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Phoenix Property Management

What Do Property Management Companies Do?

Property management companies are third-party businesses that handle many aspects of rental properties – from keeping the property healthy to ensuring excellent and high-quality tenants are living within its walls. They run all the day-to-day operations of rental properties, so the investor doesn’t have to. And, since keeping vacancy rates low can mean the difference between making money or losing it, it’s good to involve the professionals.

Whether you are a new rental property investor or have been in the game for years, you have likely heard someone mention a property management company or know someone who uses one. Or maybe you have wondered whether or not it would be a good choice for you. Many investors turn to property managers to handle their rental properties. Why? For many different reasons, but mostly because managing rental properties can take a lot of time and requires a specific skill set. Plus, they handle all types of properties, including:

  • Condos and apartments.
  • Single and multi-family homes.
  • Commercial offices and retail spaces.

Let’s look at what property management companies do – and the benefits they bring.

The Cost and Value of Property Management Companies

While having a property management team makes sense for an investor, you don’t have to have one. You can invest in a piece of property, maintain its condition, market the property, select your tenants, collect your rent, and answer calls at 1:00 am that the air conditioner stopped working. Or, you could hire a property management team to handle it all for you – because it just makes good business sense. Maintaining a rental property – let alone more than one – can take up a lot of time as there are many things involved. So, if you are on the fence about a property manager, this is when you may want to consider one:

  • You own more than one rental property.
  • You don’t reside near your rental property.
  • You don’t have much spare time to dedicate to the property.
  • You aren’t interested in being an active landlord.
  • You can afford to pay a small percentage of your rental revenue to a management company.

The Role of Property Managers

Property managers are professionals when it comes to managing property. They know exactly what to do and how to do it. They also have the right team to get it done. Sure, you will have to pay for their service, but as an investor, you know that you are making a wise move when the benefit you receive far outweighs the cost. And that is what most find when they turn their properties over to the pros. A property management company will:

Marketing Knowledge

Having property marketing knowledge, knowing where or which channels to advertise through, and effectively reaching your target audience is essential. A property manager understands just how to do that, so you don’t have to worry about extended vacancy rates. This also includes setting the rental rate, drawing up leases, showing the property, etc.

Attracting and Retaining Tenants

You don’t just want any tenants on your property; you want good tenants who will pay their rent and treat your rental as if it was their own. They will provide a thorough tenant screening and keep your unit occupied.

Collecting Rent

This is, perhaps, the easiest part of the job. Because they are set up for managing properties, they don’t have to go from door to door to collect rent from tenants. Most have online platforms that give tenants the ability to pay online. And when it comes to those tenants who are hard to collect from, a property manager knows just what to do – even handling the eviction process.

Repairs and Maintenance

It doesn’t matter how great of condition your rental property is in; it still requires regular maintenance. This means handling repairs for broken appliances, blocked plumbing, and so forth that come in from the tenants – and it also means regular, routine maintenance such as lawn care and tree trimming, clearing the gutters, replacing broken screens, replacing the carpeting, give it a fresh coat of paint, etc.

For an investor, having a property manager means being able to continue investing – or working your full-time job while earning your passive rental income. If you choose to handle your rental properties on your own, you may be surprised at how much work is involved. Unless you are making being a landlord your main gig or you have a lot of extra time to spare, you may find that having a company handle it all provides relief.

Benefits of Property Management Companies

Hopefully, you are seeing the benefits of having a property management company handle your rental property by now. But just in case, here’s why you need one:

  • Find quality tenants you can trust.
  • Reduce your vacancy rate. Remember that you are losing money when your rental units aren’t occupied by paying tenants.
  • Reduced costs for maintenance and repair. Property managers have their team of experts to get the job done, so you don’t have to hire an outside, unknown source.
  • Minimize your liability – especially if you aren’t sure what you are doing. There are various landlord-tenant laws surrounding many aspects of owning rental properties – and working with professionals who know these laws can reduce your risk.
  • Finally, tenants prefer maintenance companies. They know that when they need something, they can reach out at any time and get a response. They understand that a team is available to take care of any issue. And that it’s often a better overall rental experience.

Many investors begin focusing on rental properties with the idea that becoming a landlord is an easy job. Yet, spending just a short amount of time can prove otherwise. There is a lot of work to maintain a rental property – especially if you want to keep a healthy rental property. And an experienced team like RPM Evolve can be a welcomed help.

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Property Investments

Understanding the BRRRR Method in Real Estate Investing

Seasoned investors know that there are many different strategies used to build and diversify portfolios. One is known as the BRRRR method. Some have found success with it, others not so much. But, when used correctly – many investors will tell you that it is a great way to fund further investments down the road.

However, keep in mind that investment strategies are not a one-size-fits-all deal. It is always good to review your circumstances before jumping into something new. So, let’s talk about the BRRRR method in real estate investing. What is it? How can it help?

The BRRRR Method

This real estate investment strategy stands for Buy, Rehab, Rent, Refinance, Repeat. And as these steps suggest, this method is all about investing in a distressed property, flipping it, then renting it out, and doing a cash-out refinance to fund another rental property investment.

It may sound similar to traditional property investment – and it is. However, the critical difference is that the BRRRR method focuses on distressed properties rather than those ready to rent. It also involves refinancing the property to invest in another. Here’s how it works.

Buy a Property

Before you can do anything else, you need to find the right property. Remember, with this investment strategy, you are not looking for a property in pristine condition but rather one that will need some work to make it rent-ready. The benefit here is that you can look at those homes that come in at a lower price initially due to the amount of work they need.

