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, and the health of your cash flows and the property’s financial future. You’ll need to prioritize regular property assessments to stay on top of these essential tasks. 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 can easily handle these tasks.
It’s important to assess your property in three different ways: evaluate its physical condition, determine its financial performance, and conduct a market comparison. This approach can ensure that your rental remains competitive and appealing to quality tenants.
Assess Condition
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 essential to regularly assess the condition of your rental property, in detail, and have a proactive property maintenance system 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, etc. You should also assess the property’s curb appeal and plan to regularly update 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 prioritize regular and seasonal property maintenance. 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 your investment’s financial performance. Without tracking your returns and profits, you will not know whether your property is a good investment.
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, your monthly or annual profit after deducting expenses. Be sure to include all fees, including an amount for maintenance and repair costs and vacancy costs. If the resulting number is positive, 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 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
You should make regular market comparisons to assess the local rental market along with your property’s physical and financial health. 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, 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 vital to know as much as possible 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 yearly. 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.
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