4 Fundamental Ways to Maximize Real Estate Investment ROI
Investors are often looking for ways to diversify their portfolios. For hardcore investors, including a real estate property in that portfolio is the ultimate goal. You can do it in two ways: investing in real estate commodities such as REIT (real estate investment trusts) and purchasing a property. However, for those who have already done the ultimate, the goal now is looking for ways to maximize the return on investment. Notably, a real estate investment doesn’t come cheap, so you’d naturally want to increase the ROI. Here are some simple techniques to do so.
Ways to maximize real estate ROI
1) Know your risk
This cannot be emphasized enough. As an investor, you should know the importance of calculating the risks involved. A real estate property is an exceedingly risky investment. But, you can minimize the risks by honestly assessing yourself and your resources, capacities, and skills. For one, there’s a myriad of property options.
If you want a fixer-upper that you can sell in the future, that’s fine. However, you should be comfortable with the idea of sharing potential returns with those who will help you rebuild the house unless you are a handyman yourself. Do you want a rental apartment with several units? You should know how to deal with people of various backgrounds efficiently. If you have no idea how, look for another type of property with a much lower risk before you deflate your purported ROI.
As a part of your diligence, you must ensure there are no encumbrances to the property. If you buy a fixer-upper or any previously-occupied property, secure a certificate of authorizing registration Philippines-issued. This document confirms the previous owners have settled the taxes; it works as tax clearance.
2) Gauge your time
This is yet another issue to explore. Are you still working full-time? If yes, how many hours per week can you devote to managing your rental property? A condo unit rental in a low-income neighborhood may cause the owner to invest all his time managing and maintaining the property. Much better if you’ll invest in a condo building within the metropolis, a central business district hence a power address. However, you need to factor in documentary processing. For instance, you can only obtain a condominium title in the Philippines six months after full payment.
Even so, you still need to know whether the investment will be lucrative and if you are better off doing an eight-to-five job. Know also that each time you invest in organizing a monthly renter could mean time away from your steady-paying job. It won’t be as risky if the rental fee per hour is double what you should supposedly earn while working in an office. That means a more or less 50% increased ROI for you. With this also, you need to be reasonable with the monthly rent, more so if the property is mortgaged. You should be able to recuperate the monthly amortization as possible.
3) Know your target
Again, when buying any property for whatever purpose this may serve, you should know your demographics first and location second (although some would argue to prioritize the location). Speaking of which, check those areas people would want to rent. Going back to our example, since the condominium building is located in a business district, attracting tenants with high-paying jobs would be easier. Collecting monthly rentals will not be a problem as well. Because the tenants will be out most of the day, the unit will not experience much wear and tear.
It doesn’t have to be a condominium or a multi-unit apartment; it could be a small house or a duplex. The bottom line is—you should have a good grasp of who the likely tenants would be if it’ll be a rental property to minimize vacancy time or the potential buyers if you are into a buying and selling category. For the latter, you should strive to invest in a property with a steady stream of tenants ready to rent.
4) Improve your property
If there’s one thing plausible about real estate properties is that they appreciate. As it provides you with cash flow through monthly rents, don’t forget to upgrade. Although you might have some limitations in enhancing your property, especially a condo unit, you can still improve its value by adding functionalities inside. Through this, you may negotiate a higher monthly rent.
Your primary goal is to keep the property attractive to tenants to retain and improve its value. Eventually, should you choose to liquidate the said property, the returns will be higher. To do this, make sure that your improvements can increase their value. Some examples are installing energy-efficient windows and insulating the entire house. Research and do what’s necessary.
Investing in real estate is an exciting endeavor despite the associated risks. The ROI is what you’ll make of it. There are factors at play in making this a successful investment. Every savvy investor, who wants to include real estate in their portfolio, should utilize the techniques above to limit the time you should spend on the investment while increasing its returns. That’s how you make the real estate investment work for you.