It is essential to have someone familiar with rehabbing properties available to look at the home before purchasing. You want to make sure that there is a good balance between the purchase price of the house and the cost of the work that needs to be done.

Rehab the Property

Once you have moved forward with the purchase, you will need to fix the property. This includes making any repairs necessary to bring it up to code and adding any upgrades that may benefit you in renting it out. Some properties will require more work than others.

Rent the Property to Tenants

When the property has been repaired and looks great, it will be time to start looking for tenants. You will have to set the rental rate and begin marketing the property based on the local market. The idea is to get high-quality tenants on the property as soon as possible since a vacant rental means you are losing money.

Many rental investors team up with an experienced property management team in the area. These individuals are well-versed in the local market and know how to set the rate to get the most from your rental. Further, a property manager will:

  • Market the property to get the most significant response.
  • Screen tenant applicants to find the best tenants.
  • Prepare the lease and maintain any documents.
  • Handle any repairs or necessary routine maintenance.
  • Perform rent collection.
  • Handle walk-throughs, tenant disputes, or complaints.
  • Address any eviction issues should they arise.

In other words, for investors looking to use the BRRRR method of real estate investment, spending a lot of time handling the day-to-day aspects of property rental can slow down your portfolio growth. Outsourcing the work to a trusted team can prove incredibly beneficial now and in the long term.

Refinance the Property

Cash-out refinance will allow you to turn the equity in your rental home into cash. This is done by refinancing for a higher amount. The money you can take out can then purchase another distressed property. After all the work you put into your home, it has a much greater value than when you bought it.

Repeat and Buy Another Property

When you make it to this step, you are ready to start again. You have bought a property for a good deal and refurbished it. You have rented it out and refinanced it for a higher amount – getting cash out to start a new one. This method can keep going so that you can build your real estate portfolio into something incredible. You may surprise yourself!

Tips for BRRRR Method Investing

The idea behind the BRRRR method makes sense to many investors. Though it is essential to make sure you can handle the rehabbing portion of the project. Without it, you may find yourself in a pickle, especially not knowing exactly what you need to do to make it happen.

You could think you are getting a great deal only to find out that the amount of work you need to put into it far exceeds the potential value. So make sure you either have the contractor knowledge – or you know someone who can handle it for you. Here are a few additional things to consider:

  • It may be challenging to get a mortgage on a too distressed home.
  • Research different buying options to prepare you when you find the right property.
  • As you rehab the property, have a timeline and a budget set aside – and stick to it.
  • Find a lender that offers a cash-out refinance for your refinance, as this is not always an option.
  • Pay attention to the qualifications for your refinance to make sure you meet them – and know that you may have to have the property for a certain amount of time before you can proceed.

As a real estate investor, there are many ways that you can create a rental portfolio. Everyone has different goals and plans to make it happen. If you have been looking for a new option – something that may help you to overcome any cash flow problems, then the BRRRR method may very well be an excellent option for you. Just be sure to consider all the factors before you get started.

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Phoenix Property Management

2022 Arizona Real Estate Market Predictions

For the last couple of years, all eyes have been on the Arizona real estate market. It’s been hot, no doubt – and we aren’t just talking about that Phoenix sun. The market is booming, and everyone knows it. But will it keep up the momentum? Are things slowing down? What will happen as we continue moving through 2022?

Suppose you are an investor who is considering dabbling in the housing market of Arizona to enhance your rental property portfolio. In that case, you may want to consider the predictions for the future – and discover where you may want to focus your attention. Ready? Let’s go. 

The Real Estate Market Outlook

For the last two years, Phoenix has been the go-to spot. Properties have been booming more than ever before – and if there was a list to be on about being a thriving market, this city was on it. Surprisingly, though, it has been the only Arizona city to make the cut. But, when it comes down to it – list or no list – the entire state has shown it is a housing market to watch for this year. 

For instance, more people would rather rent than buy in Arizona, with a 30% rent ratio. This is good news for investors who want to get in on the action. However, it is essential to consider the rising cost of home sales – with Phoenix having a median home price of $642,000. However, those who find the right property may find it a very worthwhile investment.

Arizona’s Market Predictions and Trends

Moving deeper into 2022, a lot of people have an opinion about Arizona’s housing market, and investors are watching closely. Below you will find some trends that investors should be paying attention to.

Phoenix Is in the Driver’s Seat

It is in the top 5 largest cities as its population continues to explode. This has multiplied since the COVID-19 pandemic hit, driving the home prices up. And many predict that the rate may slow down just a bit, but the home prices will continue to increase throughout the year.

The good news is that it is a mixed bag for housing types. Approximately 36% of Phoenix residents live in rental properties. And the property types are all well-sought, from townhomes, condos, and duplexes, to large single-family homes. In other words, there is something for every investor.

A Seller’s Market

While house sales were booming through the pandemic and driving up the sale price, it was a seller’s market. But is it still? As last year came to a close, the rate of homes selling over their listing price was starting to decline. And many homeowners were selling below the listing price. So, is it still a seller’s market?

Many believe so. And this is because the demand is greater than the supply. There are so many more people looking to acquire property these days – from baby boomers to millennials – that, when coupled with the labor shortage and the high cost of raw materials, the supply of homes isn’t there.

