The Back-end Financials of Your Real Estate Business

 The Importance of a Savings Fund for Your Rental Property Business.

 

 

The income from a rental property, or an entire portfolio of properties, generates its own momentum. As long as you have another months' rent coming in, you can easily cover the expenses needed to maintain your properties. However, the sudden need for large-scale repairs can completely throw off your calculations for both budget and profit.

Unexpected expenses may be difficult to cover unless you have carefully built up a savings fund with these types of problems in mind.  Replacements and major repairs cost more than any single month's profit margins. As an experienced property management firm, Leaf Management can help you build the right savings plan to ensure the strength and long-term profitability of your rental property business. Here's how to plan financially for the unexpected.

 

The 1% Maintenance Rule

The first rule of thumb is the 1% maintenance rule. Every new homeowner should be advised to set aside approximately 1% of the property cost per year to cover maintenance and repairs. This amount should go into a savings fund - you won't need the whole of it every year. Most years, little repairs will only require a fraction. But in five years, you will have saved enough for the inevitable major repair that may be needed.

Homes occasionally have quite large and sometimes unexpected expenses. The heater may go out one winter, or a bad storm might seriously damage the roof. setting aside 1% of each property's value per year in your savings account can ensure you will usually have enough to cover a major repair for any of your rental properties in a given year.

 

Saving for Three Months of Expenses

Another useful savings strategy for a rental investor is to prepare for 3-6 months of expenses, just in case. What if a tenant leaves next year and it takes longer than usual to replace them? What if a costly major repair is necessary before you can resume collecting rental income? If the house becomes unlivable during a tenant's lease, you may need to discount them a month of rent until the house is repaired and livable again.

Having a nice cushion of 3-6 months expenses can create that necessary margin and provide the funds you need for the next big repair or replacement cost. The larger your cushion, the more you can relax when unexpected setbacks, expenses, and vacancies occur.

 

Build a Major Maintenances Saving Schedule

You can also take a page from commercial real estate strategy. In commercial real estate, a maintenance schedule is used to predict major repair and replacement costs. For example, it will include both annual HVAC tune-ups and the inevitable system replacement 15-20 years after the current unit was installed. The schedule includes these calculations for every major system.

In the case of a residential investment owner, this would include the water heater, AC, heater, roof, plumbing, and so on. Knowing when to expect these expenses can help you save up for when then inevitably need repair and eventual replacement. In fact, you might even have a replacement ready before a catastrophic failure occurs.

 

Diversifying Your Portfolio and Risk Exposure

Lastly, owning and renting out more properties can soften the impact when a single property needs a major repair. Let's say you manage 10 rental homes instead of one. If one of those ten homes has a delayed turnover, the rental income from the other nine will help to cover the gap and provide for any unexpected expenses. You can also spread out your savings plan to pull a smaller percentage from the profit of each individual rental income.

 

Smart Maintenance and Savings Planning with Leaf Management

Planning ahead is the best way to be prepared financially for the ups and downs of rental property investment. Savvy landlords and investors know that large expenses will happen eventually, and it's best to have funds to cover them before the next surprise. Better yet, is to not be surprised at all by knowing the age and maintenance schedule of every major system in your investment portfolio.

Property management is more than just keeping tenants happy. At Leaf Management, we can help property owners build a smart savings plan to enjoy both rental income profits and prepare their business for the inevitable surprise maintenance expenses around the corner. For more insights into rental property business success strategies or expert property management services, contact us today.

Selecting your Property Manager

 

Identifying the Right Property Manager for the Job

What to Look for When Hiring a Property Manager

Buying an investment property is only the first step in a profitable real estate business plan. Whether you have chosen a single-family house, a multi-family building, or even a commercial property, most investors partner with a property manager to help run the business side of things. Property managers maintain the building and grounds, take care of your tenants, and handle the routine of marketing and screening for new tenants. They collect rent on your behalf and make sure that routine matters are neatly handled so you don't have to wait by the phone all the time.

However, there is an important difference between a good vs bad property manager. Not all property managers or services are the same, and it's important to find the right property manager to take good care of your investments. 

What should you look for in a property manager? The signs are clear if you know how to see them.

