • Thorough property inspections. Don’t just wait for a report – ask if you can accompany the inspector during the actual inspection process. This will allow you to ask questions and get a better understanding of the condition of any property you consider purchasing. 
  • Look for properties with existing tenants and learn their histories. Ask the owner for their rent payment records, the duration of their tenancy, etc.
  • Start with a smaller rental unit. A smaller rental unit can mean fewer surprises and less expensive solutions when problems do arise. 
  • Avoid fixer-uppers. While a lower asking price can be tempting, a building that isn’t ready for tenants is going to cost you while it sits vacant – in repairs and renovations. Renovation projects come with lots of unknowns, cost overruns, and delays. If you’re new to real estate investing, it’s wise to save a major project and riskier bet for when you have more experience and a great support team of contractors already assembled. 
  • Consider investing in an area you already know. Even if a property is just across town, it’s worthwhile making an effort to get to know the neighborhood on a micro-level. Talk to business owners, other landlords, and neighbors. Find out what rents are like, what developments are planned nearby, and what people’s complaints and hopes are. Visit the area at different times of day to get a feel for the activity there. Work with a real estate agent with local knowledge. 
  • Have a plan for effective tenant screening. Whether it’s through a full-service property management company or a tenant placement service, ensuring quality tenants will help you protect your investment in the long term. 
  • Plan to reward good tenants in order to keep them. Great long-term tenants will provide stability to your income and protect the condition of your property. Avoiding vacancies will often pay off more than small rent increases coupled with higher tenant turnover. 
  • Depending on market conditions, offering rent slightly lower than the market rate may be a useful strategy to give you a larger applicant pool to choose from and incentivize tenants to stay. 
  • Don’t forget to ask for contractor accounts, rates, and promotions wherever you buy supplies for your rental property.

The Bottom Line

Investing in rental property can be a great move for your financial future, but it can carry its own challenges and risks. Use this guide to help you weigh whether buying rental property is the right move for you and point you to areas worth researching further. 

The more you learn about local market conditions as well as what to expect once you are a landlord, the better prepared you will be to make your investment a long-term success. There may be a higher initial learning curve, but taking your time will help you become a long-term successful rental property investor.

7 Common Eviction Mistakes (And How Property Owners Can Avoid Them)

Eviction is a worst-case scenario, for both tenants and rental property investors. It’s something that no one really wants to take part in or have to experience. Dealing with a tenant who isn’t paying rent or has caused severe damage through negligence or reckless behavior can be a nightmare. It can be expensive, time-consuming, and mentally or emotionally taxing. 

That being said, if you play your cards right and follow best practices, you can maintain evictions as an anomaly or avoid them all-together. You won’t have to worry about having to have that difficult conversation with your tenant. Here are seven of the most common mistakes relating to eviction – and how to avoid them.

Mistake 1: Rushing to rent out your property

You’ve made a budget and accounted for unforeseen expenses. But your plan only works if you have a rent-paying tenant. The longer your rental property stays empty, the longer it will take you to be able to turn a net profit. But in some cases, you could wind up losing far more money from a bad tenant than you would from an empty home. Damages, criminal activity on the property, and unreliable rent payment are all things you want to avoid.

As a landlord, you are entering into a partnership with your tenants once they hand over the security deposit. If the relationship is a bad fit, the consequences could be costly. Some tenants prefer to move in and won’t call you even if the roof caves in. Others will contact you with every little problem they have. Even if it’s something that falls outside of your legal responsibility, you might feel obliged to provide excellent customer service. After all, a happy tenant is a long term tenant. You don’t want to spend all your time on service calls, but you certainly need to know about problems before they get out of hand. 

All of this is to say: You simply can’t rush tenant placement. A careful screening process and a thorough overview of what maintenance falls under the tenant’s domain and the homeowner’s domain can be the difference between a great relationship and a legal battle in court. For example, you’ll need to define who is responsible for lawn maintenance and any guest policies or parking requirements unique to the property.

Mistake 2: Renting on a handshake

It can be said that the lease agreement is the most important document for a property owner. It should clearly define all the necessary details and contingencies, including rent collection, penalties for late payment, and on-site rules the tenant is expected to abide by. If you don’t want smoke or pets damaging your property, having these guidelines clearly stated will protect you and give you cause to evict should the unfortunate scenario ever arise. Clearly define your requirements so that you know exactly where to point to when you and your tenant have a disagreement. 

