Tips From A Property Investor On How To Improve ROI

All businesses face a common dilemma: how to allocate sufficient resources to achieve a great return on investment. Property investment is also a business, and it has the same underlying fundamentals and challenges, including the fine line between underinvestment and overinvestment.

Novice property investors, often unfamiliar with the business aspect, can make critical mistakes. These errors can hinder their ability to expand their property portfolio or, in severe cases, force them to sell their investment properties to cover the gap between rents and expenses. Being aware of these potential pitfalls is crucial for a successful property investment journey.

Strategy To Improve ROI

When you’re starting as an investor in real estate, each rental property must work well in your portfolio so your ‘business’ is ideally cash flow positive or at worst cash flow neutral.

If your portfolio is cash flow negative, you’ll be required to fund the difference, i.e., the amount of money needed to pay expenses such as rent and maintenance, etc.

Your strategy may be to fund the difference in the short term until you have renovated one of your properties, increasing the rental income return and reaching a cash-flow-neutral or positive position.

There is a rule of thumb that the amount you invest in a property should yield three times the value. Now, this value can be calculated in several ways, including rental income and capital gain, as well as the property sales price.

Of course, the biggest challenge is knowing where to put your money to boost your return and avoid wasteful spending. Earlier, I mentioned that successful property investment portfolios are run like a business, and as such, there is no emotion in the purchase or renovation of a property.

Property Investor Tip

As we all live in homes, and it’s in our psyche to ‘make better’ or improve our living conditions. Therefore, it’s challenging to separate the ’emotion’ we feel when buying or renovating a property. This emotion will squeeze more money out of you, and it is the underlying mistake of novice property investors.

Set Goals

Do not renovate your rentals to suit your personal preferences, rather than what the property requires to achieve your goals, i.e., increase rental return and, in the long term, achieve greater capital gain.

It’s crucial to set clear and achievable goals for your property investments. These goals should be ingrained in your memory or written down and referred to frequently. They should guide your property purchases and your plan to increase its rental return.

Remember, all properties deteriorate over time, so you should also have clear goals for your renovations.

Frugal Investor Renovation Tips

Squeeze every penny

Here are some tips from successful property flippers on how to add value to your property without it costing more than your budget;

• Do as much hard labour yourself to save on hiring builders.
• Get as much as you can directly from the manufacturers.
• Get quotes and compare prices for things you can’t do yourself, like plumbing and electrical.
• Find a home where most of the changes required are merely cosmetic rather than structural.
• Never underestimate what a lick of paint can do!
• Remember that home buying is an emotional process, so make aesthetic choices that evoke a specific emotional response in buyers.

Selling

Understanding the purpose of your renovation is crucial. Your goals should steer you in the right direction . Renovating to sell is a different ball game from renovating to rent and achieve a higher rental income.

When you renovate to sell, your focus is more on visual appeal to attract interest from homebuyers when they visit your home. Cosmetic improvements will impress prospective buyers, as well as decluttering and staging your property for open home viewings.

Renting

Whereas when you’re renovating to achieve a higher ROI with the rental income, your focus is on providing more ‘nice to haves’ for tenants.

Tenants need to be motivated to pay more rent. Some nice-to-have additions may include an updated kitchen or bathroom with better appliances.

Fast online connectivity. We all know how connected people need to be today, and while they’re at home, they want to communicate with their family, so fast online uploading and downloading will surely impress them. This requires the right cable or connection to the property.

Mistakes to avoid

As well as making prudent spending choices, it’s also a good idea to steer clear of the following mistakes;

• Living in the property – It might seem sensible, but it can delay timeframes and lead to a fortune spent on living expenses, such as costly takeaways.
• Overspending – Research what drives buyer or tenant demand in your area and allocate your budget accordingly.
• Know your market – Many a landlord has sunk their savings into a money pit because they didn’t research the local market.
• Avoid refinancing your own home. Ideally, you’ll avoid using your home to fund the renovation of an investment property unless you’ve done your research and are sure that the risk will pay off.

Summary

Run your investment properties like a business and apply the same fundamentals to secure a profit.

When renovating, be clear about your motivation from the outset: is it to sell or to rent? Your renovation budget and strategy will vary depending on the outcome.

Update your goals for each rental property as well. Your personal circumstances will change over the years, so we explain our reasons for having investment properties. With a well-thought-out strategy, your ROI will be healthy.