One of the most lucrative of investments can be in real estate. There is no secret to that. Unfortunately, a great number of rental properties are not performing as they had prior to acquisition, which leaves the new landlord wondering if the numbers had been doctored prior to agreeing to a purchase price. In most cases, this is not the issue.
While there may be times when the seller modified stats in some small way, it would never have gone unnoticed that something was amiss with the numbers being reported on paper. The lower-than-expected ROI is most likely due to something being done, or not done, that is responsible for poorly performing rental properties. Here are some of the major reasons for a lower ROI, and what you might do to solve the problem if that is where it lies.
Easy Access to Management
One of the major reasons for rental properties not seeing the amount of ROI they had expected is due to issues with management. It could be that tenants are unable to reach management when they have questions or concerns, and it could be a lack of on-site property managers. With that said, property managers don’t need to be located on the premises as long as they are reachable when needed.
Also, there may be vacancies to be filled but are still lying empty. Are they not being shown? Perhaps it would be wise to consider outsourcing this task to a local service like Hopewell, a Bristol letting agent if that’s the part of the country where your property is located.
Timely Upkeep and Maintenance
Once vacancies have been filled, there is still much to do. If you want your tenants to stay as long-term tenants, it is imperative that you see to upkeep and maintenance as quickly as possible. From broken water pipes to damp issues, it is vital that you have a maintenance team on call 24/7 or you probably will lose disgruntled tenants.
Then it will be a never-ending cycle of vacancies that need to be filled. Sadly, you are likely to lose at least one, if not two or more months’ rent, which is the real reason for losses affecting your ROI. By keeping a well-maintained property, you will lose fewer tenants.
Competitive Rent Structure
Sometimes it pays to ask a little less for rentals if you find you are having difficulty getting them let. A good letting agent can help you discover what competitive rents are in your area. One thing to bear in mind here is that your tenants may be struggling even as you are. The world is just coming off a global pandemic and many people just don’t have the funds they once had.
Perhaps it was due to months of unemployment, but for any reason whatsoever, it may mean reassessing your rent scale. If the property is well maintained, the only reason you may have so many vacancies could be financial. Are your rents reasonable and competitive for your market?
A Different View on Cost Efficiency
This is something that every landlord needs to hear, really listen to. It doesn’t always pay to purchase the lowest priced tools and materials for use in your rental properties. Quite often that lower cost is equivalent to substandard products, which will only need to be replaced again. In turn, this will add more to the cost than if proper items at a slightly higher cost had been ordered to begin with.
According to one group of letting agents, postponing repairs can also result in higher costs when you finally get around to making those repairs. You might save a little today but pay much more tomorrow. There is a real difference between being pennywise and pound foolish.
All Things Considered
After reading all of the above, the very first place to look when trying to discern where the problem lies is at what you are doing as a landlord. Why doesn’t the ROI you are realising compare to pre-purchase calculations? It just could be that you are missing something as a new landlord. It may not be market conditions at all but rather some lack or oversight on your part.
The truth is that there is a great deal of money to be made on buy-to-let investments if handled well. This is something you can learn along the way, but the one last piece of advice might be the most important. Stay vigilant and you will find solutions.