When you sign the lease, take some time to review it with your tenants so they know exactly what everything means and what they’re agreeing to. Even if your tenants are leasing month to month, have them sign an agreement that keeps you legally safe. A thorough, detailed lease doesn’t make you the bad guy – it helps protect everyone who signed it.

Mistake 3: Managing things from afar

Self-managing properties can feel like having a full-time job, even if you’re just down the street from all your investments. If you own property in a different city, keeping up with it on a day-to-day basis can end up feeling like a lot to manage. You might consider handing over some responsibilities to your tenants such as having them schedule their own repairs, but plumbers and HVAC repair crews get expensive quickly. Your tenant’s primary concern won’t be to save you money and you have to take them on their word unless you’re there to see things with your own eyes.

Mistake 4: Skipping the property assessment

Things get hectic when move-in and move-out dates are tight. But you still need to walk through and fully assess the condition of the property. Otherwise, it can be impossible to tell what damage was caused by each tenant, while essential maintenance needs get skipped. Not only does this lower the value of your property, but your tenants can use it against you if eviction proceedings are initiated.

Take the time to make an inspection and fix everything you can before a new resident moves in. Have your tenants fill out a checklist of any damages and make the repairs they request as well. Make sure they return it within thirty days to prevent any confusion. If there is major damage to your property, you need evidence of the state it was in when the current occupant moved in. When it’s done right, the walk-through and inspection benefit everyone.

Mistake 5: Relying on verbal communication

Communication with your tenants is essential. While calling to resolve an issue is great to avoid any miscommunication that may occur from email or text, follow up with an email or text message to keep written documentation of your agreement. Similarly, if your tenant violates the lease agreement, send them a written notice with the appropriate section of your contract highlighted. This is a professional way to remind them of the agreement and keep the exchange from getting emotionally charged. If you need to schedule repairs or maintenance, mailing a written notice with the date of scheduled service is prudent. 

Keep a record of all important communication between you and your tenant, and make sure you always provide written notice of failure to pay rent or any lease violations. By keeping your verbal interaction limited to pleasantries, you avoid the risk of veering outside of a professional relationship with your tenants. You don’t want to say anything you might regret – or something they can use against you in court. 

A written record will prove useful if the relationship ever sours and lawyers get involved. But more importantly, written communication can help prevent the relationship from deteriorating to that point. Again, the goal is to make life easy and stress-free for both you and the resident and to protect your relationship.

Mistake 6: Accepting partial rent payment

When a tenant is facing hard times financially, especially a renter you’ve had a long-running relationship with, it’s hard not to sympathize. It might seem like the best route is to accept what the tenant has to offer and hope for the best. But if you end up unable to cover your own costs, that’s bad for both you and the resident. 

Although it’s not necessary, a lease clause spelling out your exact policy on partial payments can help. More than anything, It gives you something to point to in the agreement if needed. If you’d like to provide tenant leniency, you are more than able to, but if you’re not in a position to be able to do so, you’re able to point to the lease agreement. One thing to also keep in mind is that accepting partial payment can prevent you from beginning eviction proceedings in some states. Make sure you specify a definite due date for the remaining rent in writing. Let them know if you are prorating or waiving their late fee. It should also be clear what will happen if they don’t make the next payment.

Mistake 7: Forcing the tenant out

Let’s say you find yourself in a position where you have to follow through with an eviction. Maybe your tenant keeps missing due dates, or they continually violate the lease agreement in different ways. Deciding to evict someone is a difficult decision that no one wants to necessarily make. If you do have to do it, make sure you do things right and hire an expert that knows the process.

You should never threaten or otherwise intimidate the occupant. Shutting off the utilities or changing the locks when your renter isn’t home may seem like the quickest way to solve the problem. However, there is no state in the country where this practice is legal – and it’s a quick way to escalate an already-tense situation.

The Bottom Line

Again, no one wants to see a tenant evicted. That’s why it’s so crucial to make sure you find the right residents in the first place and set safeguards for yourself if you ever find yourself in a position of needing to evict a tenant. If you find yourself in need of tenant placement and property management assistance, Great Jones can help you through this in the best way possible: using data-driven analysis and screening to find high-quality tenants that are a good fit for your policies and preferences. Our placement process has resulted in a zero percent eviction rate on occupants we place. Get in touch today and curb your eviction worries for good.