Now Is the Time to Buy

According to experts, now is the time to buy property in Arizona – especially Phoenix. But why? If the housing market is so bustling, why invest in the market rather than turn to another favorable market? Well, there are many things to consider.

Reasons to Invest in Arizona Rental Property

Each investor will need to determine their best strategy for searching for and acquiring rental property. What may work for one investor may not work for another. However, if you are looking for a healthy, thriving market to dabble in, this sunny Grand Canyon state may just be it. Here’s why.

The Job Market Has a Sunny Outlook

For starters, the unemployment rate in Arizona is down, and that is always a good sign. Major brands and companies are taking notice of the area and moving their headquarters or offices to the site. In recent years, this has included Tesla, Oracle, Hewlett-Packard, Doordash, Exro, and Viavi Solutions, Inc., among others. This is usually always a good sign for investors.

A Life of Quality

The warm climate. The many days of sunshine. Short winters. A strong economy. A leader in innovation. Good health insurance for access to benefits for those who need it. And so much more can enhance the quality of life for those living in Arizona. It is a beautiful area with many things to do – especially outdoors. Work, live, and play here is enticing for home buyers, investors, and renters alike.

A Solid Rental Market

 People want to live in Arizona, but not everyone can afford the high prices of the homes just yet. And, due to the shortage, there are many who are choosing to hold out until more homes become available so they can get what they want. In the meantime, they will rent. So that means investing in rental property can be a smart move throughout 2022 as plenty of renters are available.

Where to Invest in Rentals?

Now that you know the market will be strong for rentals in 2022, are you considering investing? Should you stick to Phoenix? Or should you branch out into other cities? According to experts, there are a few cities you may want to look into:

  • Buckeye, AZ
  • Maricopa, AZ
  • Peoria, AZ
  • Tempe, AZ
  • Goodyear, AZ

The Arizona real estate market is sizzling today just like it was yesterday – and these predictions show tomorrow will be quite the same. If you are an investor looking to bulk up your portfolio and find some new investment spots for rentals, don’t take your eyes off of Arizona – or Phoenix.

Plus, you’ve got nothing to worry about when you’ve got a highly experienced property management team like that at RPM Evolve. Find your rental and let the experts take care of it while looking for the next big investment deal. What are you waiting for? Don’t miss out!

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Property Investments Rental Property

Real Estate Property Valuation: How to Value Your Investments

When you want to invest in real estate, you want to make sure that you pay the right price. Determining what that price is is known as real estate property valuation – and it is a critical step in deciding whether or not to invest. By simply looking at the specs of a property, you are only looking at the surface.

For instance, you can see two seemingly similar properties you are interested in. But while they look the same on the surface, valuations can prove they are very different. Suppose you are interested in investing in rental properties. If that’s the case, you need to understand how to value your investments – both in your portfolio and in the ones you’re looking to purchase.

Understanding Real Estate Property Valuation

The different values placed on a home, such as an assessor’s value, market value, and sale price, are all great in giving you an idea about the property when it comes to determining how you handle this property investment – or if you even invest at all. But, these numbers don’t give you an accurate indication of a property’s value.

To get that, you need to understand real estate property valuation. Define property valuation; is the process used to determine the actual economic value of a real estate investment. When purchasing a new property, the price you pay for that property is just the price, not the value. It isn’t necessarily priced so high because it is such a fantastic value, nor is it priced low because it doesn’t have any value.

Market prices predict sales prices. So a home in one area may sell for $600,000, and a house built the same year with comparable specs in another place may sell for $200,000. Is one any more valuable than the other? Not likely. Some sellers need to sell fast, so they price their property to sell, not because it has a lower value. In general, many factors go into determining a home’s value, such as:

  • Age and condition of the property.
  • Size of the property (incredibly usable space).
  • Location and local market conditions.
  • Neighborhood comps.
  • Economic indicators and interest rates.

As an investor, it is essential to know how to properly evaluate your property to always know you are making a sound investment. We’ve got three ways to help you do just that.

The Sales Comparison Approach

This is an excellent valuation option when it comes to single-family homes. You can look at local comps, analyze a few of them, and estimate the property’s market value. These homes need to be in the same neighborhood and of the same size and age and have recently sold. You would then adjust your property based on the research.

Yes, they are comparable, but if your SFH has a newly upgraded kitchen or a new air conditioner and the others do not, you need to adjust the number accordingly. Keep in mind that no two properties are alike, so there should always be some adjustment to the property.

The Income Approach

The income approach is made using a simple calculation when it comes to multi-family properties such as duplexes, apartment buildings, and other properties that generate revenue. You divide the net operating income (NOI) by the capitalization rate. The NOI is your revenue minus your expenses. Estimating this before investing in a property can be done easily, as highlighted below:

  • What’s the gross potential income would be at 0% vacancy.
  • Estimate the adequate gross income by estimating the costs of vacancy based on other like-properties nearby.
  • Your property expenses, both variable and fixed.
  • Calculate the NOI by subtracting the estimated costs from the estimated gross income.

And your capitalization rate is found by dividing your NOI by the property’s current market value and then multiplying by 100 to get a percentage. For many property investors, this cap rate is determined using the information from comps of properties recently sold in the area. And the market value is the NOI divided by the cap rate.

The Cost Approach

This is a great option to use for those properties that aren’t big generators of income and are not as easy to sell, for instance, hospitals, schools, and churches. The cost approach helps determine the value of a property as the land cost and the construction cost needed to replace the property.

