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Property Investments

6 Tips for Building a Multifamily Portfolio

When looking to diversify your real estate investments, one of the ways to do so is by creating a multifamily portfolio. Here are 6 tips to diversify your portfolio successfully.

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There are many different investment options for investors looking to diversify their real estate portfolio. While they all can bring some rewards, the real winner among many seasoned investors seems to be multi-family rental properties.

Whether you are new to investing or are just looking to invest in something new, here are 6 tips for building a multifamily portfolio.

Tip 1: Location, Location, Location

Choosing where you invest in your multi-family rental is just as important – if not more so – than the rental itself. You may want to consider something that is easily accessible to important destinations, such as grocery stores, dining and shopping, medical services, etc. Regardless of who your tenants are, having things handy and close by can make a positive impact on their decision to apply as tenants.

Pay attention to the rental markets, too, so that you are not investing in an area that doesn’t have a very bright future.

Tip 2: Look For Smaller Multifamily Properties

You are an investor and know what you can and cannot handle. But, if you are new to the world of multi-family properties, you may want to consider starting small. Choose properties like a duplex, or quadruplex first. Or maybe even a small building of 8 or 10 units. This is much more manageable to start with and gives you a chance to get your feet wet, so to speak. Diving headfirst into a 150-unit high rise could prove to be too much for your multifamily portfolio.

Tip 3: Consider the Condition of the Property

Not all rental properties are created equal. There is a lot to go wrong with multi-family properties, such as units that may have been subjected to different levels of tenant care, a lot of plumbing, as well as potential maintenance and repair costs.

Be sure to thoroughly assess the property before jumping in or else you may find yourself putting more money into the property than you intended.

Tip 4: Perform a Sensitivity Analysis

A sensitivity analysis is a sort of what-if type of assessment. You look at all the variables that will impact whether or not this is a wise investment. And you want to add the properties to your multifamily portfolio that look as though they will have the least amount of negative impact on your return. For instance, consider looking at the answers to questions such as these:

  • How much rent do I need to charge to make a profit? How long can I go on rent and still make a profit?
  • What will the outlook on the property be if the market goes down? Or, up?
  • What vacancy rate can I have before I begin to lose money?

You can answer these or choose some of your own that matter most to you and your investment strategy.

Tip 5: Be Prepared for Anything

If you expand into a multifamily portfolio, then you are going to need to be prepared for anything. You have many chances for repairs and maintenance needs. You also have multiple units to fill so you may carry a higher vacancy rate for a while. Things like this happen – and they tend to happen more often when you have larger properties. So as you build your multifamily portfolio, by preparing yourself, it will be less of a shock when it does happen.

Tip 6: Hire a Property Management Team

When you invest in multi-family properties, you want to take steps to keep your costs down and your units occupied. You can do that with a property management team. They will work to provide routine maintenance to reduce the incidence of emergency repairs as well as thorough tenant screening services so that you always have high-quality and even long-term tenants.

One of the biggest mistakes investors make is trying to do everything on their own. Handling one or two single-family rental properties is one thing. But handling a multi-family property is an entirely different situation. By choosing a property management team, you free up yourself to continue searching for investment opportunities while you bring in the money from your multi-family property.

Why the Interest in Multifamily Rentals?

Many investors prefer single-family homes for filling their rental portfolios, but that doesn’t mean multi-family housing doesn’t have its perks. More and more investors are looking to diversify their portfolios by adding a multi-family rental property or two. And, then, of course, some have left the SFH in the dust and have solely built multifamily portfolios. So, why the interest? What are the perks?

For starters, these rentals offer a great opportunity to grow and increase your profit. Cash flow is one of the most common reasons investors turn to multi-family rentals. Not only do they typically provide great returns, but you also have the chance to increase rent annually, say 3% – 5%.

They also provide a great source of passive income. Granted, not if you do all the work yourself. But, if you hire a property manager to handle your property for you, you can collect the money while someone else handles every aspect of managing your rental. Plus, you don’t have to worry about taking out multiple loans to purchase multiple properties. This gives you multiple rentals – but only one loan.

Final Thought

Truthfully, we could keep going on and on about the perks of a multifamily portfolio, though it would be wrong to not mention that there are potential downfalls, too, such as the fact that these properties are often much more expensive than single-family rentals and they require more maintenance. However, as we discussed, with an experienced, successful Phoenix property manager like Real Property Management Evolve, this wouldn’t be an issue.

If you are interested in building a multifamily portfolio and believe that it is the right investment strategy for you, then follow these tips – start small, pay attention to the location and the condition of the property, go through the what-ifs, and hire a property manager. In doing so, you may just find multi-family properties to be a rewarding decision for your portfolio.

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Property Investments

Understanding Real Estate Investment Loans

Choosing to opt for real estate investment loans can propel you into successful rental property investments, here is what to consider.

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There is no right or wrong way to get your foot in the door as a real estate investor or rental property owner. In fact, real estate investors make their way into the business by taking many different routes. For some, having the funds in hand already can make that first purchase quite simple. After a good investment or two, cash flow starts increasing and it becomes more possible to elevate the size of your portfolio. Others turn to silent financial backers who have the money but may not be too interested in actively pursuing real estate. They will financially help investors get that first property, for instance, with the promise of a decent ROI.

What do you do if you don’t have a wide pool of funds set aside? You can consider real estate investment loans. Here’s what you need to know.

Things to Consider with Real Estate Investment Loans

Real estate investments require a long-term commitment. For quite a while, investors have been able to obtain loans to purchase rental properties if they don’t have enough capital to do so without it. But you have to remember that it could take years to see any notable returns from your investment – especially if you are paying back a loan.