What Is Property Management? The Ultimate Guide for Owners & Landlords

It’s 9 PM on a Wednesday when your tenant calls you. Her 5-year-old just flushed a box of crayons down the toilet. And flushed. And flushed. The toilet is clogged, she reports, and the water is starting to pour onto the floor. Your rental property is 100 miles from your home, and you have an early client meeting at the office. Your go-to plumber isn’t answering the phone.

The details may vary, but every landlord has a few stories like this one. Emergency repair calls are one of the main headaches – and occasional nightmares – of owning rental property. But answering a tenant’s late-night call and handling the cascade of responsibilities that follow are just a few of the tasks involved in managing a rental property yourself.

Property management: The basics

Property management encompasses all the day-to-day operations required to maintain rental properties, from marketing vacancies to screening potential tenants to diagnosing repair needs and hiring repair vendors. Then there are lease contracts, rent collection, accounting, and of course, ensuring compliance with a host of local laws and regulations.

For most individual investors, these tasks represent the major hassles and pain points of the real estate investment experience. The labor required in property management can be time-consuming as well as unpredictable. It can also require specialized knowledge in a multitude of areas – from landlord-tenant law to local health and safety codes to fluency in building repair and maintenance. 

Few investors enter the real estate market looking forward to these responsibilities. Many find them at best inconvenient and at worst bewildering or overwhelming. This is where a professional property management firm can be an asset to your overall real estate investment strategy.

Weighing the costs & benefits of using a professional property manager

A professional property management firm can benefit an owner in a number of ways. Some of the upsides to outsourcing the day-to-day operations of your rental property include:

  • Free up your personal time from management tasks
  • More predictability in your role (no more late-night calls from tenants)
  • Consistent, professional tenant customer service (even when you’re on vacation)
  • Access to a broader and deeper property management skillset and vendor network
  • More freedom to continue investing – you can purchase more property than you can or want to manage yourself
  • Greater geographic flexibility – with a trusted local partner handling daily oversight, you can pursue investments further from home, in promising but less familiar markets
  • Income optimization – with operations as their singular focus and specialty, property management firms usually achieve faster rental unit turnaround and more efficient and profitable operations.
  • Reliable relationships with local vendors – Great Jones vets local service pros and negotiates volume discounts on its owners’ behalf. They also have in-house handymen for routine and smaller-scale maintenance needs
  • In-depth understanding of all relevant laws and regulations – a management firm can ensure you stay in compliance
  • Proven, data-driven, best-practice approaches that increase success in areas like tenant screening
  • A proactive approach to property maintenance to help protect your investment for the long term

Clearly, working with a property management firm can help you reap the rewards of real estate investing while mitigating risks and reducing headaches and time demands. So why do some investors choose not to work with a professional management firm? There are a few common pitfalls:

  • Transparent fee structures with many hidden fees like markups on maintenance
  • High cost relative to service level (sharing a significant portion of your real estate income while also feeling like you need to “manage your manager” is never a great situation to be in)
  • Lack of sophistication and less-than-strategic approach to management and turns
  • Misaligned incentives – some property managers charge a percentage of rent due rather than rent collected, leaving the property owner to suffer when the property manager fails at their job
  • Poor communication, lack of big-picture perspective

Local property management – evolved

Great Jones recognized a need for truly professional residential property management services geared to the individual investor. By bringing together real estate pros and technology leaders, we’ve evolved property management into the powerful, strategic business asset it should be: streamlining your experience, protecting your property, and maximizing your returns.

In short, we make owning residential rental real estate as transparent and profitable as it should be. What sets Great Jones apart? Glad you asked!

  • Our founders are technology leaders with backgrounds in building digital tools used by millions of modern consumers. We leverage technology and data to create efficiencies that positively impact your bottom line.
  • Our service and operations team is led by real estate pros with over 30,000 doors and $4 billion in proven experience.
  • Our local service teams are driven by the goal of making life as easy as possible for you and your tenants.
  • Reasonable fees, no surprises – and no markups on maintenance, ever.
  • A commitment to helping property owners thrive.

To learn more or get started with Great Jones, click here.

Off-Site Property Management vs On-Site: Read this Before Deciding

As a real estate investor, one major decision you’ll have to make is in regards to how you’ll actually have your properties managed. Most rental homeowners recognize that there are more valuable ways to spend their time than being a landlord themselves. But what’s the best way to outsource those management responsibilities?

If you’re struggling to choose between an on-site manager and an off-site management company, you’re not alone! Let’s break down the difference between the two approaches and sort through the pros and cons.

