4 Tips to Improve ROI for your Real Estate Investment Portfolio

Howard Goldstein  |

Like all businesses that people invest in, the Return on Investment (ROI) expected has a significant influence on many decisions made in the real estate business. The ROI is a measure of the net profits as a percentage of the cash invested initially. Simply put, the ROI = Net Profit/Initial Investment x 100. Things, however, get tricky when it comes to real estate, because unlike most other businesses, simply raising the rent prices doesn't mean you will continue whistling all the way to the bank. At the same time, lowering expenses too much could lead the investor to failure because it could risk the property running into neglect.

Here are some tips to help you get the most out of your real estate property, get good returns and still strike a balance between the cash invested and the cash you receive.

1. Find tricks to spend your cash ONLY on additions that add value to your property

Remember that in real estate, the person with the money bags is not always the winner. While your clients still need to be happy and comfortable, splashing on non-essentials will always hurt your bottom line. Direct your money to investments that add value to your property and add more income streams from it instead of just making it fetch higher rental prices.

Can an empty space in your backyard that’s used to pile junk items and empty containers be cleared out and neat storage units added? If it is

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a commercial property, is there some practical space on the roof, or around the compound, where a billboard can be erected to get that extra income from advertising other brands?

2. Streamline your rent collection and insure yourself against defaulters

Most of the losses that are incurred in real estate often have to do with rent defaulters and legal cases that arise after default. Often, legal rulings will not always be in your favor as the accused person may not have enough assets to cover for the damaged property or rent arrears. Many property portfolios are plagued with arrears, write-offs, and delayed funds due to an ever-changing legal environment that leaves the property owner at a disadvantage.

This is why it’s quite easy to find well-priced properties with a healthy rate of occupancy, but the owners still struggle to stay afloat. It is really hard to tell a possible defaulter as some tenants have a good track record, but some eventuality ends up affecting their ability to pay.

Getting rent default insurance for all your properties is among the best solutions to safeguard your rental income against default. It’s a pretty straightforward concept that requires little from your end because your tenants will have to fulfill most of the requirements. For instance, Rent Rescue, one of the insurance companies in the United States that provides rent default insurance, requires a number of qualifications from your tenants, including a credit score of at least 650 from tenants before you can qualify.

Late payment fees sometimes work but that is not efficient in the case of first-time rent skippers.

3. Decrease expenses tied to the property

When you collect a substantial amount from rental payments and lose too much on expenses, your rental collection will not boost your bottom line. Study regular accounting reports and find unnecessary costs which can be discontinued or reduced. One possible workaround involves installing individual meters for utilities like water or electricity for tenants with heavy usage demands as opposed to the single utility bill normally issued for the whole apartment.

You could also charge for the use of secured separate parking garages, which would help bring extra income from your property.

If you outsource services like cleaning and landscaping, you could negotiate with the service provider to charge lower rates in exchange for longer contracts and with more properties from your portfolio included. Many businesses would be okay with such an arrangement compared to shorter, one-off contracts that are usually unpredictable.

4. Review your target market

If you had a specific target market for your property and it is not doing well, you may consider altering the audience you are always pitching to. Study the local market well and understand the kind of clusters that do well in that city.

Always have in mind that not all real estate markets are alike and that even the slightest demographic changes may require you to make amends to your payment and occupancy routines. When there is a sudden influx of residents due to an economic boom, never be shy to raise the rent a bit. Developments, such as a new multinational organization that has brought a lot of money and activity in your area, can be a good opportunity for rent hikes and more sophisticated additions to your existing property.


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DISCLOSURE: I hold no financial interests in the aforementioned companies.


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