Sunday, 26 February 2017

How Smart Investors Increase Their ROI

Written by Posted On Saturday, 11 February 2017 10:42

Investing in real estate is not complicated.  All you need to do is find the right property for the right price, keep it occupied and well-maintained.  Sounds simple enough, but when push comes to shove very few investors are aware of the ‘secrets’ which can increase the value of their properties in a matter of days, not months.  With that in mind, I wanted to run through how smart investors increase their ROI.  These are simple steps which can help any investor, be it commercial or residential, increase what their properties are worth.

1)      Subdivide It

This is one of the oldest tricks in the real estate investors playbook.  Whenever possible look for opportunities to divide larger spaces into smaller units.  Not only does this reduce your risk if the larger unit is unoccupied but it also gives you a chance to increase the monthly base rent for the property. 

In the case of commercial properties, this can be as simple as putting up a diving wall and installing a separate electrical meter.  For residential properties, this will include building out a new kitchen & bathroom. 

Here’s the payoff.  Imagine you had a two-family home and you were collecting $2,000 per month in rent.  Now imagine you added a studio apartment – either in the garage, or ‘carriage house’, or as an in-law apartment.  While you might not be able to get $1,000 for the additional apartment, you could charge $600 or more.  This would net you a 30% increase in rent without needing to raise rents.  

2)      Pave It

I am sure you have heard of curb appeal.  Did you know that making sure your driveway or parking lot is in good condition will not only make your property seem more appealing but it could add 5% to 10% to its value?And it turns out this simple trick which can be done in a week or less. 

Maybe you just need to reseal your driveway, or maybe you have commercial property that needs a new driveway.  Either way, paving upgrades create value and this leads to a higher ROI for real estate investors.  Getting started is rather simple as well.  All you need to is find a quality paver your area and work out the details with them.

3)      Efficiency Matters

We have looked at a simple way to increase rental income without increasing rents and how minor improvements will help to increase the value of your property.  But another way that smart investors increase their ROI is by looking at how they can improve efficiency.  This is not limited to energy efficiency, though this plays a big part, it also includes looking other aspects of operational efficiency and better cash flow management.

When it comes to energy efficiency, some of the more common steps are installing sealed windows, insulation, upgrading bathroom fixtures, and even using foyers to keep air conditioning or heat from escaping every time a door is opened.

While these steps will improve the ‘efficiency’ of a property and will not only have a direct impact on net income and property value, there are limits.  For example, the upgrades listed all require significant capital investment.  As such, they are not always the best options.

Smart property investors know this so before undertaking massive capital investments they look at the potential payoff and they create a plan – which may take several years to implement.

This brings us to the other options to increase efficiency.   Small improvements could include sensors which control lighting or air conditioning in rooms based on movement, or lack thereof.  Another option is to regularly perform planned maintenance. 

Performing regular maintenance on investment propertiescan save you money over the long-run.  This might sound counter-intuitive, but when you think about it performing regular maintenance makes a lot of sense.  You wouldn’t run your car for five-year without an oil change; so why wouldn’t you perform regular check up on building systems – such as HVAC, pipes & drainage, etc. 

Doing so helps to ensure everything is in good working order and will lower the total cost of ownership by reducing how often you need to undertake major repairs.  This brings up another element in efficiency – improved cash flow management.

Part of this includes management of service contracts with suppliers.  But another part includes looking at tenant payment systems.  Let’s face it, the days of the check being in the mail are long gone.  Who uses checks anyways? 

Instead opt for a payment system which either allows you, as the landlord, to automatically debit a tenant’s account or an online payment option which will clear on the same day.  Doing so will give you more certainty on when cash is coming in and more transparency when there is a delay.

As you can see, these ‘secrets’ involve little or no additional investment and can be implemented in seven days or less.  Start increasing your ROI today and laugh all the way to the bank.

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