Off-Site Property Management vs. On-Site: The Basics

Property managers – whether they’re on-site or off-site – are tasked with largely the same responsibilities. They have to carry out basic maintenance, conduct emergency repairs, perform site inspections, handle move-ins and move-outs, and so on. Although they share the same responsibilities, where they differ is in their relationship with the property – and with you, the owner.

An on-site property manager usually lives on (or very near to) the property they’re managing. In a large apartment complex, for instance, one of the rental units might be reserved for them. The on-site manager is often the owner’s direct employee – i.e. you pay their salary and job benefits.

Off-site property management services are typically a full company rather than an individual employee. As the name suggests, these services don’t typically have staff who reside on the premises. Instead, they have an off-site local office from which they make service calls, engage residents, oversee operations, and contract professional technicians to carry out maintenance work.

Choosing between on-site and off-site management

There isn’t necessarily a one-size-fits-all approach to hiring a property manager. Either approach may be right for you, depending on your particular circumstances or number of properties owned. But for many rental property owners, working with an off-site property management firm delivers clear advantages. Here are five major factors you may not have considered:

  1. More growth potential

    As a real estate investor, building your portfolio is one of your top priorities. When it comes to scaling, on-site management can make this challenging. After all, an on-site resident manager can only take charge of one building at a time. If you own three properties, you may have three different points of contact and the larger your portfolio grows, the more your day may consist of managing managers instead of having more time for your other high-value opportunities.

    An off-site agency, on the other hand, is able to manage as many properties as you own. That means you can oversee operations for your entire business with just one point of contact. This makes the logistical side of growing your real estate portfolio a lot more seamless.

  2. Better rates

    Any property is going to need maintenance or repairs at some point in time, whether it be large repairs or minor upkeep fixes – e.g. plumbing, roofing, electrical work. An on-site manager does exactly what you would do: They contact an appropriate contractor and pay standard retail prices for their parts and labor. 

    An off-site management company may have the means of providing a more efficient approach. Because they work with professionals at a much larger scale, these services can pre-negotiate below-market rates. Great Jones, for example, has a large network of pre-vetted, trusted and insured professionals who provide top-quality work at below-market price. We’re able to provide repairs and service at wholesale pricing.

  3. Higher service quality

    Because they work with a large number of professionals, off-site property management companies can also rotate through their network to find the best technicians. A company like Great Jones invites each tenant to rate their experience after a maintenance call. The service professionals who are rated highest for their speed, skills, and professionalism are used most frequently so that the overall quality of service stays top-tier. 

    This kind of sophistication just isn’t possible for an on-site property manager who’s either performing handyman duties themselves or hiring vendors intermittently from a smaller pool.

  4. Simpler rent collection

    When it comes to rent collection, an on-site manager can work as your proxy. Although it’s certainly valuable to have someone else doing that kind of legwork – i.e. knocking on doors, depositing checks, and issuing late fees, a modern property management company provides a 
    streamlined rent collection method. With tenant-friendly features like simple online payments that take away additional physical and manual processes, your cash flow consistently arrives on time and your renters stay happy.

  5. Smarter tenant screening

    Screening tenants and filling vacancies is one of the most time-consuming and high-stakes efforts for any property owner. Your income depends on your ability to place residents as quickly as possible, but you can’t afford to be careless in your choices. If a tenant breaks the lease or damages your property, it can actually end up costing you more money. 

    On-site managers generally can’t help you with this process, beyond meeting prospective renters and showing the empty unit. But with a large off-site agency, tenant screening is a different story. They’ll check for criminal history, prior landlord disputes, and uses a historical database of renters to make smart, predictive decisions for a perfect tenant for your rental property. This makes the entire process faster and simpler, while providing you the highest quality tenants.

The Bottom Line

Ultimately, every property owner needs to make a decision based on their unique circumstances. However, for most owners, off-site management services offer a slew of advantages that maximize your revenue and simplify your daily life.

So, if you’re ready to sit back, collect rent checks, and focus on growing your portfolio or taking an extra vacation, get in touch with Great Jones! You won’t ever feel like you’re managing your manager, while you have the access and transparency to know exactly what’s going on with your properties and how they’re being managed.

For Owners with Multiple Properties, Management Services are Indispensable

For most property owners, real estate investment is a game of growth. Sure, a single property can generate new passive income and that’s an incredible win for your cash flow. However, building a long-term investment strategy usually means adding new properties to your portfolio. The more you grow and diversify your holdings, the stronger and more resilient your investments will become.

