By Ron Sudman, CEO, Management One Property Management
According to National Real Estate Investor, rental yields — not appreciation — are driving single-family home investments this year. Investors are finding it harder to make a buck with a flip. Instead, the HOLD method of rental homeownership is the approach that is bringing investors ongoing income. These days, it's more important than ever to run your portfolio of single-family investment properties as a business.
State of the market
Why does the single-family home rental market remain strong despite lower appreciation rates? It's the high demand for rentals.
Families that would otherwise purchase homes are still finding it difficult to qualify for mortgage loans and are renting instead. This pushes vacancy rates lower. In fact, according to National Real Estate Investor, bond-ratings agency Morningstar reports that the vacancy rate for rental homes in early 2016 ranged between 3.3% and 7.2%.
Because of the high demand for single-family rental homes, investors will raise their average rents this year by 3.5% over 2015 numbers, according to data company RealityTrac, which analyzed 504 counties across the country. However, RealityTrac also reported that single-family home rental yields are shrinking both in appreciation and yield. In March 2016, yields for single-family homes averaged 9.4%. That's down from 9.5% in 2015.
All of this means rental property investing is getting trickier. Running your investment portfolio like a business is essential for success.
The business of property investment
For the most part, you are responsible for the long-term success of your property business. The key to that success is building your knowledge about managing
Manage your finances. As an individual investor, you can model your investment business after the systems that large, established companies use, scaling them to fit your needs. The HOLD system of financial management provides simple guidelines that you can use to manage and grow your business. Also, have a trusted certified public accountant help you with all your setup questions.
You'll need two separate bank accounts: a primary account and a depository account. The primary account is where you'll deposit rental funds and pay all your monthly bills. The second account is an interest-bearing account where you store your net operating income. Most banks offer relatively inexpensive packages for small businesses and will help you set them up.
You'll also need an accounting package. Many investors start with simple Excel spreadsheets and move to more comprehensive solutions as their businesses grow. At the least, you will need the software to track
Review and reconcile all accounts monthly.
Manage maintenance and repairs. As a property owner, you have a responsibility to make and keep your properties safe and habitable. To that end, you will need a strategy for keeping up with these tasks and have the funds set aside to complete them.
You'll want to conduct inspections of the properties upon move-out so you can take care of routine maintenance and any necessary repairs before the next residents move in. By keeping up with maintenance tasks, you'll reduce the likelihood of any major problems. Also, have a list of reputable contractors who you can call on when needed. Be responsive to your residents' complaints and always follow up to make sure the work was completed satisfactorily.
Manage residents. Common-sense care of your residents is key to reducing vacancies and growing your income. Treat residents and their homes with respect and courtesy. Be responsive to their communications, treat them fairly and equally, and alert them well in advance of any rent increases or changes in lease terms. Likewise, be clear and consistent in handling delinquent rent payments and noncompliance of lease terms.
If noncompliance leads you to start an eviction process, research the laws so you know your rights and responsibilities. Try to talk to your residents to see why they are not in compliance. If you must proceed, make sure you have a reputable attorney to handle the legalities.
Your business, your future
The single-family home rental market is still a viable investment option — but only if you go into it with the right mindset. You need to decide: Are you in it for a quick buck or are you building income for life?
|Looking for a residential investment property — but don't know where to start? The experts at Universal Property Management can help you find the property that meets your investment objectives. Your next step? Contact us by email or call us at 603-766-4UPM.|