Use the sales comparison approach to help you determine the value of the land alone as if it were a vacant piece of property. Then you will want to calculate the value of the building you want to build. The easiest way to do this is to determine the cost of building something new per square foot based on local comp properties – and then multiply it by the square footage of the building. 

Importance of Real Estate Property Valuation

Every investor has strategies for determining their next steps. But it usually always involves doing some real estate property valuation before they invest and checking those properties that they currently own to make sure it is still valuable. While the calculations remain the same for anyone who uses them, how the results are viewed will vary based on the investor. For example, determining the value of one property may cause an investor to lose interest, while it may cause another to put down an offer.

For those with multiple rental properties, having a property management team like RPM Evolve can help free up your time to focus on making sound investment decisions. After all, finding a strategy that works for you when building your real estate portfolio involves total focus and no distractions. So, as you move forward, which real estate property valuation method will you use?

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Property Investments

Real Estate vs Stocks: Why Property Investment Is a Better Alternative

If you are around investors for very long, there is a good chance that you will encounter the debate about whether real estate vs stocks are the better investment. The truth is, If you are looking to build an investment portfolio that can increase your wealth – both have the potential to make that happen.

Lately, the housing market has been soaring, leading many investors to inquire about the health and wealth that real estate investment portfolios can provide. The stock market has been doing well, too. For some investors, the returns have been great – especially in the post-pandemic climate.

If you have saved some money and would like to invest it, which should you choose? Real estate vs stocks? Let’s take a look at the pros and cons of each to help you decide the best way to invest based on the strategy that is right for you.

Investing in Real Estate vs Stocks (Property vs Paper)

Investing in Property Assets

Real estate investing is not a one-size-fits-all type of deal. It can come in many forms, with two of the most popular being to flip it (buy a property, renovate it, and then resell it for a higher price to make a profit) or to rent it out to tenants. It’s an effective way to grow your wealth over time – especially when it comes to rental property. Many use it as a form of passive income for years to come. Though real estate or rental property investment comes with a lot of benefits, it isn’t without its challenges.

PROS:

  • Real estate investment is a low-risk investment strategy.
  • A property retains value (even when the stock market crashes).
  • You can always tweak properties by adding an upgrade, or the like, to increase their value. When you do this, you can often take steps to then increase your income.
  • There are many tax benefits of owning rental property.

CONS:

  • You may have to borrow money to buy your property – which means you also have to pay it back. This can reduce the amount of profit you could make.
  • You are responsible for maintenance, repairs, property taxes, etc. Which can also reduce your profit.

Investing in Paper Assets

Investing in the stock market means purchasing shares in a company. All different industries are represented in the stock market, allowing you to choose those that you think are on the rise so that you can make the most money, there are so many options that analyzing, researching, and strategizing are all important before making that purchase.

Some people find almost instant success in the stock market, but others spend a lifetime just trying to make that big win. If you have a strategy and you know what you are doing, then you may very well succeed in stocks. Though it only takes one bad move to lose it all.

PROS:

  • Ability to diversify your portfolio thanks to so many businesses in so many industries in the stock market.
  • The stock market is available most days of the week.
  • Certain types of stocks have a bigger impact on your wallet, such as high-dividend stocks.

CONS:

  • The stock market is a high-risk investment. You could earn a ton today and lose it all again tomorrow.
  • The need for a deep understanding of the stock market and how to analyze potential investments.

Why Real Estate Is Safer and More Profitable Investment

When it comes to real estate vs stocks, both can be beneficial investments – and they both can help you grow financially and diversify your portfolio. But if you are looking to generate long-term wealth, then you need to consider investing in property. In other words, a rental property (or several) will allow you to receive an income from that property for as long as you don’t have a vacancy. This method of investment is of lower risk and brings with it more stability in the long run. Plus, it comes with all of these benefits:

  • Ability to add value. You can add value to your rental property. By doing so, you can make it more attractive and increase its value. When it is seen as more desirable, potential tenants are often more likely to pay a premium rental fee. And that means more money in your pocket.
  • Insurable. You cannot protect your stock market investment as it is an intangible investment. However, with your rental property, you can insure it so that if something happens to your tangible asset, you have some sort of cushion. You will not suffer a huge loss.
  • Financing. If you ever tried to take out a loan for stock market investment, then you know that just doesn’t happen. You can, however, take out a loan to buy a rental property as an investment. In fact, it is a really common thing to do.

How a Property Management Team Can Help

One thing that should always be considered when opting for rental property investment is a professional property management team. Many investors do their research and develop strategies for investing – and even score some really great and desirable property. What happens, however, is that they either don’t know how to care for it or don’t have the time to do so. Rental property may be passive income, but it is only truly passive if you have property managers handling the day-to-day processes.

Routine maintenance, repairs, inspections, rent collection, finding high-quality tenants, addressing any concerns or issues, and so forth are all part of your job description as a landlord. But they can be handed over to an experienced professional. As the title suggests, a property manager is an expert at managing property. They handle all aspects of rental properties so that you can continue to work on growing your portfolio and focusing on investments without having to handle the little things.

No matter where you are in your investment journey, you need to take some time to determine which option is best for you and your family. And, there is a good chance that you will discover that real estate is the most feasible option for your portfolio now – and in the future. Ready to get started? Contact RPM Evolve today.

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Property Investments

Investors Guide to Good Cap Rate in Real Estate

Learning about the cap rate in real estate, and how it relates to your property, will indicate just how profitable your investment is.