Yet, it’s exactly this growth step that proves to be the most difficult one for the average rental property investor. Strategy is one thing, but investors often find themselves caught up in landlord responsibilities that they didn’t realize could be so time and resource-demanding. And when your property holdings are small, managing them yourself can seem like an appealing option. You would pocket all of your rental income (rather than pay a property manager), and you’d also be able to keep a close eye on your investment properties. However, stepping into the landlord role could be a path towards flatlining your own rental income growth.

The Problem With DIY Management

To understand why a professional property management service is essential as you grow, just consider a landlord’s responsibilities. You have to fill vacancies yourself, market the properties, navigate legal issues, handle administrative documents, do walk-throughs and inspections, handle repairs and maintenance, and much more!

Pit these against the goals of a real estate investor, and these responsibilities don’t scale well. As an owner, if you only own one or two single-family homes, managing these tasks yourself might seem feasible. But add these to all of the other demands in life and you may find yourself quickly drowning in the details.

Hiring a cheap, amateur manager to work on your behalf might seem tempting as well. But in the property management business, expertise and professionalism go a long way. What you need is an experienced property management service that can take ownership of your properties and manage your homes as though they are their own. If you have to “manage your manager,” this only adds to your list of problems.

How Management Services Help You Grow

So now that we’ve established the importance of a bona fide property manager, let’s dig into the details. How exactly does a management company help you add new properties to your portfolio and develop your investment strategy? Here are four major pieces to consider:

  1. Collecting Rent & Handling Late Fees

    The task of collecting rent when it’s due, tracking it down when it’s late, adding the appropriate fees, and processing rent payments (i.e. depositing checks and money orders) can be quite time-consuming. It can also be emotionally draining to feel like a ‘nagging landlord.’ You may end up thinking to yourself, “I didn’t sign up for this.” This is exactly the kind of legwork you should outsource to free up your valuable time.

    A property management company handles all these tasks for you and can make the process very simple for both your tenants and for yourself by using an online payment system or portal. The best management services never hold back your rent in a reserve account. You always get paid the very same month your rent is collected, so your cash flow stays consistent.

  2. Filling Vacancies

    One of the most important numbers in determining your income as an owner is your vacancy rate. After all, every empty unit in your property is money out of your pocket when you pay the monthly mortgage or insurance on your home(s). Filling those vacancies requires you to market the property, take calls from prospective residents, conduct walk-through’s with tenants, draw up the lease, fill out additional paperwork, and so on.

    Letting a property management service handle this responsibility frees up your time to focus on the growth of your investments rather than on the investments themselves. Since Great Jones only gets paid based on monthly rent collected, we have a financial incentive to fill the space as quickly as possible with the best resident possible.

  3. Evaluating Tenants

    As a landlord, placing tenants can often seem like a high-stakes gamble. The longer you wait to make a decision, the more money you lose on empty units. But rushing to a decision and choosing the wrong tenant (i.e. someone who doesn’t treat your home respectfully or vanishes midway through the lease) can end up costing you even more money. Many owners may go with their ‘gut feel’ about potential tenants, but a ‘gut feel’ isn’t always the safest bet. 

    A much smarter approach is to outsource tenant screening professionals. Management services place thousands of residents every year and can call on their experience as well as their database to make data-driven decisions about the right tenant for your property. Our assessments go well beyond the standard lease application. We run criminal background checks, look for issues with prior landlords, personally call up references, and more to ensure that you receive a highly qualified, trustworthy tenant.

  4. Handling Repairs and Maintenance

    For a new property owner, the responsibilities of handling services and maintenance can be a real shock. First, there’s routine maintenance. You have to replace HVAC filters and clean ductwork, remove leaf, litter, snow and garbage, or maintain shared facilities (e.g. the pool or gym). Staying on top of these tasks not only keeps your tenants happy, but also keeps you on the right side of the law. With multiple properties, merely tracking and overseeing these recurring tasks can be a major commitment of your time and resources. Mix that in with emergency repairs and every time a toilet backs up, pipe freezes, roof leaks, or lock jams, it’s on you to fix the problem immediately. If you’re new to property ownership, you might be astonished by just how many of these calls you’ll receive in the span of a few months.

    A professional management company takes all of these tasks off of your plate. It’s their responsibility to handle both routine maintenance and emergency calls and the best agencies give tenants multiple ways to get in touch and respond to crisis calls 24/7. That means instead of scrambling for a plumber when a toilet overflows at 2 AM, you can sleep through the night. We’ll take the call, get an emergency fix in place, and let you know that it’s already been resolved or review service options in the morning. In other words, you stay in the loop and still make major spending decisions, but leave the heavy lifting (and sleepless nights) to us.