Many banks offer these loans, but the process to obtain them can be tedious. And, they may even require that you offer up collateral – such as your own house – that you could lose should you default on your loan. This may or may not be a risk you are willing to take.

Thankfully there are a few things you can do to make the process of getting real estate investment loans a little more manageable and accessible. Let’s take a look at some of them so you can get started.

1. Know What You Need

You can’t jump into applying for real estate investment loans without having an idea of what you need. Before you go seeking out a bank, know how much money you want to borrow and how you intend to invest it. Look at the bigger picture, both in your goals and your current concrete financial situation.

2. A Letter of Intent (LOI)

A letter of intent is basically a document that will declare your commitment to a loan. It states your intention to pay back the loan (according to the terms) if borrowed. This letter would then be signed and handed to the lender of your choice.

3. Draw Up a Business Plan

You may not think of real estate investing as a business, but it is. And if you intend to take out a loan for your business, then you need to have a plan. Lenders can review this to ensure you have a sound proposal and that the calculated returns are enough to cover the cost of the loan. In your business plan, you will want to address the specific details of the loan, such as how you intend to use it and how you will gain a profit to be able to repay it.

4. Check Your Credit Report

To get real estate investment loans, you are going to need to address any issues with your credit report. That means disputing any inaccuracies or negative information found on your report – in addition to paying off any outstanding debt. Depending on your credit situation, you may want to reach out to a financial professional who can help you clean things up and put you in a more favorable position for lenders.

5. Choosing the Right Lender

Speaking of lenders, you are going to have a lot available to you. Nearly all banks, finance companies, and mortgage companies offer real estate investment loans which put you in the position to choose the right one for you. Shop around and look for those with more flexible terms and lower interest rates.

6. Gather Your Information

Along with information and details about your investment, your business plan, and so forth, you will also need to provide your personal information. The lender will want to know about your income and any assets you may have as well as how you intend to invest the money. Really, what they are trying to determine is whether you are going to be able to pay back the money on time. So gather up every piece of information that can help them see you will be in a position to repay the loan, enlisting the help of your accountant, if necessary.

7. Bring Out the Collateral

There is a chance that your lender, regardless of the institution, is going to require you to have collateral. This needs to be valued enough to cover the cost of the loan. Many investors have used combinations of jewelry, collectible items, homes, cars, and boats to make this happen. If you don’t have enough assets, you may have to seek out alternatives, including a reduced loan amount.

8. Celebrate Your Approval

Once you take the time to make all this happen, it may just be a few weeks before you receive an offer letter from your chosen lender. The application process is over and you can breathe a sigh of relief. But, there is still paperwork to be completed before you can walk away with your money. Complete it in a timely manner and you will be well on your way to building your real estate investment portfolio.

Whether you are new to the world of real estate or you are diversifying your portfolio, you will find that real estate investments loans could be a great asset to your future plans. Though, it is important to make investment decisions based solely on your situation. Not everyone has capital for investments, but nearly everyone has access to loans. All you need to do is follow the steps we’ve provided in ensuring you are ready to apply – and then move forward with obtaining that loan. Once you have the funds in hand, you can proceed with your real estate investment goals.

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Property Investments

Real Estate Portfolio Guide: Managing Properties in 2022

This upcoming year, set up your property investments for success with this real estate portfolio guide.

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Long-term investing can lead to passive income and ROI, especially when it comes to rental property investments. Not only does this appear to be a great arena for investors at the moment, but it can be a step toward consistent passive income for the long run. That is not all your investment will bring, either.

With rental properties, investors often get to experience everything they are looking for – and that’s cash flow, portfolio diversification, appreciation, leverage, and equity growth. It is one of those investments that, as long as you do your due diligence with the particular property and market, it just makes sense.

If you want to make the most out of your real estate portfolio, you need to look at your investing as a business rather than a side hobby for some extra cash. You need to come up with a ‘business’ plan, set some goals, and give yourself some direction before you even start. Discover various criteria that will allow you to monitor your progress so that you know whether you are getting the most out of your investments – or if you need to make some changes going forward.

Today, we are going to look at all the steps for success in this real estate portfolio guide.

Preparing Yourself For Your Future

Getting started in managing rental properties doesn’t just happen overnight. Well, it could, but that’s not usually how wise investing occurs. There is prep work that should be done to help you feel confident that you are moving in the right direction – and are making sound decisions about your investments.

Consider following these steps.

1. Goal-Setting

Before you begin building your portfolio, you need to define your goals for your investments. What is it you hope to achieve with the investment – are you going to continue to work or looking to replace your job with this investment? Is this for retirement-building? Are you looking for financial security? It is important to know what you are working towards so that you continuously have direction.

Of course, setting goals for your returns is important, too. How much you are looking to make from your investments will determine just how many properties – and what type of properties – you may need to invest in.

2. Collecting Your Funds

Before you can start investing, you need to have the funds to do so. You don’t necessarily want to strap yourself for money to make that first purchase, but rather find ways to invest that can cause less stress to your life. For instance, work for a better credit score so you can obtain a loan with a low interest rate, rather than depleting your savings in hopes of making good on your investment.

Take a hard look at your personal financial situation, then do some research to find the best way for you to invest in rental property.

3. Build a Network

You can jump into rental property investing alone, but you may choose to work with a network. When you have a network of other investors, property managers, vendors, real estate agents, and the like, you have access to lots of knowledge and skill that you may one day need to tap into. These professionals all come with experience that can be beneficial to your investments, both now and in the future.

