Assess Your Rental Property Like a Pro
Investors who own profitable single-family rental homes understand the importance of regular property assessment. Contrary to popular belief, owning rental properties is not a passive business; rather, managing one or more rental properties requires regularly attending to maintenance, repairs, renovation, as well as the health of your cash flows and the property’s financial future. To stay on top of these essential tasks, you’ll need to make regular property assessments a priority. Working with a professional property management service like Real Property Management allows you to hand off property assessments and regular property management and maintenance services to a local group of pros, who are equipped to handle these tasks with ease.
It’s important to assess your property in three different ways: evaluate the physical condition of your property, determine the financial performance of your property, and conduct a market comparison. By assessing your rental property using this approach, you can ensure your rental remains competitive and appealing to quality tenants.
Assess Condition
In a very real sense, your rental income is based on the physical condition of your rental property. Competitive rental rates depend on keeping your property habitable and in good condition. So, it’s important to regularly assess the condition of your rental property, in detail, and have a proactive system of property maintenance in place.
To assess your property’s physical condition, you’ll want to have a detailed checklist and complete a comprehensive evaluation of each aspect. For example, you’ll want to know the condition of your property’s roof, foundation, doors and windows, plumbing, HVAC system, electrical system, and so on. You should also assess the property’s curb appeal, and plan to make regular updates to exterior paint, trim, and landscaping, as needed.
While you may rely on your tenant to perform some of the general upkeep of the property, you should still make regular and seasonal property maintenance a priority. This will help to keep your property in good shape and avoid more expensive repairs later on.
Assess Performance
Another aspect of your regular property assessment should be the financial performance of your investment. If you are not tracking your returns and profits, it will be impossible to know whether your property is actually a good investment or not.
There are several ways that investors can assess the performance of their rental property investments. For example, you can (and should) look at your cash flow, otherwise known as your monthly or annual profit after expenses have been deducted. Be sure to include all expenses, including an amount for maintenance and repair costs and vacancy costs. If the resulting number is positive, then you have a positive cash flow.
Another popular calculation is the return on investment (ROI) approach. You will need to know your monthly cash flow to use this method. Then, add your cash flow and your principal payment together, and multiply by 12. That is your annual return. You can then divide your annual return by the total cost of your investment to estimate your ROI. Once you have a clear view of how well your investment property is performing, you can make better and more informed business decisions about it.
Assess the Market
Along with the physical and financial health of your property, you should be doing regular market comparisons to assess the local rental market, as well. To ensure that your property is still correctly priced and competitive, you need to know how your rental compares to similar rental properties in your area. To get the most accurate market comparison possible, look for nearby rentals that are similar to yours in size, age, condition, location, and amenities. Then, calculate each comparable property’s price per square foot by dividing the rental rate by the amount of livable square footage of the home. Then, add the three rates together and divide by 3 to get an average rental price per square foot.
Once you’ve calculated the average rental price per square foot, you can multiply that number by the livable square footage in your own rental property and compare the results with your current rental rate. If there is a difference, that is an indication that your rate may need to be adjusted to stay in line with the local market.
To ensure that you are not losing out on available rental income, it is vitally important to know as much as you can about your local rental market and how your rental compares to others like it. For this reason, experts recommend completing a full market comparison at least once each year. With a market comparison in hand, you can better determine the accuracy of your current rental rate and when it is time to increase it.
At Real Property Management, we are ready to help you assess your investment properties and maximize your profits. Contact your nearest office today to learn more or to schedule an assessment.
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