Every investor whether seasoned or not has hopes to purchase the next great deal when investing dollars in real estate. So what do you do when your rental property is sucking you dry and the asset becomes stagnant? It’s simple, you swing into action.
Step 1 – Complete a Financial Analysis
Rather than focus on how much it has gone up in value to date, pay more attention to its current status. Is the property cash flowing? How much money are you coming out of pocket monthly? What are your recurring expenses? Look at each figure, do a valuation on the property, see where the dollars are coming in and what funds are being spent on. Pay attention to today’s market, what rental rate trends are and focus on where predictions are for the future.
Step 2 – Complete a Market Analysis
Look at the area your property is located in; what size homes are being rented and how your property compares to others. Are there mainly single family residences, condos, or large apartment complexes? Know who your surrounding competition is. Go on to the census bureau, look at demographics of your neighborhood, to see if there are mainly college students, families, or single professionals. Calculate rental rates, and look at the number of vacancies in the area.
If there are a ton of rentals available and they are sitting for weeks or months, then that tells you that there is more supply than demand. If, on the flip side, there are no vacancies, nothing is available to rent, then you are in a hot market and that typically means you can charge higher rents.
Step 3 – Improve your Asset
Do a walk through of your property look at its condition. Start asking yourself questions about the current state. Is your property outdated or is it remodeled? Does it have a modern feel or does it look like it could use some love? Is it time to put some money in to making it the best rental on the street? In today’s market people are looking for upgraded kitchens, newer bathrooms and non-carpeted flooring. Maybe a little paint is all it needs to give it a fresh look.
Or the exterior may look a bit run down and needs more curb appeal. If you are unsure, seek out a Real Estate Brokerage who specializes in renovations that can give you a third party evaluation on what it would take to improve the physical space of your property.
Step 4 – Do a 1031 Exchange to move your equity in to a better property
If your property is vacant, hire a broker to come in do an analysis of what it would take to get your property in the best condition to sell at top dollar. Request a net sheet that outlines what your property is worth today and what it would be worth investing a little money to maximize your proceeds.
If your property is tenant occupied, have the broker assist with asset management, look at potential of selling property with tenant in place, or if it is more financially beneficial to vacate the property, clean it up and sell. Knowing your options will allow you to see if selling your property and finding another rental that is perhaps in a better neighborhood, a higher rental area, or overall just more equitable due to the current market.
The worst thing you can do is sit on an underperforming property and sink money into it. Take time, do your homework and educate yourself so that you can take what may feel like a burden and turn it in to a goldmine. There are millions to be made in real estate, so why not get your hand in the pot and build your future wealth?