For many, the last two+ years have been an economic calamity nearly without precedent. As a result, we have seen massive shifts in employment. These shifts have included an increasing number of people becoming entrepreneurs after the stability of traditional employment has become shaken. It has also led to one of the largest relocation trends we have seen to date. This has severely depressed the property values in those areas that have seen the exodus, but it has massively transformed other areas into new lands of opportunity. Meanwhile, some of those previous areas that people exited have begun to bounce back as various restrictions have been lifted, and housing prices have seen a reversal in some cases. Add to this all types of supply chain shortages that are causing difficulties with renovations and new construction and it’s quite a time of flux, confusion and outright chaos in the real estate market.
One of the most salient points of investing – no matter the asset – is to follow the “smart money.” What this really means is to follow the big money. If we look at what that big money has done lately, we can see them taking full advantage of the trend toward a renter economy. As large swaths of the population found themselves needing to severely adjust their cost of living, many became first-time renters over the last two years, and many others began to pool their assets with friends and family just to maintain their common standard of housing. In fact, more U.S. households are renters than at any time since 1965. This did not go unnoticed by the world’s largest asset manager, BlackRock. For good or ill, BlackRock has significantly increased the weight of its portfolio into real estate.
For those on the home ownership side, it’s a tempting time to branch out into the hot rental market if one has the means. However, as an increasing number of people enter this space for the first time, it’s easy to forget how much goes into maintaining one’s own home, let alone even one other home, or a full portfolio of rentals. It’s safe to say that smart money does not attempt to manage even one of these properties on their own – they recognize the benefits of hiring a property management company.
As I alluded to, maintenance alone on a single property can be daunting … and quite unpredictable and time consuming. It is a far more secure feeling to have a company that already has done the research into the best plumbers, electricians, cleaning and maintenance crews that are available in the area. As any homeowner (or renter) knows, these problems often don’t announce their impending issue; they tend to happen at the most inconvenient times possible. Without proper immediate attention, issues can also persist and become a far worse and more expensive than had they been addressed straight away.
But perhaps you are someone who is fully capable of managing those physical maintenance tasks, possibly even yourself if you have the requisite skills. It’s still doubtful that you also have the ability to conduct a full background screening of your potential renter(s), or properly construct the contracts that will protect and benefit all parties. Rental collection, accounting and the production of financial statements are yet more tasks that people tend to overlook, with the attendant tax implications, naturally. All of that needs to be organized and well documented in order to protect your investment.
Additionally, many of the most reputable companies have full marketing teams to ensure that your property is rented quickly and will command the best possible price given current market conditions. This research alone can be tricky and many people price themselves way under or over true market value without expert assistance.
Lastly, if you do find yourself in the unfortunate position of a troublesome renter, it is great to have a team that is ready to produce the proper legal documents and guide you through whatever steps need to be taken to rectify the situation in an equitable, efficient and peaceful manner.
As one should clearly see, entering the rental market in a professional capacity requires a number of skills of which very few people have full mastery in each category. Given the typical 3-10% fee that is charged for these services, it’s even easier to see why the smart money makes this choice for full peace of mind and full confidence that it’s a key component to help build a profitable rental portfolio.
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