Growing Your Portfolio

The next step in our real estate portfolio guide is to grow your portfolio. Once you have gotten started in your investments, you may hang tight for a while – or you may decide it is time to push yourself toward growth. Again, this isn’t something that happens quickly. It takes a few calculated steps on your part. Let’s take a look.

1. Diversifying

Many investors look to diversify their portfolio so that they can lower their risk. For example, they may focus on different housing types, such as multi-family investing and single family investing, as well as in different housing markets. Consider all the trends of different areas and keep your investment options open and diverse.

2. Strategize

You cannot just jump into investment without a strategy – and expect to be successful. Instead, you need to decide how you would like to invest so that you can best grow your portfolio. In real estate, some investors find flipping houses works great for them. While home improvement shows make this look easy, you may want to take a deep dive into all that is involved before you make a final decision.

Other investors simply prefer to take things slow and consistent with rental properties. As we said, you can still diversify your portfolio by choosing different types of properties in different markets – while still only focusing on rental properties.

The Health and Value of Your Investments

Once you are ready to make your investments and start to build your real estate portfolio, you cannot just assume that a good deal in a good neighborhood will be a great rental. You need to do some looking at the numbers to determine whether the investment is going to add value to your portfolio – or if it will drain it.

1. Run the Numbers

A few of the things you will want to look at when it comes to rental property investments are the cash flow (the amount you will bring in after expenses) and the cap rate (the returns you’d have if paying cash).

2. The 1% Rule

This calculation will help you determine if the investment is a good option. You calculate the initial cost of the investment with the necessary expenses to have it ready to rent. What is 1% of that amount? If you can’t rent the property for at least 1%, then you may want to re-think the purchase.

Managing Your Properties

With this real estate portfolio guide, you can set yourself up for success. As you take the time to put together your portfolio – including building your network, getting your funds together, learning about available markets, and so forth – why not make life easier with a highly-experienced property manager that will help you focus on your investments?

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Property Management Tips

How to Calculate Rental Property Cash Flow: What Is Considered “Good” Cash Flow?

Understanding cash flow is an important aspect of investing in real estate. Learn how to calculate rental property cash flow today.

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Investors have certain things that they follow for each of their assets to make sure they are still providing a benefit. One of the most important when it comes to their rental property is cash flow. 

If you are just starting out, you may be trying to determine just how much cash flow you should have or intend to have with your investment properties. A lot of investors look for those properties that will bring in 1% to 2% of the purchase price every month. This may sound ideal, but the truth is, there are so many factors that come into play here so it is nearly impossible to predict your cash flow without taking them into consideration. 

So, what is the right amount of cash flow you can expect? What is cash flow? How can it be calculated? And, what should you be looking for in an investment? We are going to touch on all of these and more. 

Cash Flow: What is it?

For rental property investors, cash flow can be defined as the amount of money that a property is creating after expenses. It is, in other words, your profit. You will have expenses that need to be paid for running your rental property, but you will also (hopefully) earn an income from it. Having the right balance will create your cash flow

There are two types of cash flow: gross cash flow and net cash flow. How are they different? Well, gross cash flow refers to any income generated off the property. This includes rent, application fees, late fees, etc. 

Net cash flow is the money left over after all the bills are paid. Keep in mind that you will want to deduct things such as maintenance, taxes, insurance, marketing, utilities, property management fees, and the like. 

If you deduct expenses from gross cash flow, you get net cash flow. You, of course, want this number to always be positive – this shows you have the right balance between income and expenses. Unfortunately, when major repairs come up or you are dealing with a vacant rental, this could fall into a negative – meaning you have a negative cash flow, spending more than you are bringing in. 

To get a true idea of your cash flow, you have to be honest about what you have coming in and what you have going out. 

What Influences Your Cash Flow?

As with any type of cash flow, there are always going to be factors that impact just how much you make and how great your expenses are. The same holds true for rental property cash flow. Below are a few of the biggest factors that play a role in determining your level of cash flow. 

Property Location

The locations of your property will play a role in your cash flow. In fact, it may play a significant role. See, the market where it is located sets the bar for the rent that you can charge. You can’t maintain a rental property in an area that rents for a comparable unit of $1,000.00 and decide you want to charge $3,000.00. It doesn’t work that way. Sure, in an imaginary world, that would greatly increase your income, but, in reality, you are going to have a vacancy until you lower the rent. 

Further, you will want to consider property taxes, insurance rates, and even HOA fees if they apply. All of this is why location is such a big factor.

Financing

If you take out a mortgage on a rental property, you will have an interest rate and mortgage insurance to worry about it. These can both influence your cash flow. Depending on your credit history, credit score, down payment, and the price you are willing to borrow, you may end up with the ability to have more or less cash flow. For example, low credit scores and a low down payment can lead to bigger mortgage payments every month and higher interest rates. This will decrease your cash flow. 

Rental Property Details

Depending on the size of the rental and whether you want to rent it long-term or short-term will impact your income and, ultimately, your cash flow. 

How to Increase Your Cash Flow

Increasing cash flow is the ultimate goal, isn’t it? You want to bring in more money than you are spending so you can feel successful at what you do. If you find yourself with a lower cash flow than you had imagined, there are a few things you can do that may help. These include: 

Find High-Quality Tenants

Having vacancies will kill your cash flow as you have nothing coming in. But you don’t want to just settle for any tenants, you want good tenants. Otherwise, you may find yourself dealing with missed rent payments, legal fees, major repairs to damage in the unit, and more. 

Add Value to the Property

While the local market is going to ultimately dictate the rent amount, adding value to your property allows you to be able to charge on the higher end of those market rents. This can include updated fixtures, landscaping, new paint or flooring, kitchen appliance upgrades, and more. 