 

A Successful Track Record and Positive Reviews

First, check their reputation. A good property manager or management team will likely have a positive public rating and several satisfied reviews from other property owners who have benefitted from the service. Check licenses and business ratings. Check their website and Google reviews. A well-reputed business is often easy to spot, while one with a minimal web presence should cause you to look twice.

 

A Team with 24/7 Availability

The most effective property management services are teams that can provide 24/7 support for your tenants. Emergencies can happen any time. When storms hit, pipes burst, or the AC/Heat goes out, you want your property management team to have someone answering the phone, ready to send an emergency service over right away. A responsive 24/7 team will take better care of both your tenants and your property with the ability to act swiftly and prevent further damage.

 

A Trusted Resident Service Network

Speaking of services, a good property management team will likely have a network of trustworthy trades services on-call. They will know the three best plumbers in town, have a favorite roofing service, and know where to get fast HVAC repairs at a good price. Property managers who are already successful in the area will know who to call for every type of emergency, including services that can send a repair team in the middle of the night, if necessary.

 

A Website and Client/Tenant Portal

Tech-savviness and accessibility also play an important role. Look for a property management team with a website and portal features. Property owners should be able to see their properties and how they are being managed. Tenants should have an easy online path to maintenance requests and inspection scheduling. If you see a high-quality property management website that is clearly in active use, this is a good sign.

 

A Streamlined Onboarding and Turnover Process

Onboarding a new property and the tenant turnover process are two of the most intensive jobs a property manager must do. They should have a streamlined process for cleaning, repainting, and repairing properties before tenants move in. They should know how to attractively photograph and list a property, and have a trusted process for attracting, screening, and selecting tenants.

A good tenant turnover process achieves three important things. First, it will minimize the money you lose to vacant months when your previous tenant leaves. Two, it will ensure that your property gets a full maintenance round and is spruced up between tenants. Three, it ensures that high quality tenants are selected who will be good stewards of your property.

 

Responsive and Clear Communication

Lastly, be sure you are satisfied with the communication style and responsiveness of your property manager. You want a provider or team who answers emails promptly, can always make time for a phonecall, and who gives clear information both routinely and when asked. Request to see how they send routine reports to their landlord clients and start a comfortable flow of communication before you engage a property manager to ensure that you and they will get along as business partners. 

 

Making the Right Choice for Your Property Management

Choosing a property manager, you are entrusting your investment real estate to the care of another person or team. They should be competant, proven, trustworthy, and have a network ready to deploy in the care of your property and tenants. They should have the right attitude, a responsive communication style, and co-management routine that works for you as the property owner.

At Leaf Management, we strive to embody every one of these requirements and will gladly show you our credentials, routine, and network so that you can rest at ease with your properties in the care of our management teams. Your properties should be managed by someone you can trust, contact us today to

Best Homes for Flipping

 

What Homes are the Best for Flipping? 

Over the past few years, house flipping has been rising in popularity, and it's with good reason. This is because data shows that you can expect an average return on investment (ROI) of 26.9%, translating to a gross profit of $67,900. 

While it's a lucrative venture, it also has its risks. If you invest in the wrong property, it may be long before you get a buyer. Even worse, you may end up losing money on your investment.

So, if you want to make consistent profits flipping homes, keep reading to learn the best homes for flipping and the top factors to consider.

Targeting the Gold Mines: Features of Profitable Homes

When it comes to flipping homes for maximum profit, understanding the dynamics of a property's location is paramount. The adage "location, location, location" couldn't be more accurate. Start by researching neighborhoods with rising property values and increasing demand. 

Moreover, its proximity to amenities, good schools, and accessible transportation all contribute to a prime location that attracts potential buyers.

Equally crucial is assessing the structural integrity of a potential investment. Aesthetics may catch the eye, but a solid foundation, well-maintained plumbing, and a sound electrical system are the backbone of a successful flip. Undertake a comprehensive inspection or hire professionals to ensure you're not dealing with hidden issues that can erode your profit margins.

Moreover, savvy investors stay ahead of the curve by considering market trends. Keep an eye on emerging neighborhood developments, shifts in buyer preferences, and upcoming infrastructure projects. Being attuned to the pulse of the real estate market allows you to identify opportunities for investment before they become mainstream, giving you a competitive edge.