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Cap rate is a metric often used by real estate investors to get an idea of a property’s future ROI. It is relatively simple to calculate by dividing your net operating income by the market value of your property. Real estate investors do what they do to build their wealth, following their preferred strategy. This investment has led to much growth for those who know how to invest in suitable properties in more recent years.

And many have found their pockets getting deeper and deeper. Unfortunately, though, some investors have found themselves dealing with a nightmare and a drain on financial resources without knowing what to look for or what metrics to use. Learning about the capitalization rate (a.k.a. cap rate) and how it relates to your property will indicate just how profitable your real estate investment is.

What Is Your Cap Rate?

A cap rate is an excellent tool for forecasting your return on investment. It helps you to determine if your property is profitable. For years, investors have used it to determine how well (or poorly) their commercial real estate investments are doing, but it can be used for income-generating residential properties. So, if you’ve got rental properties – pay attention.

As we said above, you calculate your cap rate by dividing your net operating income by the market value of your property. And while this may seem like a confusing or complicated thing to do, it’s relatively simple. Let’s break it down. Follow these five steps to find your cap rate:

  1. Determine your property’s gross income. Your gross income for rental property will be the rent that it generates and any other income sources, such as if you have laundry facilities, covered parking rental, storage, etc.
  2. Subtract expenses of managing/owning the property. This means subtracting any costs such as homeowner association fees, taxes, insurance, property management fees, etc. But, do not subtract your mortgage payment.
  3. Find your net operating income (NOI). To find your NOI, you will subtract your expenses from your property’s gross income.
  4. Determine your property’s asset value. To find your cap rate, you have to have a valuation. You can use online sites like Zestimate on Zillow. Or, if you have your method of determining your property valuation, that’ll work. You cannot proceed unless you have it. If you have not purchased the property yet, you could use the purchase price here.
  5. Divide your NOI by your market value. Multiply your answer by 100 to get a cap rate percentage.

Go on – try it. See what percentage you come up with.

How Cap Rates Can Help Investors

So, how can you use the cap rate metric to your advantage as an investor? It can help you determine the level of risk involved in purchasing a property. For instance, the higher the cap rate, the more risk involved with the investment. Knowing the level of risk you are comfortable with can help you determine whether you want to proceed with a particular investment or not once you know the cap rate.

Having a good understanding of the local market where the property is located can help you use cap rates. A thriving market with in-demand rentals will have a different cap rate than one in a quiet rural town. This is because rental hotspots will have more costly properties that can churn a higher operating income. Be sure to consider that markets that are in–demand are not always going to be in need necessarily.

And, when things die down, so will the cap rate. Drastically low cap rates may signal that there is little demand. If the property has had a chronically low cap rate, there may not be much hope for long-term improvement. Do your research on the market and learn the ins and outs of the community to get a better feel for the property – and its potential future.

What Is a Good Cap Rate in Real Estate?

If we are honest, a reasonable cap rate will vary from investor to investor. However, some looking to get a good return with negligible risk tend to prefer a cap rate of about 4% to 5%. And many properties fall under this category. Investors willing to take more significant risks and are more aggressive in their approach look for a cap rate of 8% and higher.

Remember, this rate can change over time. Knowing your investment strategy and what works best for your portfolio is essential. This will help you determine the cap rate that works for you, rather than focusing on what others believe is a reasonable cap rate. The more comfortable you get with investing, the easier it will be to use this metric and find your magic number.

How a Property Manager Can Help

Believe it or not, hiring a property manager can positively impact your cap rate. However, we aren’t talking about just any property manager, but rather one that is experienced and can help you lower your expenses on the property. Here’s how it can work.

Property managers are highly-versed in tenant screening and finding high-quality tenants for your property. This means they are often long-term tenants less likely to leave the property with extensive damage or force you to go through the eviction process due to lack of payment. It also means your vacancy rate will be low, too.

Even more, property managers have a team of experts that handle the maintenance and repair of the property – which means you will be able to focus on your future investments while having confidence that you are getting the best deal on any issues at your property.

As you move forward with your real estate investment strategy, take some time to consider what constitutes a reasonable cap rate for you.

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Property Investments

Rental Property Investment Strategy: Examining the Snowball Effect

Determining the right rental property investment strategy to use takes a lot of research. Let’s take a closer look at the snowball effect.

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Investors who have been in the real estate market for years – and even those who are new to the idea – understand that there are many different types of investment strategies. It is essential to realize that each strategy will not work well for every investor’s goals. Sometimes, it takes trial and error – and a lot of research – to determine just the right rental property investment strategy to use. One popular choice is the snowball effect. Many investors have found this strategy to lead to incredible portfolio growth. So, what is it? How does it work? And just how effective is it? Let’s take a closer look.

Understanding the Snowball Effect Rental Property Investment Strategy

Have you ever built a snowman? You start with a small snowball that you can hold in your hands. Then, as you roll it along the ground, it gathers more and more snow, allowing it to grow and grow. This is how you get snowballs big enough to create a snowman! The snowball effect in rental property investment involves increasing your cash flow with each property you invest in.

The first property needs to be a good one that will generate a level of cash flow that will allow you to invest in a new one. And with those two rental properties, you want the cash flow to invest in another. You may use this cash flow to buy a new rental property or pay off your current rental properties. Either way, leaving you with one healthy rental property portfolio.

