Many investors prefer to have their properties in one location, but there are benefits to having investments in different markets. Expanding your portfolio via geographic diversification is much simpler when you have a property manager taking care of your assets.
Let’s talk about how you can use property management services to grow your portfolio, as well as some key strategies to picking the right investments in any market.
Why Work with Both National and Local Property Managers?
Owning real estate is a risky business, but buying properties in various locations around the country reduces your risk if something should go awry in any one market.
Think about it. You wouldn’t buy stock only from companies based in your area, so you shouldn’t only buy real estate close to you, either. Do your research and find popular vacation destinations or up-and-coming communities with lots of potential.
If you’re looking to diversify your portfolio, and you should, you need the help of a national property manager.
National property managers can not only facilitate smart transactions across the street but across the country, too. It can’t be any national property manager. You need to find a reputable, trustworthy national property manager that not only helps you acquire properties but finds high-quality tenants and maintains those properties, as well.
How to Choose Properties
There are several factors to consider when searching for the right investment properties. Here are some of the most important.
Urban vs. Suburban
There are pros and cons to choosing urban or suburban properties. Urban properties often have a steady flow of renters, more desirable amenities, and a lower depreciation rate. However, urban communities also come with higher-priced properties, limited parking options, and can have higher crime rates.
Type of Tenant You Want to Attract
Depending on where you invest, you may be drawing certain types of tenants. For example, if you invest in a college town, you’re likely to have teens and young adults renting your properties. Are those the types of tenants you want? On the contrary, if you invest in a senior living community, you’ll have adults 65 years or older renting from you.
Short-Term vs. Long-Term Renters
If you buy property in a popular vacation destination, you’re likely to have a high volume of short-term renters, but it’s an expensive market to get into and your property will likely experience more wear and tear due to the high turnover. Non-touristy destinations will see more long-term renters and less wear and tear. They will be more affordable, but are in less desirable locations.
Market Growth
If you notice an area’s housing market is growing, it may be an excellent investment opportunity. Growing markets often mean increasing property values. Be mindful to avoid areas growing too rapidly because those investments could, ultimately, lose you money.
Price-to-Rent Ratio
Calculating the price-to-rent ratio is critical for determining whether a property is worth the investment. To calculate this ratio, take the average cost of a home in the area you’re researching and divide it by the average cost of rent in the same area. If your answer is 16 or more, that means it’s more affordable to rent in that location than it is to buy. Beware of answers that are 21 or higher. That could mean the properties are overvalued.
The key to diversifying your portfolio is to have a clear goal in mind, an investment strategy, and to acquire properties slowly over time. Don’t expand too quickly, but don’t miss out on lucrative opportunities, either. The key is to expand when you have consistent positive cash flow and the capacity to add more properties to your management team.
How to Boost Property Values and When to Cut Losses
Every real estate investor wants to boost their property values. But how do you do that? And when should you cut your losses and move on?
Boost Property Values
Need more positive cash flow? Here are five ways to boost your property values.
Raise Rent
If you’ve ever rented, you know your rent likely increases every year. Increasing rent means more cash flow for the property investor, and tenants already expect it. Of course, don’t spike rent one year over the last. Make sure it’s competitive and fair compared to other rental properties in the area.
Retention
Keeping high-quality tenants is always cheaper than seeking new tenants. Help reduce turnover by signing tenants to long-term leases, keeping the property in good condition, and responding in a timely fashion when tenants have concerns.
Analyze Operating Expenses
If your newly acquired property still has incandescent light bulbs and uses outdated appliances, you may want to update to LED lights and invest in high-efficiency appliances to cut down on operating expenses in the long run.
Refinance
If the housing market sees record-low interest rates, consider refinancing to increase your cash flow.
Tax Benefits
When tax season rolls around, make sure you’re well informed about which tax breaks you can benefit from as an investor.
Signs You Should Cut Your Losses
Not every property investment is a positive one. So, how do you know when to walk away? Here are three signs you should cut your losses and move on.
Neighborhood Depreciation
If the neighborhood you invested in starts to take a downward turn, don’t wait for that market to tank. Sell your property and reinvest in a growing area.
Negative Cash Flow
Your investments are meant to put cash in your pocket, not take money out. If you notice a certain property results in negative cash flow at the end of the year and there are no adjustments that will turn it around, it’s time to sell and look for better investment opportunities.
Increased value
If your property significantly increases in value within a year, you not only made an excellent investment, but you may want to sell sooner rather than later. It sounds counterintuitive, but keeping a property too long could mean lost profits. Keep an eye on property values. If your property value levels off, it may have reached its highest value. That’s a good indication it’s time to sell before it depreciates.
Next Steps
Now that you know why it’s advantageous to partner with a national property management company to expand your real estate portfolio, how to choose properties, how to boost values, and when to cut your losses, it’s time to find a property management company that works for you.
Marketplace Homes is one of those national property managers with properties in all the hottest markets in the country. (Dozens, actually, but who’s counting?) Not only can we help you sell or rent properties you already own, but we can assist you in acquiring new homes in various markets across the country, too. That’s what sets us apart.
Many property managers work too locally to expand an investor’s portfolio beyond a specific state or region. We, however, think bigger picture. Let’s find the best opportunities for your portfolio.
Troy Evans is the Director of Investor Services at Marketplace Homes with a focus on business development and portfolio management across their nationwide portfolio. Troy previously held other positions in the past ten years at Marketplace Homes, including sales. With a passion for single family rentals, he is looking forward to helping establish Marketplace Homes as the go-to partner in the SFR and BFR industry.