Wealth creation through real estate requires owning multiple properties. Though owning one property can provide a supplemental source of wealth creation, it won’t provide long-term income and financial freedom that lasts into your golden years. Achieving financial freedom requires faster wealth building.
Real estate provides the advantage of leverage, which allows investors to control a large number of properties without a large bankroll. Smart investors utilize leverage wisely to acquire multiple properties.
However, this strategy has a downside. If these multiple properties are not carefully and wisely managed, cash flow can turn negative. If the market sags, the investor can find him or herself scrambling to keep up a myriad of property owner responsibilities.
Smart investors employ professional strategies for managing multiple properties. These strategies include marketing, property maintenance, property improvement and tenant relations. Many investors enjoy the challenge of managing multiple properties. Others lack the time and inclination.
Those in the latter category are better off hiring a professional property management company like LCI Realty. When the owner can’t commit to the demands of effectively managing the properties, the property management fee pays for itself many times over.
Benefits Of Owning More Than One Investment
Diversification leads to long-term wealth creation. When a real estate investor owns many properties, he or she protects against losses and increases the chance of hitting a property investment home run. Owning multiple properties provides three key benefits:
1. Faster wealth creation.
2. Risk reduction.
3. Ability to pay debt.
Faster Wealth Creation.
Like the stock investor needing to own several individual stocks in a variety of industries, the real estate investor needs to own several individual properties in a variety of real estate markets. Markets can include:
- Geographical areas.
- Price ranges.
- Property types.
When properly diversified, real estate investors position themselves to take advantage of upswings in a number of markets. They also assure that problems with one property or market won’t drag the whole business into the red. This leads to many benefits:
- Faster wealth accumulation.
- Steady overall portfolio growth.
- Downside protection.
- Less dependence on single tenants.
- Loss mitigation.
For example, if a real estate investor owns properties in several cities, he or she likely always has some properties that are rapidly appreciating, some that appreciate a little and some that are stagnant. Over the years, the stagnant ones may become the stars and vice versa.
Because of the investor’s wise diversification, the overall portfolio increases in value each year.
Vacancies are always on a landlord’s mind. If you have one property, a vacancy means no income whatsoever. On top of that, you have to spend money finding a tenant representative and reconditioning the property.
Vacancies are inevitable, but if you have 10 properties, one vacancy won’t drag your business down. Cash flow from other properties should easily cover the costs of filling the vacant property. Additional risk reduction includes the softened impact of the following:
- Tax increases.
- Fire damage.
- Weather or disaster damages.
- Insurance disputes.
- Rent defaults.
Ability To Pay Debt.
How would you like to go into retirement debt-free? Many investors who own multiple properties do just that. They sell one or several properties to pay off the others. There’s nothing like being mortgage-free.
Strategies To Properly Manage Multiple Properties
If you want to take on the responsibilities of managing multiple properties on your own, you take on an enormous responsibility. Be sure you are able to devote the time and focus needed to become a successful property manager and prepare to perform the following duties:
- Creating a market strategy – A market strategy reduces your vacancy rate. To get units rented quickly, target online and print publications that your ideal client reads. Creating an appeal is important. Emphasize the unique features of your property.For example, if your rental home sits on a quiet pond, make the reader imagine living in this peaceful location.
- Performing a maintenance schedule – All businesses have routines, and property owners must perform maintenance on a regular schedule. If you don’t have the time or skills for maintenance, consider hiring a handyman.It’s also important to line up reliable contractors for emergencies, such as plumbers and electricians.
- Screening tenants – Most tenant screenings verify income, check credit history and conduct a criminal background check. It’s also important to clarify if the applicant intends to have roommates or pets. Screening is important because evictions are costly, and the landlord usually eats into several months of rent.Consider using a professional screening service for a thorough background check.
- Maintaining good tenant relations – In today’s online world, your ideal clients will search for information about your property on their smartphones. A scan of comments about several apartment companies usually reveals if one company has a disproportionate volume of tenant complaints.Though no company is immune from a few unwarranted posts, bad tenant relations could result in your property being the one everyone seems to be complaining about.
Treating tenants like people rather than numbers goes a long way with most tenants. Tenants also appreciate the following:
- Prompt responses to maintenance requests.
- Fair and transparent leases.
- Respect for diversity.
- Support for a peaceful and tolerant atmosphere.
- Clean and neat property.
- Professional conflict management.
Getting Professional Help From Property Management Companies
If you aren’t able to commit the time and energy to manage your properties, a property management company can shoulder the burden and property management companies can make your property more valuable.
What To Look For In A Property Management Company
Good property management companies help you generate positive cash flow. They do this by organizing all of the essential tasks, like rent collection, maintenance and inspections. When your property is vacant, they go to work marketing it.
Professional property managers also visit the property and conduct proactive maintenance. It’s also important to find a company that communicates regularly; for example, once a month while the property is rented and once a week while it is vacant.
The average fee is 8 percent to 12 percent. If the property manager is good, the fee is worth it. A good property management company pays for itself by providing these benefits:
- Legal liability protection.
- Tenant complaint resolution.
- Rent collection.
- Late payment collection.
- Eviction services.
- Routine maintenance.
- Emergency maintenance.
- Tenant negotiations.
- Contractor negotiations.
- Lease services.
- Legal compliance.
- Zoning issues.
Often, a professional management company’s fee is less than what you would pay out of pocket to handle these issues yourself. Savings can be substantial when the property management company provides the following:
- Good maintenance contracts.
- A proactive approach toward maintenance.
- Keeps you out of any legal trouble.
Owning multiple properties allows real estate investors to leverage up in a big way. A multiple property portfolio can enjoy consistent appreciation when its diversified across different geographical areas, property types and price ranges.
A strong property management company can help you create a positive cash flow and stave off costly problems. With some time and patience, you’ll have properties you can sell off to create your dream retirement.
Need a property management partner? The team at LCI Realty are experts in commercial real estate investments and property management. Contact our team today at 480-565-8981 for more information.