Bursting the Real Estate Bubble

Bursting the Bubble – Investment Property Owners Can Take Control

As the frenzy continues about the potential of a real estate “bubble”, spend your time and energy on what matters to you – building and protecting your rental property empire;=). The beginning of a new year is the perfect excuse to review the details of your rental property portfolio. Even if you only have one building with a of couple units, conducting an annual review is a necessary part of the business. The review should include:

Rental income for the previous year (actual) – Many times we live in the theoretical world of what a building should produce. Officially tallying up end-of-year rental revenues allows you to compare planned versus actual. You also get a head start on tax season!
Maintenance – Evaluate the maintenance plan versus the actual for the previous year. Regular maintenance on key building services is a smart preventative approach to controlling costs that you might not expect. Did the year include all maintenance services that were planned? If not, is there a good reason they were skipped?
Property Improvements – Not every year includes property improvements or upgrades. If improvements did occur, evaluate how they make the property worth more. Property improvements should increase rents or increase the property’s value or both. If improvements did not take place, make a list of those that are likely and then rank them in order of increasing your investment’s value. Improvements or upgrades to kitchens and bathrooms are a great place to start. You can typically charge more rent and sell your property for greater value with such improvements.
Expenses – Knowing what you spent running your real estate venture is the key to knowing how you did in the previous year. Remember to include all the little expenses, like accountant fees, legal fees, advertising, etc., in addition to the big and obvious (mortgage, insurance, maintenance, etc.)

After you have calculated how much money it cost to run your rental business, you can figure how much revenue came in. Now you can have a basic idea of how your business is running, but it is not yet the complete financial story. Keep in mind that you likely have tax advantages that factor into this equation. Ask your accountant how much of your refund can be attributed to the rental property. The purpose of annual review has two advantages:

Understanding how your rental property business is performing.
Learning where you can improve in the coming year.

With so many people fixated on what might happen to the real estate market, knowing how your business is performing will provide you with a roadmap for what should change in the year to come. In some cases, that means getting out (although Weekend Landlord is a big proponent of long-term goals) and in most it means adjusting the plan to protect your investment from short-term concerns.