What's Your Annual Rate of Return? (And Why It Matters)

The success of any investment can be is about building value onto what you already have. A stock becomes more valuable as it rises in market price, just as an investment home becomes more valuable as you make improvements and the neighborhood price appreciates. In order to calculate how well your investments are doing, however, you need a relative number. A number that will tell you just how much value you have added or lost in comparison to your investment.

Rate of Return (ROR)

This number is known as the Rate of Return, sometimes written ROR. It is the measured gain or loss of an investment over a set period of time. The rate is calculated as a percent which shows how much of your initial investment was built or lost over a period of time. However, there are many different time frames in which you can calculate the ROR and some are more useful than others in certain circumstances. 

ROR is usually calculated as the initial value minus the final value, then divided the initial value then divided by the initial value and again multiplied by 100%. And if you don't do word problems:

ROR = [init value - final value] / init value X 100%

You may want to calculate how quickly you're adding value on a month-to-month basis or at the beginning and end of an improvement project. Any time period can be used.

Annual Rate of Return (Annual/Yearly ROR)

The annual rate of return simply uses one calendar year in the rate of return calculation. Therefore, at the beginning of each year you would take note of how much your investments are worth. Then, at the end of the year, you take the number for how much your investments are worth. If there is no change, then your rate of return is 0 from year to year. If there is a chance, follow this formula

Annual ROR = [jan value - dec value] / jan value x 100%

This formula will calculate your percentage of growth over the year in one easy market-er-friendly percentage number.

---

Annual ROR calculations are vital for tracking the success of your own investments and determining how to make greater returns in the future. For more investment insights or help with your value analysis, contact us today!

Should Your Real Estate Venture be a Partnership?

Why ask why?

If you are considering entering into a real estate partnership, this is the most important factor for you to consider. Why do I need a partner? According to US News, there should be a clear and specific benefit, whether financial or operational. The benefit is often due to a lack of capital but could also be due to inadequate experience or an unfamiliar field. If you cannot find a reason you do not need a partner.

Business is business

Once you have determined that there is a need for a partnership it is time to get down to business. Real estate partnerships, just like any business venture, should have an agreement that specifically states who is who, as well as their responsibilities. Although it need not be written by an attorney it should at least be reviewed by one. Often times this is overlooked or shrugged off, especially when friends or family get involved. This biggest mistake partners can make is disregarding the partnership agreement. There should be no room for dispute because everything should be determined before the partnership begins.

What is your type?

The partnership agreement should make very clear determinations about who does what. Just as with a business there are a variety of partnership types, or structures, to fit the needs of your partnership. Some of the more common types are a 50/50 split partnership, where everything is equally divided, or a real equity/ sweat equity partnership, where one provides the capital and another provides the industry experience.

If you are wondering whether to take on a partner for your next real estate venture, first seek out the benefit that partnership holds for you, if there is no benefit there is no need for the partnership. If you choose to enter the partnership remember that it is a business venture and it should be handled as such. This means having a through and specific plan that lays out what to do no matter what the partnership encounters.

Maximizing Your ROI for Your First Real Estate Investment

Techniques to maximize your return on investment (ROI) on your first real estate fall into one of two categories. The first is reducing your expenses. Generating the best income for your property is the other. 

Reducing Your Expenses

1. Minimize financing costs. If you're purchasing your real estate investment with a loan, compare lenders to get the best deal on financing. Your exit strategy for the property plays a part in determining what type of financing will get you the best ROI. An investor who plans to buy and hold for asset appreciation may want a low-interest fixed-rate 30-year mortgage. However, the right adjustable rate loan may make more sense for an investor who plans to flip the property.

2. Purchase a property that's nearly ready to rent or sell. That fixer-upper may seem like a great deal. Getting it into condition to rent or sell is almost guaranteed to cost more than your projections. For your first real estate investment, consider a property that only needs minor cosmetic improvements.

Generating the Best Income

3. Create your marketing plan early. You need to know how you're going to market the property before you purchase it. For future landlords, the purpose is to limit the amount of time your rental property is vacant. (Vacant properties provide no ROI.) In addition to listings with online marketplaces, consider marketing opportunities that are unique to your property. For example, if you're property is near a hospital, you could reach out to the hospital to see if traveling nurses need housing. Flippers need a marketing plan too. The faster your flip sells, the sooner you can move on to the next deal.

4. Get a quality tenant. The wrong tenant can lower ROI quickly. Removing a tenant who damages the property or doesn't pay rent results in the ROI killer, a vacancy. Your property is not providing any income while you search for another tenant. Use a tenant screening service to get the right tenant from the start.

Updating Your Rental Property on a Budget

Each time you handle tenant turnover, it's a good idea to make a few updates to the property. Especially if the decor is becoming a bit dated. Of course, you don't always have a huge budget for major changes like new flooring or large appliances. Fortunately, you don't have to go all-out to make changes your new tenants will love. Here are six ideas that will spruce up a rental home without breaking the bank:

1) Fresh Coat of Paint

A fresh coat of paint between tenants is just good form. It deals with scuffs, scratches, and tiny nail holes with a smooth one-brush-fits-all solution. New paint makes a home look fresh and new, while also giving you an opportunity to update the internal color scheme of your rental property.

2) New Plumbing Fixtures

The faucets, shower heads, and handles of your plumbing fixtures can often be used to date a house. Old, blocky, or scratched-up fixtures make a rental home look shabby while new trendy-sleek fixtures make it look snazzy and ready for modern tenants. Just by replacing the surface-level fixtures, you can transform the bathroom and kitchen.

3) New Handles for Doors & Cabinets

Handles on your doors and cabinets can have a similarly powerful effect. Especially if you pair them with a little repainting to reinvent the color scheme of the rental property.

4) Smart Light Bulbs

Smart lights are the single most useful and energy-efficient aspect of the smart home trend. You don't need to invest in smart home hubs and other gadgets to start with. Smart lights in the sockets will give your tenants the option to integrate their own smart home technology and fully control the lights through voice or mobile app.

5) USB Power Outlets

Today, every mobile device we use and a good deal of the stationary devices charge through USB cables. This means that USB power ports are now increasingly important. But did you know it's incredibly easy to install USB ports in the walls of a rental home? All it takes is a quick switch of the outlet hardware, and new plug-and-USB outlets are surprisingly affordable.

6) Decorative Light Switch Covers

Finally, never forget the power of little plastic light switch covers. Simple white covers turn yellow over time. You can significantly improve the apparent age and quality of a home just by replacing these covers every few years. Consider something subtly decorative to add a hint of class to the integral decor.

---

Updating your rental property on a budget is easier than you think. For more property management insights, contact us today!