Beyond Curb Appeal: A Deep Dive into Aesthetic Potential

When looking for properties, the visual impression can sway potential buyers. As such, aesthetics play a key role in home flipping profitability. There, consider the visual appeal and the impact of strategic cosmetic renovations when selecting properties to flip. 

You'll be surprised at how small changes, such as modernizing kitchens, upgrading bathrooms, and enhancing curb appeal, can elevate a property's perceived value. 

However, it's essential to navigate the realm of design and layout with caution. While personal touches can add character, steering clear of red flags in design is crucial. Overly personalized or niche renovations may limit your potential buyer pool, affecting marketability. So, aim to strike a balance between trendy and timeless design ensures your investment appeals to a broad audience.

Moreover, scrutinize the layout for functionality and flow. Open floor plans, ample storage, and a harmonious spatial arrangement contribute to the overall allure of a property. Avoid layouts that impede the natural flow of movement or hinder the potential for future customization.

Financial Fortunes: Budgeting and Cost Considerations

The financial success of a home-flipping venture hinges on meticulous budgeting and astute cost considerations. This is why accurately estimating renovation costs is the cornerstone of a profitable project. 

Begin by conducting a thorough evaluation of the property's condition, identifying areas that demand attention, and obtaining quotes from reliable contractors. A well-defined budget not only prevents financial overreach but also allows for a streamlined and efficient renovation process. Equally vital is the art of balancing upgrades for optimal returns. Invest strategically in areas that have the most significant impact on the property's value. 

You should also consider modernizing kitchens and bathrooms, upgrading flooring, and enhancing energy efficiency are often wise choices. However, avoid unnecessary splurges on features that may not yield a proportional increase in the property's market value.

Furthermore, keeping a contingency fund is prudent to navigate unforeseen challenges that may arise during renovations. Unanticipated issues, such as hidden structural problems or unexpected permit costs, can impact your bottom line. 

Therefore, a well-prepared budget, coupled with a keen understanding of where to allocate funds for maximum impact, is the roadmap to financial success in the world of home flipping.

Avoiding the Money Pits: Red Flags in Flipping Potential

In the pursuit of profitable home flipping, steering clear of potential money pits is crucial. Start by scrutinizing hidden issues that can escalate costs—plumbing, electrical, and foundation woes. A comprehensive pre-purchase inspection is non-negotiable to unveil any lurking problems that might compromise your investment.

Beyond the property's confines, be vigilant about neighborhood pitfalls. Investigate crime rates and school districts as they directly impact the property's desirability. A seemingly attractive house may lose its charm in a high-crime area or if the local schools fall short. Prioritize due diligence to secure a successful and lucrative flip.

Timing is Everything: The Art of Buying at the Right Moment

Beyond your ability to find and choose the right properties to flip, your timing must be impeccable. This involves capitalizing on market trends and a keen understanding of when to buy and sell for optimal returns. Keep a finger on the pulse of real estate fluctuations, and be ready to pounce when opportunities arise.

Additionally, steer clear of common seasonal pitfalls. While spring and summer often see increased buyer activity, competition may drive prices up. Contrarily, winter can offer bargains but may limit your pool of potential buyers. Therefore, you should navigate the market rhythm skillfully to ensure your investment aligns with the most opportune moments.

Get Ahead of the Competition with the Right Strategy

As mentioned, the line between success and failure in home flipping is thin. Fortunately, with the right strategy, you can be sure that your investments will be profitable. This starts with choosing the right properties and having detailed budgets to help you manage expenses and avoid unexpected costs.

Moreover, you need to be skilled at estimating renovation costs to ensure projects remain within budget and don't eat into potential profits. By considering these factors and carefully evaluating the local real estate market, you can increase your chances of a successful and profitable flipping endeavor. 

With the market for flipping houses growing, you'll need to have enough resources to fund your projects. That's where Leaf Management & Funding comes into play. We offer capital to house flippers to ensure you can comfortably grow your business. 

So, if you're in need of additional funding for your house-flipping venture, reach out to us today. We'll get you sorted in no time to ensure you don't miss out on any opportunity.