It's a time of uncertainty for investors, it's true: COVID-19 has thrown everyone—the stock market, renters, and investors alike—for a loop.
The shutdown of daily life that is so familiar to many of us also comes at a time when there have been whispers of an impending housing market crash. The recent impact of social distancing on the economy has given many property owners pause as they struggle to figure out what to do with their rental properties and that sudden maintenance call.
As the experts in DFW property management, we've seen panic grip our city—and that brings us to an important point: we've also seen our neighbors exhibit extraordinary courage.
From those continuing to provide relief in the form of free grocery shopping services for the immunocompromised to offering gratis hand sanitizing supplies to at-risk Dallasites through Facebook Marketplace, our residents are leaning into this moment. As our sympathy goes out to those who have been impacted, the thoughtful side of our community in the face of panic buying has led us to ruminate on those we serve.
If you're looking to grow your portfolio, regardless of the timing, it would help if you first asked yourself "why." When you're trying to add to your holdings, it's important to note whether you're truly an investor—or just a rental property speculator. What do we mean by that?
Investor vs. Speculator
Benjamin Graham (the father of value investing) probably pegged it best when they outlined the difference between an investor and speculator: investing is done carefully, while speculating is a knee-jerk reaction to market trends.
A real estate speculator is the investment property equivalent of the panicked rush to stock up on bottled water when the tap is perfectly safe. Meanwhile, investors:
- Carefully analyze their potential investment property before they purchase
- Know exactly what they're buying into with the property they've researched
- Are confident that the property they're investing in is stable for the long haul.
Investors also know that the properties they've chosen will yield adequate returns, either through long-term rental payments or the increase in property value.
If you're buying investment properties with the intent to sell them at a higher value later, you might be a speculator. Graham also pointed out that having an investment strategy based on sound logic would always yield lasting returns over Wall Street trends—and speculators are always subject to the latter.
The "buy low, sell high" strategy isn't the point of owning a property portfolio. Sure, it's an added perk—but with a healthy portfolio, it's not necessary. The key to investing in property is to buy smart—especially in the face of rocky economics. With that in mind, how can investors continue to grow their portfolio in the face of a crisis?
If you're adding properties, add them from the right mindset, with the right research, in the right location. Here are some tips from your experts in DFW property management about how to grow when everyone else seems frozen in place.
Pick the Right "Stock"
Jason Zweig, a personal-finance columnist for the Wall Street Journal, penned an excellent breakdown of Graham's approach to investing that functions as solid advice for property owners. He asserts that at its core, investing requires property owners to:
- Thoroughly analyze a company and the soundness of the underlying business before you buy
- Pointedly protect yourself first and foremost against serious losses
- Perhaps most crucially, "Aspire to 'adequate,' not extraordinary performance.
Investigating Your Potential Property
In this case, the company you're buying into is your next investment property—so you need to be certain that its underlying value as a rental is sound before you buy-in. To that end, investors can protect themselves against severe losses in real estate when they select their next property with in-depth research.
As the experts in DFW property management, we always recommend approaching any potential rental property with a data-driven rental analysis that accounts for the macro-climate of the overall market as well as the micro-climate of the neighborhood the property is in. We're happy to offer the investors we work with this research free of charge so that you can make sound investing choices.
Stability Instead of Trendy
The third point is also relevant for investors: choosing a rental property with the potential for adequate yields over extraordinary performance will actually protect you as an investor from the dangers of "prospecting" in real estate. A great example of this is in the "stock" that you choose to invest in.
Which is more likely to net a reliable, long-term renter?
- A $4,000,000 luxury property in the heart of Dallas with an eye-popping rental estimate of roughly $26,000 a month
- A built-to-rent duplex in McKinney with the potential for consistent returns and proximity to great schools.
That might seem like an extreme example, but it gets the point across. When economic conditions are uncertain, it's more important than ever to add properties to your portfolio that can act as a steady foundation for the future.
One of the best ways you can do this is to evaluate a property based on what renters want! Partnering with DFW property management is an excellent approach: property managers are your ticket to what's happening in the market. We are keenly aware of rental demand across the DFW area and can provide you with valuable insight into what residents are expecting out of their rental.
Lasso Your Current Costs
Before adding any new properties, you should get your "house" in order! If you've got hidden costs sapping the health of your present portfolio, you should definitely be addressing those now before you consider bringing in a new property.
Some of the top costs we've seen run our property owners ragged as a DFW property management professional are the following:
- Mismanaged or marked-up maintenance
- Too many cooks in the kitchen
- Investment lemons haunting the portfolio (fixer-uppers)
- Bloated interest rates in mortgages
- The deadweight of a vacant property.
Some of these issues, like an investment lemon, can really only be handled pre-emptively during the property-vetting process. This is exactly why researching your potential "stock" should be a top priority before you dive in. However, the rest can be handled with an evaluation of your approach to being a landlord—or with the investment in an excellent DFW property management company.
Providing reliable maintenance is one of the top ways to retain your renters, and that will kill two birds with one stone by addressing your issues with vacancy. If you find you're having issues with the contractors you work with to provide your maintenance, you can eliminate that issue and having too much 'staff' to manage simply by picking the right property manager!
If you're looking to cut costs in maintenance, the number of individuals you employ to handle each task, and the increasing losses you're facing in vacancies, a skilled property manager can tackle it all—and more.
If You Want to Grow, Lean on the Pros
We're carefully observing how COVID-19 will affect our property owners here at RentHub Property Management and adjusting accordingly. However, one thing is for certain: we'll continue to provide the same reliable service the investors we work with have come to expect and appreciate.
The same goes for the residents we serve: as a tech-driven property management company, we know that a crisis is no time to throw in the towel. If anything, we're prepared to address it head-on to continue caring for our community.
Your portfolio is no different: if you're an investor—not a speculator—the conditions that apply when choosing an excellent investment property in a crisis still apply when the trouble has blown past. The primary driver behind whether your investment will be successful or not is the mindset and research you use to approach it.
Don't cave to fear or uncertainty: if you're looking to grow your portfolio, downloading our free guide to real estate investing is a great first step. Once you know what to look for in a property, follow up with RentHub for a free analysis of your potential pick to find out if the numbers support your financial goals. As always, if you have any questions, we're here for you.