Investing in property is no longer as scary as you think. Many people think that property investment is something that can only be done by professionals or with the help of (expensive) property management companies. The biggest hurdle of any investor is not knowing where to start. But in this digital age, there are a lot of available resources online to help serious buyers to get started. In fact, there are many resources that would teach you how to invest in property. And if you’re really serious you can also hire a property consultant or property management company to teach you the ropes. Or you can also check back on this blog from time to time as we share tips and tricks of the trade in property investment.
Investing in property is the surest way to make a millionaire. According to Fortune Magazine, property investment makes more millionaires than any other asset class. 97% of all wealth was either created or held in property. You can actually do this exercise to see if it’s true: how many people do you know or know of, got their first million from the stock market, bonds, art, jewelry, commodities, or mutual funds? How many people do you know of, got their first million from investing in real estate? Probably more than the first batch of people, right?
Property investment, when done correctly, can be a big money-making venture. But, like all other investments, there are risks involved. Make sure you do your homework when you’re planning to embark on this business. Before you dip your foot into this lucrative pool, first, you have to know the basics.
With any business venture, the goal is to make a profit. Nobody goes into it just to gain experience and not make money in return. All investors have one target: to maximize ROI or Return on Investment. But what exactly is an ROI? An ROI is the measure of the efficiency of an investment. Simply put, it is what you get by dividing the return you get from the investment by its cost.
Here’s the formula:
Here’s how the formula works:
Let’s say for example that you bought a house with cash for $110,000 and spent another $20,000 on repairs and improvements. Your total investment cost is now $130,000. You rent the house for $1,400 a month, or $16,800 gross annually, and have no more repairs over the following year. Your ROI would look like this: $16,800 ÷ $130,000 = 12.9%
How can you maximize your ROI? Here are some tips:
- Meticulously inspect and prepare your property.
No one will buy or rent your property if it is dirty, unsafe, or dilapidated. Make sure that the property is clean. Check for any sort of infestation, make sure that there are garbage bins, investigate smells, check for leaks and drafts. Make sure your property is safe. Install safety features like gates, locks, deadbolts, or cameras. Even intercom buzzers help. Make sure your property is repaired and in order. Fresh paint helps. Inspect the roof and drains, circuits, and plumbing Make sure your property is ready for sale or for rent. You can reduce maintenance cost in the long run if you prepare your property properly. Be sure to hire an efficient and trusted contractor for repairing, building, or cleaning.
- Learn how to market your property.
This is one of the most important steps in maximizing your ROI. There are different strategies that you can use to market your property. You can go for print ads, get a broker, or list your property on high traffic listing websites. You can choose different combinations of these strategies but you should always plan to have your property listed on a website. The internet is the first place that potential buyers and renters go to, to look for properties – so online marketing is a must.Aside from the description of your property, your listing should also contain:
- A description of the neighborhood- is it safe? Is it near schools, markets, groceries, cafes? Is there good public transportation? Is it near offices?
- An introduction to the lifestyle – this means that you would have to describe what the vibe of the place is. Is the property in the CBD? Is it near a beach? Is it in a suburban area? Is it an academic community? People are usually drawn to places that fit their lifestyle. So take this into consideration when crafting your marketing plan.
- If you are renting your property out, screen your tenant carefully.
This is the way to avoid headaches in the long run. Choosing the right tenants is important for maximising your ROI. Go through the whole screening process – credit check, income and employment verification, criminal check, rental history, reference check, etc. You are likely to avoid non payments, property damage, and turnovers if you have quality tenants at the get go. Establish good communication with your tenants to ensure relationship success.
- Treat your investment property like a business.
You got it to generate income anyway, so treat it like a business. Don’t just say yes to the first tenants that come along. Avoid letting relatives, friends, or colleagues rent your property out. It will be difficult to establish a tenant – landlord relationship with them and imposing rules might prove difficult. Non paying tenants will decrease your ROI so collect rent on time and enforce lease terms. Make your expectations clear.
- Inspect your property regularly
If you are renting it out, it is just prudent to conduct regular property inspections. First of all, this will let you know if anything is in need of repair. Make sure your property is well maintained because the longer small repairs linger, the more costly they become. It is less expensive to address minor problems than to put them off for another time to grow into major ones. Roof leaks start out as drips. Flooding starts out as clogs. You will be able to find these small repairs with regular checks.
Davis Property Management
At Davis Property Management, we provide fast, friendly, and professional service tailored to your individual property management needs.