Tracking the Performance of Your Investment Properties
By Kerry Curry, Contributing Writer, B2R Finance
Tracking financial metrics helps residential rental property investors evaluate the quality of their investments. While we all want our investments to be lucrative, not all rental property investors have the same goals. Some may desire consistent cash flow, while others prefer robust appreciation. A return on investment of 8 to 10 percent may be great for one investor, but too low for someone else.
Despite these differences, there are some metrics investors would do well to track to determine if their properties are meeting their financial expectations.
We asked real estate investor Steve Rozenberg which indicators he suggests for tracking investment property performance. Rozenberg invests in single-family properties and is the owner of Houston-based Empire Industries Property Management, which specializes in managing properties for residential property investors.
Here are some key performance indicators to track:
- Cash flow: This is the amount of income you’ll have left after all your bills have been paid. Your bills include repair expenses, mortgage payments, taxes, insurance and other expenses.
- Return on investment (ROI): This will let you know how efficiently your property is meeting your financial objectives. Be aware that taking out a mortgage affects how you calculate ROI, as does the length of the loan term.
- Maintenance costs: This expense will vary widely depending on the age of a property. Track your maintenance in relation to net income. If the property is new, maintenance should be very low. If it’s older, your maintenance costs may be quite significant. In general, Rozenberg says 20 percent of cash flow for maintenance is fairly typical. Break out capital improvements (such as a new water heater) versus routine maintenance for a more detailed analysis.
- Tenant turnover: Keep track of how long tenants are staying. If your property is turning over every single year, perhaps that is an indication of a problem that needs to be addressed.
- Appreciation: Look at how much your properties are appreciating on an annual basis. Some investors may have a goal to sell once a property achieves a certain level of appreciation.
- Average days on market: How long does it take to lease a property once it goes vacant? If it takes a long time to lease a property, for example, that may affect whether you opt to raise the rent when a lease term is up, as an increase could further delay lease-up.
- Crime statistics: Review these annually. If crime is worsening, it may be an indication that it’s time to sell.
- Development and permitting: What’s happening around your property can impact your property’s value. Check with the city once a year to see what is being permitted and planned nearby.
“Let’s say your goal is a 20 percent return on your investment,” Rozenberg says. “My recommendation is you look at your portfolio every two years to see which property is not giving you that return. There could be a myriad of reasons. You go in and reassess: Is there anything I can do to this property that is giving me a 10 percent return to make it a 20 percent property?” If not, selling the underperforming asset may be something to consider, he says.
“Let the numbers dictate,” Rozenberg says, “not emotions.”
B2R Finance offers rental investors innovative lending products to help unlock equity from existing portfolios and provide the cash needed to build rental portfolios nationwide. For more information about how B2R can help you obtain rental property financing, just call 800-227-8107 or visit http://www.b2rfinance.com/apply-now and follow us on Twitter @B2RFinance.
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