Stay on top of Repairs

Not keeping up with regular routine maintenance can cause you to have to shell out more money for major repairs. Keep up with them as you go and you will save yourself some money. 

Hire a Property Manager

Perhaps one of the best things you can do to positively impact your cash flow is to hire a property management company. These professionals know how to handle all these things that increase your cash flow, such as helping you find the best tenants while reducing your vacancy rate, as well as staying on top of repairs and routine maintenance. They also have vendors and connections within their network that handle these things. That means they have better rates to get the work done which means less expense to you. 

At Real Property Management Evolve in Phoenix, we understand the importance of maintaining a healthy cash flow – and we strive to maintain your property in a way that helps you increase your earnings. 

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Property Investments

2022 Real Estate Investing Strategies

The new year has brought about new strategies and ideas for investing. Here are the latest 2022 real estate investing strategies.

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It is a new year, and it has brought about new strategies and ideas for investing. COVID-19 may have been – and may still be – a huge downer on many different levels. But one thing is for sure. It set off a positive chain reaction in the world of real estate. For instance, at a time when you would have imagined buying and selling homes would halt, it has actually soared. 

So, what does that mean for 2022? What will this year’s real estate investing strategies look like?

Factors to Consider

Before making that leap into a new investment strategy, investors may want to take a moment to overlook a few things. We wouldn’t always recommend this with such urgency, but some major changes have happened over the last year or two. It’s a good idea to take a look at your current strategies for investing and determine ways you may want to adjust them.

Consider investment location

The housing market seems to be growing around the U.S. though some areas are growing at faster rates while others are lagging behind. Investors shouldn’t pay attention to the housing market as a whole but rather keep an eye on the markets that they are interested in.

Time it right

With some areas bursting with opportunities, your pockets could be bursting at the seams, in a crazed need to invest because it seems like you should. Don’t get caught up in it just for the thrill. Instead, do your due diligence, use good judgment, and only buy when you are ready.

Hire a property manager

If you find yourself tied up with investments, whether one or a few, then outsource the work to a property management team. You may find that property rentals give you a great source of passive income, but it isn’t really passive income if you have to work hard for it, is it? Choosing the right property manager, such as Real Property Management Evolve in Phoenix, can land you big benefits. Plus, it frees up your time to focus on investing.

Know how much money you’re working with

Smart investing will not send your bank accounts in the wrong direction. You need to know how much you can afford and stick to your budget. Otherwise, you may easily find yourself in hot water.

Investing Metrics for 2022

There are many metrics that investors should keep in mind as they decide on their next move – and, depending on their strategy, they may find that some of these metrics can play a big role. Surprisingly, there has been a lot of transitioning for people.

Rising Rental Rates

Rental rates are rising in markets all throughout the country. According to Apartment Guide, one-bedroom apartment rates in Phoenix have more than doubled. But rents for single-family homes have jumped significantly in price across the country. In fact, the New York Times reported that rental rates from January to October 2021 increased 16.4%. In some markets, landlords have their pick of tenants with bidding wars taking place.

Demand for Housing

There has been a demand for housing as people are on the move. Certain areas are getting flooded with new growth. For instance, Phoenix is becoming a profitable location since the demand for housing continues to be persistent.

Solid Returns

The housing market is thriving in all ways leading to solid returns for investors. Not only is this a good thing for the investment at hand, but it increases the chance for future investments, too.

Need for Larger Units

Those who are moving or transitioning are looking for more space. Since the global pandemic, more and more people have been staying at home – and working from home. Having additional space for home offices, for example, are a huge factor in those looking for rentals.

New Real Estate Investment Strategies 

Remember that it is important to review your own portfolio and finances and then use them to form your own investment strategies. However, let’s take a look at a couple of the most common for this year.

Playing it safe with risk assessment

We understand that the marketing is looking mighty good right now. But some investors have their eye on the still-present coronavirus and its new strain, omicron that is spreading rapidly. The supply chain woes don’t seem to be getting better – and some would even argue that they are getting worse. So, the truth is, we don’t know what is to come throughout the rest of 2022. So some are taking this time to review their portfolios, making sure they are in a good position in case there is a pullback, as well as increasing their liquidity.

Buying rental real estate

Rents are up, so it makes sense to a lot of investors to look into buying rental property. It may or may not be your ideal solution, but there is no denying that buying and holding may be a really good idea. The appreciation rates are high, the rental rates are high – all you need is a property management team to handle the property for you.

Focus on single-family homes

With the trend of single-family homes increasing in popularity amongst renters due to the interest in additional space, spending more time at home, and moving out of urban areas and into suburban neighborhoods, many investors are finding this their go-to option for investment in 2022.

Hire a Property A Manager

As you review your portfolio and make decisions about your next steps for the new year, don’t forget to make your life easier with a property manager. It is perhaps the best rental investment strategy you can take. You will have access to experts in the field who can handle your rental properties, regardless of whether your portfolio only contains one property or 101. Work smart and utilize this strategy so that you can focus on what you are good at – and let the property management team handle what they are good at.

The new year has just started, and it is already looking good. What do you plan to do with it?

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Property Investments

Understanding SFR Real Estate Trends

Single family rentals are a popular real estate investment strategy. As the new year begins, let’s take a look at SFR real estate trends to consider. 

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Many investors who invest in rental property tend to navigate toward single-family residential rentals. They may have a portfolio filled with all types of real estate and other investments, but there is a good chance that there is a single-family residence or two. The reason for this is that, over the years, many have found these homes to be a smart move in diversification. They tend to appreciate over time and are relatively easy to manage – especially with an experienced landlord.

