So you want to grow your real estate investment business? That’s no surprise! Investing in real estate can be exciting, challenging, and financially rewarding. Luckily, it’s never been a better time to be a real estate investor or real estate manager. The number of Americans who choose to rent over buying property is increasing exponentially every year.
In fact, according to Buildium’s Renters’ Report, a majority of the 22 million new households expected to form by 2030 will be renters. If you’re contemplating developing your rental portfolio, now is the time to begin growing your business. But first, you’ll have to learn how to be an effective property investor and real estate manager.
Once you’ve decided to dive into the world of property investment, it’s important to take the steps you need to grow your business efficiently and strategically. Here are some factors to keep in mind when building your real estate business.
When growing your real estate business, it’s important for you to decide whether you’d like to specialize in a particular type of property or if you’d prefer to diversify. Identify your strongest skills as a real estate manager. If you prefer to work with families, you may consider investing in single-family properties. If you want to offer high quality amenities like a gym or a pool without having to invest in building them, specializing in condos might be the better move. Maybe you want to get more for your money on a larger scale. In that case, purchasing a residential multifamily building may be the most profitable. Whatever your goals, this is the time to decide the direction in which you’d like your business to move so you can become highly efficient and scale your business and expertise.
As a real estate investor, it’s absolutely crucial that you are able to determine whether or not a potential investment property will yield a profit. In order to figure this out, you’ll need to analyze the following data points:
You’ll then need to analyze rental prices for comparable properties in the area to estimate what you’ll be able to charge in rent. You can also use a rental estimator to help you with this process. With this figure in hand, you’ll be able to predict a likely return on investment for your potential property.
If you’re new to the property investing world, it might be a good idea to find a mentor. A mentor can work with you one-on-one and give you personalized advice on everything from investing to real estate management. Joining a local real estate investing club or association is another great way to expand your network and even find an investment partner, should that be of interest.
Developing relationships with like-minded business people is an easy way to gain insight into your local real estate market and to learn from seasoned professionals. Additionally, you should look into the activities your local chamber of commerce puts together for small business owners. Get-togethers (or virtual events) are great opportunities to make connections with real estate agents and vendors. These relationships can be helpful to you when it comes time to buy additional properties, find tenants, or even vendors for maintenance.
One of the largest hurdles real estate investors face is financing the expansion of their portfolio. Financing in this context can take several different forms. You can always opt for a conventional bank loan. If you already own an investment property, you’re likely familiar with the process. You’ll likely need to make a down payment of at least 20% of the property’s purchase price and your personal credit history will impact your approval.
You can also get a mortgage through a nonbank lender such as SoFi, an increasingly attractive option to investors. In fact, nonbank lenders originated 48% of all mortgages in 2020. If you already own more than one investment property, you might consider using a home equity loan, or HELOC, to finance your new property. In this case, you’ll be borrowing against the value of your current property to help finance the purchase of your additional property. If accruing additional debt gives you pause, you may also consider working with an investment partner, such as a colleague or even a money-savvy friend, to finance your growing real estate business.
Increasingly, tenants have become interested in paying their rent and filing their paperwork online. Among your largest contingent of renters will be millennials. Between now and 2025, millennials will form 20 million new households. Millennials are among the generations referred to as “digital natives.” Buildium’s Renters’ Report found that 92% of millennials have smartphones and 85% use social media. They also reported that millennials were particularly enthusiastic about renting from property owners who use online technology to collect rent and communicate.
A property management software can also keep you better organized when it comes to leasing your properties. Software of this kind keeps lease agreements in one place, tracks maintenance requests, and in some cases, offers tenant screening services. Plus, they’re frequently able to create financial reports that you’ll need to track the profitability of your business. With this in mind, it’s safe to say that you should invest in a property management software that fits your goals
While owning and managing one investment property can feel simple, the addition of more properties can cause a slew of headaches and complications. Suddenly, you’ll be fielding rental applications, collecting rent, answering maintenance calls, and even landscaping multiple properties. In order to manage your property successfully, you’ll need to invest in a few more vendors and services than maybe you have in the past.
It’s common sense: an organized business is a successful business. The more properties you manage, the more important this will be. You may want to hire an accountant to help you keep things separate, track receipts, itemize your income and expenses, reconcile with your bank, and create accurate earnings reports. Come tax time, you’ll be especially glad to have an accountant on your payroll. Additionally, property management software can serve as your system of record for your property accounting side of the house, which will be sure to keep your income and expenses organized. This is sure to make your accountant happy.
As a property owner, you already know that there are specific laws that dictate tenant and landlord rights. These laws exist on a national, state, and local level. Legal counsel can help you draft leases and guide you in the event that you need to evict a tenant.
Another element to keep in mind is that the pandemic has drastically changed the rental market. Eviction moratoriums have been established, extended, and canceled over the last year and a half. Hiring a lawyer who specializes in tenant and landlord rights will help you stay up to date on all legal issues pertaining to your business.
As your list of tenants grows and your holdings increase, you’ll be responsible for answering more and more maintenance requests. It’s in your best interest to develop a roster of reliable and hardworking vendors. You’ll need dependable plumbers, electricians, contractors, and appliance repair workers.Additionally, as your business grows you’ll want to be sure you can handle a high volume of maintenance requests.Having a solid network in place will guarantee that your tenants’ needs are met and your property is well taken care of.
If going it alone seems like a daunting task, you might want to consider hiring a property manager. Property and real estate managers can be a major asset, especially for real estate investors with an ever-growing portfolio of properties.
Real estate managers can minimize your to-do list by taking care of tasks including rent collection, answering maintenance requests, scheduling landscaping, fielding tenant messages, and conducting yearly inspections. They can also set rental prices, handle accounting, market your property, find and screen tenants, and manage all steps of the leasing process. In some aspects, hiring a property manager can cut down on the list of contractors in your employ.
For a more comprehensive breakdown of ways in which a property manager can help you, click here!
The cost of a property manager’s services can vary. In general, a typical residential property management firm will charge between 8% and 12% of the monthly rental value of the property. In other cases, a property manager may charge a flat monthly rate. This is especially true if you decide to only take advantage of a limited number of their services.
Working with a property manager provides property owners with a number of benefits. For one, property managers are knowledgeable in local markets and know how to attract good tenants. They’ll know how to effectively list your property and keep it rented. Additionally, real estate managers can frequently offer financial and investment advice. As you continue to grow your business, having a property manager on your team may prove to be instrumental in your expansion.
Becoming a successful real estate manager and investor takes time and dedication. With good research, a robust network, and the right property manager, you’ll find that your investments are well worth your time and money.