The Bottom Line

Now that we’ve reviewed what management companies can do for you, let’s step back and take stock. One thing you might notice about all of the tasks above is that they don’t just save you time and money – they take your mind off of wondering whether or not your properties are being cared for or if you’ll be able to keep your rental occupied. 

Freeing up headspace to make major decisions and check out new investment opportunities is key to your growth as a property owner. More importantly, rather than drowning in the logistics of your investment, it allows you to enjoy the ride and enhance your quality of life. Isn’t that one of the main reasons why you became a property owner in the first place?

For more information on the services Great Jones provides, get in touch with a portfolio advisor.

How Professional Property Management Pays for Itself in Time, Money & Energy

If you’re a real estate investor, managing your own rental property can seem like the best option. You get to pocket all of your rental income rather than spending money on management fees and can also stay personally involved in every aspect of your investment.

But here’s the kicker. While going the DIY management route might seem like it’s helping you conserve resources, many property owners come to a realization that working with a professional property management company can help them save more money even after the monthly management fees. Not convinced? Just consider these three factors:

1. Property managers help landlords continue to invest

It’s not just a cliche – time really is money. After your investment, if you, as an owner, end up spending large amounts of time dealing with maintenance calls, filling vacancies, or collecting rent, you’ve turned into a landlord and may find it difficult to carve out time to focus on growing your portfolio. If you want to maximize your monthly rental investment income, you need to outsource those property management responsibilities to a professional who’s had experience doing exactly that.

Let someone else handle the repetitive tasks of managing your property and conserve your own time and energy for other high-value work. This is why CEOs get executive assistants! Delegating responsibilities will allow you to keep growing your investment portfolio and building your passive income.

2. Property managers get you better service rates

Imagine that you’re self-managing a rental property and a tenant calls you with a complaint. There’s no hot water in their unit. After investigating, you realize the building’s water heater is completely shot and will need to be replaced. What do you do?

If you’re like most landlords, you don’t have much of a choice. You buy a new water heater at standard retail price and have a service professional install it. You see the invoice and it makes you balk.

With a professional property management company like Great Jones, it’s a different story. We partner with a network of top-rated service professionals and pre-negotiate wholesale rates. We never mark up your parts or labor costs. A single HVAC replacement can be up to $2000 less than what you might pay on your own at standard market rates.

3. Property managers find the right tenants

For investors that manage their rentals themselves, filling vacancies is also a huge drain on resources. You have to market and advertise your rental property, run background checks, and inspect the unit, all while hoping to fill the empty rental as quickly as possible. After all, every vacancy is lost rental income that you’re bleeding away. Not to mention that finding a tenant may only be half the battle. If they don’t treat your home lovingly, are frequently late on rent, or leave early and break the lease, you can end up losing even more money.

A professional property manager solves all of these problems on your behalf. Since they handle tenant placement, property management companies have the resources and the skills to place high-quality long term tenants for you. Great Jones, for instance, runs a thorough background and credit check, which includes reviewing any criminal records and problems with previous landlords. We run sophisticated algorithms against our huge resident database to find the perfect resident for you – tenants who will pay rent promptly and stay for as long as possible.

To date, Great Jones has had a zero percent rent delinquency rate on tenants we place. Since we take a small fee only when the homeowner is collecting paid rent, we have a financial incentive to keep your vacancy rate as low as possible. That’s the kind of win-win partnership you buy into when you hire a professional property management service.

If there’s one task many new real estate investors underestimate, it’s service and maintenance.

Owning rental property can feel a bit like treading water. There’s always a jammed lock, a blocked drain, a crack in the drywall, or a leaky pipe. And that’s just for emergency repairs. There are also routine maintenance responsibilities like leaf, litter, or snow removal, pool and gym maintenance, boiler and ductwork cleaning, roof resurfacing, and so on. Staying on top of all this is a full-time job – but it doesn’t have to be your full-time job.

When you work with a professional manager, you’re paying someone to manage these tasks for you. When a toilet overflows, someone else’s phone rings at 2 AM, rather than yours. The best management companies will keep you in the loop while keeping you above the fray of daily operations. It’s a way of protecting your tenant relationships and staying in good standing with the law. It allows you to sit back with peace of mind and enjoy the fruits of your investment.

To learn more or get started with Great Jones, click here.

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