SFR Real Estate Trends

Case-in-point, COVID-19 hit our economy hard in many different ways. A lot of small businesses closed up and many lost their jobs. One thing that continues to successfully climb despite it all? Single-family residential rentals. And, believe it or not, in many areas, rents are climbing, too.

Let’s take a closer look at these SFR real estate trends as we head into the new year.

1. Occupancy Rates

Occupancy rates have gone up considerably. Referred to as The Great American Move, people all across the country have made some changes to where they live as a result of the global pandemic. It could be due to job situations, a desire to be closer to family, or just wanting a change thanks to more freedom and work-from-home positions. Whatever the reason, the U.S. saw the biggest increase in occupancy rates – hitting 97% mid-year. That’s incredible. And the vacant-to-occupied time is short and fast, too. This implies that rental homes are filling quickly, reducing your vacancy rate.

2. High Rental Rates

SFR real estate trends are also seeing higher rental rates. These new tenants are paying roughly 17% more than the prior tenants. Rental rates are surging across the country – especially for single-family residences.

Landlords took a really big hit in 2020 due to the eviction moratorium and inability to deal with non-paying tenants – some legitimately due to the pandemic, others likely taking advantage of the situation. Many left feeling helpless about their investments. Regardless, landlords now have the upper hand in the rental market.

Due to the high occupancy rates and the demand for rentals, many landlords have used the situation to their advantage and have hiked up the rental rates on vacant single-family homes – as well as on existing tenants who are interested in renewing their lease.

3. The Rise of Home Prices

Despite the rise in home prices for initial investments, investors are noticing that the rental rate that is common in most local markets still allows the investment to make sense. More and more people are moving out of the apartment or multi-family home living situation and are seeking single-family residences. In fact, there are many predictions from those in the industry that the trend will continue to grow and more people will begin to seek SFR rather than apartment-living.

There has been a slight, steady increase in those moving out of apartments and into single-family rentals. But since COVID-19 hit, this seems to be more of a trend. Whether it has to do with spreading out away from others and shared living spaces due to health and safety reasons, looking for more space with a backyard due to spending more time at home, or simply having more freedom thanks to remote work, we may never truly know. But, there is a good chance that these things are playing a role in the trend.

4. Big Players in the Space

Along with individual investors, there are some big players in the rental game these days. Throughout the country, and heavily in Arizona, Texas, Alabama, and Georgia (primarily Atlanta), large corporations and investment firms are trying to buy up land and create build-to-rent communities. Rather than use the property for apartments or other multi-family living, many are considering single-family residential rentals. With tenants willing to pay a premium for an SFR new construction in a great area, it may not be a bad idea.

5. Benefits of Investing in SFR

If you are an investor, whether seasoned or new to the game, you may be wondering if there are any additional benefits to investing in a single-family residence. Sure, the trend looks great, but are there other perks to owning these types of rental properties?

  • You are more likely to find long-term tenants in a single-family residence than you will find in an apartment.
  • There is a consistent resale value. Unless something drastic happens, most single-family homes come with a decent level of appreciation over time.
  • Easier to purchase if a new investor. Multi-family investments can come at a high cost. For new investors, this is not always a feasible option. SFR is much more affordable – and it comes with cheaper property taxes, too.
  • There is less to maintain. You don’t have to worry about multiple tenants or many different issues going wrong all at one location.
  • Higher-quality tenants tend to gravitate toward single-family residences. Generally, you will find tenants who are looking for a long-term residence and are more likely to abide by the lease. This is not always the case, so you still want to make sure you have a thorough tenant screening process.

6. Weigh Your Options, Hire a Property Manager

Not every investment type is for everyone. Depending on where you are looking to purchase a rental property as well as what your financial and investment situations look like, you may or may not find a single-family residential rental a wise choice for you. Weigh your options, talk to your advisors, and do what is right for you.

If you do decide to go with an SFR rental property based on the SFR real estate trends, then you may want to consider hiring a professional and experienced property manager. Unlike apartment and multi-family buildings, single-family homes can be spaced out and inconvenient when it comes to your time management. At Real Property Management Evolve, we understand the rental business in and out. We have extensive experience and the most advanced systems for managing every aspect of your single-family residential property rentals (multi-family, too).

You stay up on the SFR real estate trends and we will take care of your properties as you invest in them.

Categories
Property Investments

How to Calculate ROI on Rental Properties

As an investor, one of the most important things for you to know is how to calculate ROI on rental properties. 

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There are many reasons why investors look to rental properties for building up their portfolios. For example, they can provide a great source of passive income that is recurring every month, property tends to increase in value as time passes, and there is a long list of tax benefits that property investors are privy to.

Though, while all these may all be wonderful reasons for investing in real estate, you never know just how well your investments are doing until you calculate the ROI on rental properties.

As a key metric, ROI can help you determine which rental properties perform better, which you should keep, which to let go, and so on. Let’s discover what ROI is, how it works, and how it can be calculated based on your specific scenario.

What is ROI?

Return on investment, or ROI for short, is a measurement of the profit made on an investment based on the original cost of that investment. The ROI is calculated as a percentage.

ROI can be calculated for many different types of investments – not just rental property. However, when it comes to things like gold or stocks, the return is always going to remain the same no matter where you are. In other words, the ROI of your stock portfolio will be the same whether you are in Phoenix, AZ or you are in Flagstaff, AZ. Rental property is an entirely different scenario.

