There are three keys to successful investment in residential real estate. The first priority is to buy the right property for the right price. Then the financing and tax consequences must be structured to maximize the return on the investment. Last but not least, after the property has been acquired, it must be carefully managed.
If the investment is going to bear fruit, you must select the right tenants, control costs and protect (and hopefully enhance) the value of your investment.
If it is one of many income producing homes you have on the go, you may want to investigate the possibility of having a property management company handling your investments.
If you are a first time investor then you may want to do what Robert Kiyosaki advises in his book Rich Dad Poor Dad and initially at least manage the property yourself. You will not only save the costs of hiring a property manager but you'll also gain valuable property management experience. The experiences will be invaluable as you grow your portfolio and eventually when you do have to hire a property manager you'll have a real good handle on exactly what they are doing and experiencing and therefore you will be better equipped to oversee them and their management of your assets.
Whatever calculations you used to arrive at your valuation will now be put to the test as you monitor your income and expenses. Regularly update your expense statements and periodically review them to see how they match your original pro forma or investment analysis that you prepared for the property. It is important that you do this on a regular basis, so you can make sure your projections of expenses, net operating income and cash flow are still accurate and also it can make you aware of any extra ordinary expenses that you may need to investigate where the problem lies. For example if all of a sudden your water utility bills are 30% higher than normal you may have an unknown plumbing leak that needs to be repaired.
You can do your own bookkeeping. It doesn't have to be complex as long as it is understandable to you.
At least once a year, review the rents for properties that are comparable to yours so that you know if the rent you are charging are at the market level. If you let the rent fall behind it can be difficult to try and catch it up all at once. You'll meet significant Tenant resistance and in some states or provinces rent legislation limits the amount rents can be increased. In Winnipeg and Manitoba we have rent controls with a prescribed annual increase amount for all residential rents. Make sure you raise your rents every year to stay at the market rents and prevent the erosion of the value of your property. Remember, if your rents are below market value so is the value of your property.
The Tenants who occupy your rental units can be the difference between a good investment that leaves you with peace of mind and a disaster that costs you nothing but money and aggravation. Selecting good Tenants requires a little extra time to meet and interview them and then following up to check their references and credit, but it's time well spent.
Although not all Landlord's agree, a strong case can be made for keeping your property well-maintained. One of the most important factors in the value of your investment is equity appreciation. Properties in good repair will command a higher price than one that needs a lot of work. In many cases the capital spent to maintain the property is more than returned at resale time.
Keeping the property in good shape also tends to produce better Tenants. You don't need the problem of high Tenant turnover and you don't want to develop an adversarial relationship with your Tenants. In your initial investment analysis you should have budgeted for regular maintenance and periodic repairs. Since you have to do them anyway to protect the value of your asset, you should respond promptly to reasonable Tenant requests.
Unless you plan to do the work yourself, you will want to develop a list of reliable tradespeople, or at least a good handyman you can rely on. In the beginning, it's a good idea to obtain prices from several tradespeople on jobs of any significant value so you can keep your expenses to a minimum.
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