Is it worth the risk?
The property rental market is a very lucrative area for potential investors and can provide a reliable, steady stream of passive income. To determine the overall profitability and longevity of their investment, investors need to determine how much the investment could cost, how long it will take to see returns, if the property will appreciate in value, and how they will manage its operations.
Aaron Gorin — founder Cedar Grove Partners LLC — a New York-based real estate investment firm — suggests that to maximize profits, investors need to be sure that they are minimizing the risks that they take on. Every tenant that landlords take can bring with them their own level of risk, and property managers need to implement procedures that allow for optimized profitability. Gorin’s advice can be broken down into the following three sections:
Getting the most from your tenants
- Take a down payment from tenants.
- Agree to and set targets for rent collection in a signed contract.
- Maximise collection of rent by automated means.
- Proactively manage rent arrears to ensure that they are kept to a minimum.
Aaron Gorin advises that potentially, renting by room rather than property can be a more sustainable model. This reduces the deduction of rent from an investor’s cash flow in the case of a tenant moving out.
The condition of the property
- Screen tenants. Property managers should have a consistent screening process, including credit checks and criminal background checks.
- Conduct regular checks of the property to assess cleaning regulations.
- Minimize the cost of property maintenance and repairs.
- Hire a property manager to look after vacant properties to check for vandalism and perform routine maintenance.
Day-to-day management for the property manager
- Handle leases. This can include setting the lease terms and making sure it has all necessary clauses to protect the owner.
- Handle complaints/emergencies. This includes maintenance requests, noise complaints, and ensuring that all of the relevant contracts are in place.
- Manage and maintain the budget. This can require using judgment to order repairs or likewise
- Maintain records. The property manager should keep thorough records regarding the property. This should include all income and expenses, inspections, signed leases, maintenance requests, complaints, repairs, costs, rent collection and insurance.
- Have Health and Safety procedures in place.
Aaron Gorin stresses that maintaining a sound knowledge on statewide and national law can make all the difference to a well-managed property. The vitals include screening processes, security deposits, termination, eviction processes, and the Property Safety Standard.
Good property managers are imperative to success in a property investment, and so it should be a decision that investors need to make wisely and with care.