To calculate ROI on rental properties, there are other outside factors to include, such as:

  • What type of property it is (single-family, multi-family, short-term, commercial lease, etc.)
  • Where it is located (current local market conditions)
  • How much gross cash flow was earned

Property values can increase and decrease in each individual market – and those values will impact things like rent amounts, property values, and more. And each of these things will, in turn, impact your cash flow. This is why investors spend so much time analyzing their real estate investments before making the purchase so that they can make sure that they receive the greatest ROI.

Why ROI Matters

As a seasoned investor, you know that choosing the right piece of real estate to invest in as a rental property can yield you big earnings. Or, it could totally tank. Keeping an eye on your return can give you an idea of just how well you are doing – and how you are going to add to your future wealth.

How to Calculate ROI on Rental Properties

To calculate the ROI on rental properties, you will divide the profit you’ve earned by the cost of the investment.

 

Let’s look at a really simple example. If your earned profit is $20,000 and you have paid $20,000 for the initial investment, then you would divide your $20,000 profit by the $20,000 you invested and you get 1. Or, in percentage form, it would be 100%. In other words, that would show you have received a 100% return on  your investment.

 

Now, let’s say your earned income was only $10,000.00 but you still invested $20,000.00 in the property. In this equation: 10,000 / 20,000, you would get 0.5 or 50%. This means you would have a 50% ROI on this property.

Keep in mind that these are very basic calculations. When it comes to rental properties, the equation is a little different. Let’s take a look.

 

Rental Property ROI Examples

Rental property ROI can be calculated this way: (Gain on investment – Cost of investment) / Cost of investment. Remember, there are a lot of factors at play in determining ROI for rental property. And whether you paid cash or financed the property will play a big role.

We are going to use the following example, both as cash and financed: You purchase a rental property for $100,000.00 in capital and it sold 5 years later for $135,000.00

 

– Cash Purchase ROI

Calculating ROI for a cash purchase would look like this:

Purchase price: $100,000

Sale price: $135,000

Gain: $35,000

Mortgage interest or expense: $0.00

Rental income earned (gross): $6,000

First, you will determine your gain on investment. So, $6000 x 5 years is $30,000. Plus, you earned $35,000 on the sale, so that’s a total of $65,000. Then, you’ve earned your $100,000 back of your initial investment, for a total of $165,000.00 gain.

 

For the ROI, it would then look like this:

(165,000 – 100,000) / 100,000 = 10.53% annualized ROI and a total ROI of 65%

 

– Financed Purchase ROI

Calculating ROI for a financed purchase would look like this:

Purchase price: $100,000.00

Down payment: $25,000.00

Sale price: $135,000.00

Gain: $35,000.00

Mortgage interest or expense: $3,804.00

Rental income earned (gross): $6,000.00 – $3804.00 = $2,196.00 (this includes the money earned minus interest/expenses)

Again, we will first have to calculate the gain on investments, which is $2,196 x 5 years is $10,980 + $35,000 you gained from the sale for a total of $45,980.00.

 

Then when calculating the ROI, it would look like this:

(45,980 – 25,000) / 25,000 = 12.96% annualized ROI and a total ROI of 83.92%.

Determining Your Investment Goal

There are many different factors that are involved in calculating the ROI on rental properties. Not to mention that there are also different formulas based on your type of investment or what you are trying to achieve. For instance, some investors are just interested in cash flow while others are more focused on the long-term appreciation of the property.

Knowing how to do the proper calculations means being able to fully understand whether you are meeting your investment goals. Teaming up with a financial professional is a great idea so that you fully can have an understanding of how to keep track of the health of your portfolio. Because each different focus requires the use of different calculations, knowing what you are looking to achieve is the first step in making sound decisions.

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Landlord Tips

Understanding Tax Deductions for Rental Property

Diversifying your portfolio comes with many advantages, one of them being tax deductions for rental property. Here’s what to know

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Investment strategies will vary from one person to the next based on personalized goals. Most active and seasoned investors are always looking for ways in which they can see a greater return on their investments. There are many ways this can happen.

For those investors who have a percentage of their portfolio containing rental property investments, there are additional benefits than those found on the surface – and they come in the form of tax deductions for rental property. A CPA will have all the details you need in regards to your specific properties so it is highly recommended you find someone in your area.

In the meantime, we’ve put together a list of the most exciting tax deductions for owners of rental property.

Property Taxes

Property taxes are due every year on all property you own, whether you live there or have it as an investment property. Many local and state governments use this money to invest back in the community, such as maintaining roadways, schools, special projects, and more. And the amount you pay is based on where the property is located and its current value. It is necessary to pay the property taxes for each property or you could find yourself dealing with tax liens against the property – and that could lead to even bigger hassles.

There have been changes to the IRS deductions so, to make sure this deduction is not forgotten and to make sure it is done right, it is important that you work closely with a CPA. Don’t miss out on this benefit.

Mortgage Interest

If you have a rental property that you didn’t purchase with cash and instead have a mortgage payment, then technically, the interest you pay on that mortgage is deductible. The reason? It is a business expense.

At the beginning of each year (usually within the first month or two), you should receive a 1098 Form from your lender. This will show you the interest you paid throughout the year. Be sure to keep this form and give it to your accountant. As your tax return is prepared, this deduction can often be added to the IRS Schedule E (for residential rental property owners) and the mortgage interest you paid for the year can be deducted.

Your CPA will be able to go over all of this with you to make sure you are getting the most out of your rental properties.

Repairs

Repairs can come often – and they can be very costly. This is multiplied if you have more than one property. So, it is likely music to your ears to hear that repairs can be deducted when preparing your taxes. The thing is, however, that you are going to need to work with an accountant to see what will and will not count. For the sake of this article, let’s look at a few of the common repair tax deductions for rental property.

