4 Ways to Grow Your Rental Property’s Value
How to work with your property manager on an “asset management” approach that drives overall value
Entrusting the management of your investment portfolio to a property management company should take only a little work on your part, especially if you are looking for traditional basic services.
Traditionally, a property manager focuses on maintaining the property, managing the terms of the lease, handling tenant issues and collecting the rent. Most investors and property managers, however, do not take an “asset management” approach to improving the overall value of your property.
Here are four simple things all investors should challenge their third-party managers to do in order to drive net operating income (NOI), which increases the value of your property.
- Set Budget Goals
You do not need to talk to your property manager all the time, especially when you set expectations by establishing a budget for each property. Talk with them about your NOI goals by establishing market rents and estimated expenses.
Once both parties agree to the budget, you can take the Ronco. tagline of “Set it and forget it.” That said, adding a budget-to-actual report to your monthly batch of owner statements is a good idea. That report helps to ensure you are on track to hit your NOI goal. Also consider doing a quarterly proactive review of the financials and budget with your property manager.
- Market Valuation
Ask your property manager to provide you with a comprehensive market analysis when you lease your property and again when it is time to renew leases. Reassessing the rental market value of the property every 9 to 12 months will help ensure you are capturing rent growth opportunities and staying competitive in the rental market.
This information is helpful to appraise the current and future value of the property and to make financial decisions with your entire portfolio in mind. If your property is experiencing frequent delinquencies or below-market rents, it may be time to replace the tenant and get some serious rent growth on the books. That leads right to #3—your Renewal Strategy.
- Renewal Strategy
Keep in mind that retaining existing tenants is the ideal plan to maintain consistent cash flow and reduce additional expenses that are incurred with turning over the property and vacancy loss. Re-leasing can be costly, and your property manager should advocate to retain good quality tenants for you by contacting the tenants 90 days before their lease expires.
Possibly incentivize your property manager to keep the property leased and negotiate renewals with rent increases instead of having to locate a new tenant. Ensure that your property managers are proactive, and set a calendar reminder to renew that lease before the tenants even think about moving.
- Leverage In-House Maintenance
The No. 1 variable cost and cap rate killer is high turnover and maintenance expenses. It is better to have a property manager that has in-house maintenance where their staffing is less expensive than professional handymen or third-party vendors. In-house maintenance can be scheduled ahead of time and can expedite the work so you have less vacancy loss. Some third-party vendors are scheduled out up to 30 days before they can get to a turnover. A good property manager should feel more like a partner and less like a service provider. They literally hold the keys to your retirement, your children’s education, the food on the table or a rainy day. Challenge them not only to take care of the day-to-day maintenance and tenant needs but also to take care of your value growth by using the tips above. If you do that, you should have more money in your pocket and more free time to spend it.
