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!

Maximizing Rental Property Cash Flow

Investing in rental property involves many hopes—for rising rents, a profit at resale. But one inescapable reality of rental property is cash flow. When cash flow is good, many other problems are avoided or minimized. When cash flow is inadequate, you have a problem. 

Formulas for calculating cash flow are easy to find so we will not repeat them. But a more complex, nuanced issue is how to increase cash flow. That involves three elements: initial investment, ongoing expenses, and ongoing income.. 

Initial investment

 Potential cash flow should be estimated with care, using the most reliable possible figures, before you buy a rental property. That involves making the cash-flow calculation based on some estimates and guesses—such as how easy it will be to rent, what rents will be, what periods of vacancy might be unavoidable. 

Making a larger down payment and taking a smaller mortgage will increase future cash flow, of course, but not cash return on cash invested—an important consideration. Again, keeping the monthly mortgage payment lower by taking a smaller loan, for a longer term, at a lower interest rate increases cash flow, but, again, has implications for the long run. 

Operating expenses

 The chief operating expenses are payment of mortgage interest and principal, which is set at the time of purchase. But if the rental property is owned for a considerable period, it might be possible to refinance at lower interest and reduce monthly payments. That translates into long-term higher monthly cash flow.

 Insurance can be a significant operating expense. Seeking the best deal is a step toward long-term improved cash flow. And periodically checking for availability of a better rate makes sense.

 Less regular and predictable operating expenses are management, maintenance, repairs, and services. A landlord who takes on those tasks earns a higher cash flow by reducing outgo. It is a choice every landlord makes.

 Delaying or skimping on maintenance can be tempting because it increases present cash flow, but it can make tomorrow's costs higher as delayed maintenance leads to major problems.

Heat can be a significant expense. If instead of including it in the rent, the tenant pays it, the tenant has the incentive to conserve fuel and complaints about too little heat are avoided.

 Income

 The third element relevant to cash flow is rental income. At the outset, when considering the purchase of the property, the history of rental income is known. Prompt rental of the property with as little time vacant as possible—consistent with getting the highest realistic rent—has a major impact on cash flow. A unit vacant for a month has lost eight percent (1/12) of annual income. In a market where rents are not rising, a longer lease can avoid vacancies. So can a prompt, effective search for a new tenant when a current tenant gives notice. 

A final consideration is taxes. Tax planning and good record keeping, as the basis for achieving the lowest tax possible, boost cash flow. 

In conclusion, it is important to realize that getting a good purchase price and the best mortgage terms sets favorable overall parameters of cash flow. Management of expenses and income in the ways we have discussed can help to ensure that the expected cash flow materializes. 

Leaf Management & Funding rehabilitates houses to beautify neighborhoods and resells or rents them. The company also provides capital to those who wish to take on the same challenge of purchasing houses in need of serious repairs and investing in creating homes livable and attractive for future inhabitants.

Best Flooring Options for Your Rental Property

As you consider flooring options for your property investment, you're probably trying to strike the right balance between competing needs. You want your flooring option to fit your renovation budget, be durable, and be practical for your type of rental property. Of course, the floor has to look good to be appealing to tenants. Fortunately, these three flooring options are well-suited to your needs.

Carpet

If you're renovating a multi-unit property, carpet may be the best flooring option for your property investment. Carpet reduces noise between rental units. In addition to being inexpensive, carpet comes in an attractive variety of materials and colors. Nylon carpet is more durable than other carpet fibers and costs $10 to $45 per square yard. 

Luxury Vinyl

Valued by landlords for durability, luxury vinyl can be purchased as planks or tiles. It's not the same product as cheap vinyl tiles or sheets. Luxury vinyl has an attractive appearance. It's made to mimic the look of wood or stone. Luxury vinyl has an affordable cost of $2.5 to $5 per square foot.  Also, luxury vinyl is water-resistant. You may want to install it in the kitchen and bathroom if you're carpeting the rest of the unit. For single-family homes, luxury vinyl is a good choice for the entire property. One type of luxury vinyl clicks together and floats over the subfloor or existing floor. The other kind of luxury vinyl glues on. The biggest drawback is luxury vinyl doesn't muffle sound as well as carpet. However, thicker luxury vinyl (at least 3 mm) does provide some sound absorption. 

Laminate

This very budget-friendly flooring option ($0.70 - $2.00 per square foot) is made to look like wood, stone, or tile. That makes laminate popular with tenants. It can be installed as a floating floor over an existing one. Laminate is extremely durable and is an excellent choice for bedrooms and living areas. Due to a lack of water resistance, you'll need a different flooring option for the kitchen and bathroom of your property investment. 

Rental Property Yard Management

Yards in the Greater Boston area are beginning to green-up, now. They also are entering the season when regular care matters most.

Landlords understand that the yard is essential to a rental property's curbside appeal. But it also is a long-term investment. Beautiful yards can require years to come fully into their own. It makes sense to maintain them rather than repair them when the damage has been done.

Mostly, caring for the grounds is a landlord's responsibility. Yes, tenants may take on the job, for a consideration—or even because they love gardening. But that does not relieve the landlord of final responsibility.

The first step is not working on the yard. It is making an annual schedule of the care needed. State-of-the-art lawn care involves seasonal fertilizing, for example—usually late fall, early spring, and summer. In each case, the fertilizer formula is different, of course.

Then, schedule two annual examinations for problems. That could mean pests like moles and voles, invasive weeds such as dandelions, erosion, or build up of thatch. Most of these problems are known to landlords, but the point is to schedule them and stop worrying about them.

Then, there is mowing. In general, the less you frequently you mow, consistent with esthetics, the better for your grass. Once every two weeks at the height of summer might be needed.

And, of course, there is watering. In a way, regular and adequate watering is a matter of life and death to a lawn. It can pay to get that hassle out of the way by installing an automatic sprinkler system. The system can be set for any schedule—days of the week, times, duration. Schedule checking the system and turning it on for late spring, then checking and turning it off in early fall. In New England, mostly sprinkler systems get "blown out" when they are turned off in the fall.

So how to get all this done? Some landlords do it themselves and even like it. They get to check not only the lawn but the condition of the house at regular intervals. But if rental properties aren't your "job," then taking on lawn care, especially if you have more than one property, is asking a lot of yourself.

Once you have a definite list of maintenance steps, you are in a much better position to get a firm estimate from a landscaping company. You know how many days are involved, what equipment, and what supplies. With a known annual cost in mind, you can adjust the rent accordingly.

It is worthwhile, by the way, to look at "sole entrepreneurs" (a.k.a., handymen and ambitious high-school/college kids) as alternatives to a landscaping firm. You know the drill: no overhead, lower costs, lower prices. The "added" cost to you, however, is finding the right person instead of falling back on the professionalism of a landscaping firm.

In the longer run, a good schedule, well implemented, is like all on-time maintenance: cheaper in the long run than deferred maintenance and catch-up.

Time to make that schedule.