Repairs for things such as can be deducted:

  • Repairing a broken stove burner
  • Painting the walls
  • Fixing a leaky toilet
  • Changing locks

Now, there are some repairs you may make on your rental property that cannot be deducted, but rather are made to be capitalized. Certain things that add value to the house become, well, part of the house. A few examples of these items include storm windows, flooring, AC unit, additions, water heaters, roofing, etc.

Let’s say you purchase a home for $250,000.00 and immediately add a new roof for $15,000 and new windows for $7,000.00. The IRS will not allow you to write off the roof and window expenses, but it now looks at it as if you purchased a rental property for $272,000.00.

These bigger, value-changing repairs get capitalized. And, while it may not excite you too much at the moment, it does often mean you could have a greater depreciation amount to deduct.

As we said, things get tricky in this area and you don’t want to misclassify anything, then keep receipts for your records and then let your CPA put your repairs in the right classification.

Depreciation

Rental properties are investments. And, for the most part, their value tends to increase over time. But, as a business owner, your equipment, machinery, building, and so forth will depreciate over time – and you are able to deduct this from your taxes. Can you view your rental property as a depreciating asset of your business? Maybe.

Talk to your CPA and see if this is something you can do. And if so, leave it to the professionals to take care of. Calculating depreciation normally can be mind-boggling if you aren’t an accountant  – and calculating depreciation of rental property is different.

Misc. Expenses

Finally, there are some miscellaneous expenses that you may be able to take deductions on. Knowing what applies to you and what doesn’t is something you can learn from your CPA. But, as a general rule, we’ve listed a few expenses to consider for tax deductions for rental property.

  • Utilities, such as water, gas, electric
  • Advertising and marketing of the rental property
  • Any insurance premiums
  • Transportation costs regarding rent collections, maintenance, and repairs

There are a lot of possible situations when it comes to these expenses. For instance, you can deduct transportation costs, but not if you are driving from your home to the rental property as this is considered a commute. Though, if your home is considered your place of business, you may be able to deduct it.

Final Thoughts

Without a CPA on your side, it would be hard to know which way is up with the IRS – and your financial documents are the last thing you want to mess up.

Having a property manager like Real Property Management Evolve handle your rental properties makes it easy for you to track expenses and have your reports organized and ready to go to your accountant when needed. Don’t miss out!

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Property Investments

How to Diversify Your Portfolio to Include Rental Properties (and the Benefits of Doing So)

One way to increase passive income is to diversify your portfolio to include rental properties. 

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Somewhere along the line, you have likely heard some form of the phrase, don’t put all one’s eggs in one basket. The meaning behind this is that you should always diversify your investment portfolio. Otherwise, if you do – you lose everything. Have you taken a look at your portfolio lately?

If it is time to diversify your portfolio, you should consider including rental properties.

The Importance of Portfolio Diversification

Diversification means spreading your money around in different assets with different strategies. While it will vary from person to person, your investment portfolio may contain all types of investments, such as stocks, funds, and real estate. The main goal is to reduce the overall risk to your portfolio. The other goal is to increase the value of your portfolio as well.

Many investors use the 60/40 portfolio-building tool when trying to diversify their portfolios. That means they allocate 60% of their capital to stocks and 40% to fixed-income investments like bonds. Keep in mind that this is just the general rule of thumb that many investors follow, but real estate may be a great addition to your portfolio.

It is important to note that once you diversify your portfolio, you don’t set it aside and forget it. Your portfolio should be reviewed regularly and changes made to ensure you are getting the most of your investments.

Steps to Diversify Your Portfolio

To diversify your portfolio, there are a few things you may want to consider doing. For instance, if you are investing in stocks, keep with the egg principle and don’t invest all in one stock, but rather buy stocks in multiple different companies. And you may want to spread them out across different industries. Even if you are partial to a certain industry, spread out your stock purchases anyways. Otherwise, your portfolio will lack diversification.

Complete the diversification of your portfolio by investing in some real estate. There are many ways you can do things and history shows it often brings a solid boost to your ROI. There are obviously many different types of real estate investments you can make, but rental properties can provide you with passive income for an extended period.

Not all investors see their portfolios the same way so it is a good idea to educate yourself on the different strategies and find what works well for you.

Benefits of Including Rental Property

If you have found success with stocks, bonds, or other types of real estate, you may be wondering just why it would be worth your while to include rental property in your portfolio. It’s understandable. To consider rental property is a little more involved than other investments. For instance, while you need to monitor your stocks, no one from the NYSE is going to call you at 2:00 AM about a backed-up toilet.

Below you will find some (not all) of the benefits – and value – of investing in rental properties.

1. Steady, Passive Income

When you invest in rental properties, your tenants pay you every month, providing you with a steady stream of passive income. Finding the right investment can prove to be really valuable.

2. Tax Relief

Many investors love the fact that there are so many tax exemptions when it comes to rental property, including maintenance repairs, insurance, depreciation, legal fees, travel expenses, property taxes, and more. Not to mention that it also entitles the investor to lower tax rates.

3. Great Return on Investment

As rental property increases in value over time, as often happens, you can make a good profit when you decide to sell. This isn’t always the case, but it is more of a rule rather than an exception.

4. Increase Cash Flow

When you receive rental income every month, you are increasing your cash flow. And that’s always a great benefit.

5. Flexibility to Sell When You’re Ready

When you buy a piece of real estate to flip, you have to move quickly, but when you invest in rental property, you can sell it whenever you want to – or when the market is right – but in the meantime, you can earn money through renting it. In other words, it is never just sitting there tying up your profits.