What You Need to Know About the Snowball Effect

The snowball effect sounds logical – and sounds like a great way to approach investing and even your personal financial growth. But, before you get caught up in all the future promises it brings, let’s get real for a minute and look at a few things you ought to know first:

  • Snowballing is a long-term investment strategy – not one that will increase your wealth instantaneously. You have to build up the cash flow from one property before investing it in the next. Over time, you will acquire more assets or pay them off – both benefiting you in the long run.
  • Be persistent and patient. As we said, it is a long-term strategy. You have to let your cash flow build up before you can begin investing it initially and for the future. The reward is often well worth it, though, if you keep your eye on the prize.
  • Flexibility is a must. You can set out the future of your investment portfolio today – and tomorrow, the market could change. You never know what may happen, so not insisting on sticking to a rigid plan is a good idea if you want to find success with the snowball effect investment strategy.

Below you will find a few tips for doing well with this rental property investment strategy:

  • Always have money set aside for expenses. Being prepared with a bit of extra cushion is vital for saving your future growth.
  • Set the right rent amount. You want to boost your cash flow, yes. But setting rent too high can backfire. Invest in a suitable property and set your rental rate following the local market. After all, it is better to have a rented unit rather than a vacancy.
  • Invest in properties that may increase your cash flow significantly based on the type of properties they are. For example, multifamily properties tend to turn a more significant profit.
  • Ask for help. Managing rental properties can be very demanding. You could move forward with handling them yourself, but know that it will cause you struggles along the way. Instead, to make life easier, you can turn toward those who know the best way to manage rental properties – while you continue to focus on what you do best.

How a Property Management Team Can Help

As you enter the world of rental properties, you need to take wise steps. Remember, you are trying to obtain the highest level of cash flow – and that means not doing anything that will cause you to lose money. So, when it comes to essential aspects of maintaining a rental, such as finding the best high-quality tenants or handling maintenance and repair, it needs to be done right. Let’s take a look at an example.

Suppose you don’t have the proper tenant screening tools and choose tenants who don’t pay their rent. In that case, you are not only going not to have an income from the rental property, but you will have to shell out money for the eviction proceedings to remove the bad tenants – and begin making repairs and getting the house ready to rent again. This is not the way to do it for someone trying to build their portfolio.

With a property management team, you have resources that you don’t have on your own. This team of professionals knows how to find high-quality tenants that you can count on every month for payment. They will keep your vacancy rates low, too. This means you will always have money coming in on your rental property, which is necessary if you are looking to engage in the snowball method.

Property managers also have a network to handle routine maintenance and repairs as they come up. And due to this relationship, the cost of these services is often much more affordable. All in all, having an experienced property management team on your side is one of the best options for real estate investors looking to have a positive cash flow when it comes to their rental properties.

Whether it is the snowball method or something else, the Real Property Management Evolve team can handle the day-to-day aspects of rental property management while you handle growing your portfolio. Take a hard look at your finances and then determine the right investment strategy that will work best for you. Once you do, run with it. With a steady focus, you will meet your long-term rental property goals one day.

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Property Investments

Understanding Property Classes: Class A, B, and C Property Investments

All properties are not created equal. What do property classes mean? And what does each property class mean for investors? Keep reading!

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All properties are not created equal. Some are of higher quality – and are more highly sought than others. Some come with more risks. Others are representative of a greater return. To communicate the traits of a particular property, class ratings are used – referred to as classes A, B, and C. And this classification system is used across all property classes:

  • Residential
  • Multifamily
  • Commercial
  • Industrial
  • And so forth

Keep in mind that there are no formal defining characteristics or qualifications for each property class, but rather an industry-wide understanding of what each type refers to. So, what do these property classes mean? And what does each property type mean for investors? We’re going to talk about it.

Class A Properties

Class A properties are often considered the cream of the crop. They are high-quality and highly desired properties. They are usually constructed with the best materials and the finest craftsmanship – and they are often newly built (at least within the last 10 to 15 years or so). You will usually find these class-A properties in an ideal location with lots of fantastic and convenient amenities.

Class A properties often catch the eye of investors because they are popular among tenants, often leading to low vacancy rates. Investors know that these are the properties most often sought by high-quality, high-income tenants – and that they are subject to premium rental rates. And, because they are of newer, quality construction, they don’t often come with any heavy maintenance or repair issues.

Class B Properties

You will find class B properties taking a step down. Although they are older, these properties tend to be reasonably pleasant and require some maintenance and repair. They also usually have fewer amenities, a more general, ordinary design, and they may or may not be in an ideal location. Class B properties are often considered suitable in working order and structurally sound, but they may not have any impressive features.

With class B properties, you will find that the tenants are usually of lower-income, resulting in a rental income that is less than class A. Depending on several factors, vacancy rates can be slightly higher with this property type, which investors may want to consider.

Class C Properties

Taking yet another step down, we come to class C properties. These are often old properties – at least 20 years old or older. And they are usually found in undesirable areas. Depending on how well they have been maintained over the years, these properties often need renovation and severe repair. This may even involve the foundation itself.

Class C properties often have the highest vacancy rates – and the lowest quality tenants. As expected, they also have the lowest rental rates. These properties often require a lot of work by the investor to keep cash flow steady – or to acquire cash flow at all.

Why Property Classes Matter

A property class matters to investors. Each type can impact the risk and return of investment differently. So, understanding what that means for each is essential. For instance, class A properties may be the properties that attract high-income tenants, have minimal repair or maintenance issues, and allow you to charge a premium rental rate. But, they are also the properties that will suffer the most should the economy take a down-turn.

