So, you are looking to buy an investment property, or you have already bought one. Now comes the time to “manage” it. A lot can go into this in the short term as well as the long term. You will hear terms like “proforma” and “below market” rental rates but what does that all really mean? Is it just some fancy sales language or is there truly a meaning behind them? The short answer is yes there is some truth behind those. The ugly truth is that the plan to get there is not always front and center or transparent. When purchasing an income producing property you should evaluate from the angle of repositioning.
Below are three things you should evaluate and plan for should you want to take a property to the next level. These simple steps can be used for a single family or a multifamily property. You should also look at this prior to purchase so that you are well prepared for what your strategy will be for the property.
- Quality Residents – A lot goes into this statement. Check with the current manager of the property to gather rent rolls, ledgers, and leases to see how the resident is financially performing. If they are underperforming such as late often or behind on rent, you will want to calculate the vacancy for a turnover as well as what upgrades can be done to the unit to get market rate. Do not be afraid of vacancy if you have a poor tenant in place.
- Market Rate – This does not necessarily mean your unit will command top dollar. The unit must present itself top dollar to get top dollar. So, when comparing other units to yours look at overall interior appearance and functional amenities from properties you are comparing too. It is possible to get top dollar but there may have to be some work done to get there. Functional amenities that peak interest are dishwashers, washer/dryers, and storage.
- Curb Appeal – In my opinion this is the most important consideration. You can have the nicest unit inside and the best resident but am property that is run down and looks worn out on the outside can detract future residents as well devalue the property upon disposition. Make sure you have great curb appeal from painting to landscaping to lawn care. Also, resident management by your property manager is critical. This means establishing guidelines for how the property exterior should be maintained by the resident to include parking on the grass, storage of items, and pets.
Please do no confuse remodel with reposition. Remodeling is changing the basic looks while repositioning is changing the value of an income producing property by significantly changing the physical appearance, operation and resident “feel.”
Lastly, in one of the most competitive markets we have seen, make sure all the homework is done upfront to make a successful investment. Repositioning a property may seem overwhelming, but the potential reward is great. For more details, contact us here at Rent It Network. We can share real world examples of clients who have successfully used this strategy to create real estate wealth.