It’s Possible with the Right Property Manager

Those looking to diversify their portfolio by investing in a rental property may be a bit hesitant in taking on the role of landlord. And, it makes sense since landlords have to take a very active role in caring for the property – from finding tenants, drawing up lease agreements, making repairs, routine maintenance, and more. The idea can be overwhelming and can sway some investors.

Thankfully, there is another option: invest in a rental property and hire a property manager.

Finding the right property manager can remove any and every landlord-type task off your plate. You can continue focusing on investing since that is your strong point and let the property manager take care of the rest. They are skilled in marketing properties, screening for the highest quality tenants, and maintaining properties as if they were their own.

At Real Property Management Evolve, we work with investors who have diversified their portfolios to include rental properties and need someone to manage them. It’s what we do. And, as any good investor would want, we even provide detailed monthly statements so that you always know what is going on with your property.

So, handle your investment property using a strategy that works for you. And, if that means investing in rental property in the Phoenix area, then Real Property Management Evolve is here for you.

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Property Investments

Is Real Estate a Good Investment? Why Is The Return On Rentals Typically More Stable Than Stock Market Investments?

When examining the return on rentals of your properties, you may notice that they are typically more stable than stock market investments. Why is this? Is real estate a good investment?

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Investors love making money. After all, that is what investing is all about, isn’t it? But, as you know, there are many ways to go about it. Some investors find a great return on rentals. Others seem to love the thrill that comes with investing in stocks – and taking that risk that can lead to huge earnings. Some find that one of the many other types of investments is the best route.  

Truth is, investing is a personal choice. As an investor, you get a feel for what works well for you – and you stick with it. But, if you are interested in branching out and wonder whether or not real estate investment may be something you want to dabble in, let’s talk about it.  

Types of Real Estate Investments 

There are many different types of real estate investments – and different ways to go about getting involved. But when it comes down to investing, you have a choice of vacant land, commercial, and residential property.  

Many investors look toward real estate for a quick profit by flipping the property. This involves purchasing a home that needs a little work and giving it a makeover so you can turn around and sell it for a higher price. The problem here is that not all investors are crafty carpenters or contractors. You’d have to have some serious connections and a deep understanding of the value in order to know whether an investment is worth it or not – or whether you’d even make much of a profit once you put money into the property.   

Rentals are another type of property investment that seems to be a great way to earn a passive income. Investors find properties in neighborhoods where rentals are sought – and they purchase them and rent them out to tenants. Whether they are purchased for a cash price or financed will determine just how great the return on rentals are.  

The Dangers of Stocks 

There have been many investors over the decades who have made a ton of money with stock investments. Time spent analyzing data and reviewing trends and history can lead to big wins. But just as fast as those gains come, losses can come, too. In fact, losses or very small gains are much more common than big wins.  

Stock market investing can be risky. If you don’t mind the risk then go for it – you may find yourself with big returns using this method. Just know that things may very easily go the other way.  

The Stability of Real Estate Investments 

Earning and keeping money is a skill. If you are looking for more stability – and less risk – then you may want to ditch the stock market and look toward real estate investment.  

These long-term investments allow you the opportunity to have more control. You can add value, make your property look more attractive, perform upgrades that increase market value, all with the idea of making a bigger return on rentals. Or, you can rent out the property for years, consistently making an income. If you have more than one rental property, you have several steady streams of income.  

While real estate investing does have some risks, they are nothing when compared to stock market investment.   

So, Is Real Estate a Good Investment?  

The answer is yes. If you are an investor who is looking for a less-risky, more stable investment option, then real estate investments may be a great option. Plus, there are plenty of tax benefits that are a bonus for investors. These include tax deductions such as interest on the mortgage, depreciation deduction, insurance premiums, property taxes, repairs, and so forth.  

Real estate investing provides you with:  

  • A tangible, insurable asset 
  • The ability to transfer property.  
  • No special knowledge (such as that required for investing in the stock market) 

Real estate investment is predictable and profitable. And who knows, you may find that you actually enjoy finding homes for others to reside in – giving tenants a place to call home.  

It is important to keep in mind that real estate investing, although it has its perks, is not for everyone. As a professional, you will have to decide which is the best type of investment for you – and run with it.  

Real Estate Investments with a Property Manager 

The downfall of real estate investment is being a landlord. If you are an investor then there is a good chance that maintaining properties and dealing with finding good tenants is not your forte. The good news is that you can hire someone to be on your side and take care of this for you – while you do what you do best.  

Hire an experienced property manager to handle all aspects of your rental property and can help increase your return on rentals. Property managers offer all types of services:   

  • Marketing your property across all types of platforms to find the best tenants.  
  • Thorough tenant screening for high-quality tenants.  
  • Rent collection and invoicing.  
  • Handling all repairs to the property, whether emergency repairs or routine maintenance.  
  • Property inspections, such as move-in and move-out inspections as well as routine inspections to ensure the safety of your investment.  
  • Monthly financial reporting that keeps you apprised of your earnings and expenses.  
  • Evictions, if necessary, will be handled – throughout the entire legal process. (Though with a thorough screening process, this isn’t usually necessary).  

Finally, experienced property managers are up to date on their knowledge of fair housing laws and such that are at the local, state, and national level – which means you reduce your risk of finding yourself in legal trouble.  

Choosing the right property manager, such as Real Property Management Evolve in Phoenix, means you have someone who will keep the lines of communication open with you thanks to powerful technology while also acting as a trusted ally in your investment adventures.  You are an investor looking for opportunities to make money. If you find it in stocks, then wonderful. If you find it in real estate rentals, even better.  We’re here for you.  

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