Class C properties may be cheaper investments, but they could require a lot of work before they are ready to rent – with no guarantee you will get a renter. Though, if upgraded and many amenities are added, they could very well prove to be a positive investment. It would help if you considered a few things, including the purchase cost, your desired rate of return, and how much risk you are willing to take.

  • Purchase cost: Class A properties often come with the highest price tag and the highest competition to purchase. As you move down in classes, the cost and the competition is often reduced.
  • ROI: Class B and C properties usually provide investors a more significant ROI, but the cap rate you get with class-A properties can make up for that.
  • Risk level: Class A properties are the least risky to purchase, as they can be sold quickly if they need to be. Due to their age and less-desirable traits, Class B and C properties are often riskier in finding tenants, dealing with maintenance and repairs, and selling if it comes down to it.

Investors need to take a good look at properties at all angles before making a decision. Having an investment strategy in mind can determine which class type is the best option to meet investment goals. After all, some may do very well in working with class-A properties, while others find great success with class B or C.

How a Property Management Company Can Help

Property management companies know how to manage properties – it’s what they do, including everything from finding (and keeping) tenants to maintaining the property’s health. See, property managers know how to market a property and screen tenants. For instance, finding class B or class C property that has been cared for by a property manager is usually a better-quality investment than one that was not. In the future, for investors looking to purchase real estate, having a property manager can keep the property cared for and provide the greatest return.

Regardless of the property class, they can find quality tenants to fill the space, never questioning cash flow. Further, an excellent property management team will have a network of people who can successfully handle maintenance and repair. For those properties requiring work, they can take it – and for those that don’t, they can maintain it. The takeaway? Buying and managing rental properties can best be done with a solid investment strategy and an experienced property management team.

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Rental Property

8 Tax Benefits of Owning Rental Property

Purchasing a second home to rent out is a great investment packed with perks. Learn about the tax benefits of owning rental property.

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If you currently own rental property or are considering it, you may find that this type of investment could bring you a lot of rewards. Rental property is a great source of passive income. You should be able to use this appreciating asset as leverage in future investments. Rental property can create a positive cash flow, and the rent payments you receive can go toward paying the mortgage payment.

One thing you may not have considered are the tax benefits of owning rental property. If done right, this investment could potentially be the biggest perk of all! Without further ado, let’s explore the top eight tax benefits of owning rental property.

1. Deduct Operating Expenses

There is more involved in managing your rental properties than you may imagine. But most operating expenses that you incur are able to be deducted – saving you money. The IRS provides examples of what types of operating expenses you may deduct. This includes:

  • Mortgage interest
  • Property tax
  • Repairs
  • Maintenance (including lawn, pest control, etc.)
  • Advertising costs
  • Insurance (paid by you, not the tenant)
  • Utilities
  • Property management fees
  • Any materials or supplies you need for your operation
  • Office space
  • Business equipment
  • And more

2. Deduct Mortgage Interest

This won’t help a cash buyer, but if you have taken out a mortgage to purchase your rental property, the interest you pay on that loan is entirely tax-deductible. That is, of course, as long as your loan value stays below $1 million. For those landlords who refinance for a higher loan to add improvements or maintain the property, that mortgage interest can be deducted as well.

3. Pass-Through Tax Deduction

As part of the Tax Cuts and Jobs Act in 2018, landlords qualify for a pass-through tax deduction that is actually an income tax deduction – not a rental deduction. There are two choices:

  1. Deduct up to 20% of their net rental income.
  2. Deduct 2.5% of the initial cost of the rental property and 25% of what was paid to employees.

It is important to note that the pass-through tax deduction is only valid until 2025.

4. Deduct Travel Expenses

Some landlords do a lot of driving to handle their rental properties. This can include rent collection, maintenance and repair, inspection, etc. Anything you need to handle regarding your rental property that doesn’t include an improvement can be deducted as part of your travel expenses. Though, when it comes to overnight travel,  you may catch the eye of the IRS – and may need to provide more info so take caution.

As you drive to your office, your rental properties, your bank, the local hardware store, and others, be sure to keep track of your travel expenses. You can deduct both your actual expenses (such as gas, the maintenance on the vehicle, etc.) and the standard mileage rate as stated by the IRS. Keep in mind that this only applies to those who drive a car, SUV, van, pickup truck, or panel truck.

5. Deduct Professional Services

As a landlord, you likely work with some professionals to keep your rental property investments in tip-top shape. This includes services from those in real estate, your attorney, accountant, financial advisor. It can also include your property management company. You can take this deduction for professional services as long as you are deducting work that took place concerning your rental property.

6. Depreciation Deduction

The depreciation expense that the IRS will let you deduct relates to your rental property. The IRS allows you to depreciate the property over 27.5 years (39 years for commercial property) as a means of recovering the cost of wear and tear. Note that this only refers to the home, not the land.

Any costs added that increase the value, such as a new roof, new windows, or new electrical wiring, may be included in this depreciation calculation. Depreciation can be tricky and it may be best to let your accountant handle the details for you. And, remember – you can deduct the expense of your accountant, too!

7. Ditch the FICA Tax

There is no need to deduct the FICA (payroll) tax, which includes social security and medicare taxes. Typically this would have to be paid by all taxpayers earning income – even those who are self-employed. However, when it comes to rental properties, the money received is not calculated as earned income. And, that means you don’t have to worry about the FICA tax.

8. The Capital Gains Perk

If you decide to sell your rental property for a profit, you may be able to take advantage of capital gains – either short term or long term. Because each impacts you in a different way, let’s take a look. Short-term capital gains occur when you sell a property that you have owned for less than a year. This money that you make on the sale becomes a gain – and it gets counted as income.

So, whatever you make profit-wise, just know that it could bump up your tax bracket when you go to do your taxes – and that’s not always a good thing. However, as a landlord, you can rent out the property and then sell it at least a year past the date of purchase. This will allow you to hang on to more money. The tax rate is much, much lower for long-term gains.

Depending on how much you make in your day job, you may not even owe anything at all! It is always good to talk to a financial advisor before making a move to switch up your portfolio – just to be sure you are doing the smartest thing for your taxes. Well, there you have it – 8 awesome tax benefits of owning rental property.

As you discover just how rewarding it can be (especially when you have a property management team like RPM Evolve), don’t dive straight into owning rental property without having a strategy. Network with experienced professionals and discover the path that will work best for you. That’s the one where you will find the most benefit.

Categories
Property Investments

How to Increase Cash Flow on Rental Property

Increasing cash flow on rental property is one of the main priorities of every investor. 

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As an investor with a portfolio of rental properties, you are going to want to take steps to maximize your cash flow at some point. After all, you need to make sure you have sufficient money to cover any expenses – and generate a sustainable income for you. Otherwise, you may find yourself having to pull funds out of your own pocket, or from the income of another property, to handle things like maintenance, repairs, and upgrades – and that’s just not a healthy investment.

At the end of the day, all investors need to understand how to increase cash flow on a rental property?

Cash Flow Basics

Before we move on, it is important that you understand some cash flow basics.

Cash flow is the money left over after you deduct all of your expenses from the income you obtain. In other words, when you receive a rental payment, you will subtract the mortgage payment on the property, insurance, HOA fees, maintenance, repairs, etc. The money that remains is your cash flow.

It goes without saying that you want your cash flow to be a positive number – and the bigger the better. To increase your cash flow, then, you have to either increase your income or reduce your expenses. Let’s look at some ideas to successfully increase cash flow on rental property.

1. Raise the Rent

Raising the rent seems like a logical choice since the more money you charge, the more you make, right? You’ve got to be careful here. Raising your rent too high for the local market can actually leave you in a worse position – with a vacancy. And some income is better than none at all!

Keep your rent comparable to other similar rentals in the area. Consider adding upgrades or value to the property that will allow you to charge at the higher end of the market rents.

2. Furnishing Your Space

When you rent out a furnished home or apartment, you can usually charge a higher rent – potentially even a couple of hundred dollars more. This isn’t always going to be a selling point for new tenants as some will have their own belongings. However, if your property is located in an area that has a lot of transient renters – such as those moving for work or school – you may find it beneficial to your cash flow to furnish the place.

3. Hire a Property Management Team

Property managers know how to best manage properties. They have a network of vendors in the community and have their own maintenance and repair team to keep rentals in healthy shape. Property management companies will handle everything, including finding high-quality tenants. They have processes in place to market properties, screen tenants, lease preparation and signing, handle walk-throughs, routine maintenance, emergency repairs, rent collection, accounting reports, and so much more.

Companies like Real Property Management Evolve handle your rental properties in such an efficient manner that it actually saves you money – and thus increases your cash flow on rental property – even though you have the additional expense of paying for the management.

4. Snowballing

Snowballing is an investment strategy that involves paying off all the debts of your rental properties. And it is done by pooling all of your money and focusing on one property at a time. Once its debts are paid, you move on to the next property. Eventually, all your debts will be paid. As they are, you will see your cash flow increase as it becomes income and is no longer needed for paying expenses owed on a property.

5. Investing with Cash Only

Not every investor is capable of investing in property using cash only. For even the smallest rental, that can mean coming up with a huge chunk of change. But if you do have access to funds that will allow you to make a cash purchase – and avoid taking out a mortgage on the property – you will immediately find yourself in a much better position when it comes to cash flow. Not to mention you’d have a high amount of equity in your home.

6. Buy Affordable Properties

You don’t always have to go for the Class A property. In fact, you may find yourself with higher cash flow if you look for Class C or D properties. These properties are typically less desirable, whether it be because they are older or need a lot of repairs, but can prove to be beneficial for you once you clean them up.

Sometimes up-and-coming neighborhoods or even a house that was left uncared for can be spruced up with a little TLC. And you will be able to charge market rent for the property. Since you got a deal on it when you purchased it, though, that means you will be left with a great level of cash flow.

7. Install Covered Parking

If you have a multi-family property, this usually means residents are expected to park in a large, uncovered parking lot. By building an area of covered parking – and marketing it as preferred parking – you are able to charge additional for each spot. This monthly fee is added to the rent and is paid monthly. Just covering ten spots and charging residents $50.00 per month to rent one can bring in an additional $500 every month. You may be surprised at just how many people will take advantage of such an offering.

Covered parking is just one of many amenities you may add that could bring additional income – primarily for multifamily properties. For instance, consider coin laundry so that residents can do their laundry on-site while you collect the change. Or, if possible, add a fitness area and charge a small monthly fee for usage. You get the idea.

Final Thought

Finding ways to increase cash flow on your rental property isn’t tough, it just takes a few ideas and some action. Whether you want to review the way you initially invest or how you can bank on what you already have going forward, calculate your current cash flow on rental property and see what works best for you.

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