RENTAL PROPERTY INVESTING GUIDE: THE BEST PRACTICES AND METHODOLOGIES THAT ARRIVED HOMES USES TO BUY AND OPERATE SINGLE FAMILY RENTAL PROPERTIES AND MAXIMIZE RETURNS.
Given our decades of experience with rental properties, we have developed and refined a process over time that allows us to deliver high returns to our investors. That process is heavily focused on making some data driven decisions that are powered by professional grade tools and other decisions that are led by our ample experience in the real estate industry.
At a high level the key to maximizing returns over the long term is to focus on doing two things really well, first it is critical that you are acquiring the right properties at good prices and, second it is just as important that you are operating those properties as efficiently as possible to minimize costs and increase returns.
Acquiring the right homes
Specifically around acquisition we follow the below 5 step process to ensure that we are selecting properties that will maximize our investor returns over the long term:
1) Identify the most lucrative markets –
We built a data driven market analysis model to select the markets that have both strong current cash flow yield and a bullish long term outlook for property values. Among the many criteria we analyze are strong job growth, sustained economic development, rising population growth, and affordability.
2) Narrow down the top neighborhoods –
Equally as important as picking the right markets is picking the right neighborhoods. We select neighborhoods that have good schools, low crime, fast commutes to the city’s economic center, and strong appreciation projections.
3) Develop ideal home criteria –
Even within a specific neighborhood we will find that different properties have wildly different sets of characteristics that impact the attractiveness as a rental property. So we build a specific “buy box” that narrows the home details that will give our investors maximum returns. That buy box includes a price range, a bed / bath configuration, minimum square footage, year built, and the level of renovation required.
4) Source deals to find the hidden gems –
One of the biggest benefits about investing in real estate is that the market is not perfectly liquid like the stock market and as a result there will be some terrific deals to be had on the market. We work through various channels to constantly source new properties, including experienced sales agents, property wholesalers, and direct from sellers themselves.
5) Make the right offer on the right home –
After identifying a property that we believe has strong investment potential, we build a detailed property investment plan that is presented to our investment committee for review. That investment plan includes among other things an offer proposal, a pre-inspection report, a detailed renovation proposal from our contractors, and 7 year financial projections including financing details. If an offer is approved then we put out a cash offer and proceed to negotiate the purchase.
6) Invest in renovation strategically –
Once an offer is accepted, we begin our renovation process where our experienced contractors turn around the property as quickly as possible. The renovation focuses on expenses that will not only have a high payback return, but that will also ensure that maintenance expenses are minimized over the life of the property.
Managing rental properties efficiently
We then ensure efficient operations by focusing our teams efforts on the below 4 items:
1) Select experienced and motivated property managers –
Our first task is to ensure we have phenomenal property management in place for the property. An experienced property manager will save you a great deal of time and money over the length of your contract. The best property managers know how to select the top tenants and how to deal with issues and repairs easily.
2) Select top tenants and align incentives –
One of the most important steps is finding a terrific tenant that will pay on time and stay long term in your property. Given our fractionalized ownership structure, we are actually able to offer all of our tenants shares in the property they are renting. This means that the tenant is a co-investor of our users and as a result they have aligned incentives in terms of caring for the property and wanting to rent longer. The shares given to the tenant actually increase along with the lease length, again to minimize vacancy and maximize returns.
3) Deploy technology to run smooth operations –
Our property managers are on standby at all times and utilize basic but powerful technology to monitor property and tenant issues. This allows our team to respond quickly and minimize the impact of any problems.
4) Leverage scale to reduce costs –
Last but certainly not least, given the scale of our operations managing multiple homes, we leverage economies of scale to reduce costs of operating properties. This can include buying maintenance supplies in bulk or giving higher volume of work to certain contractors to negotiate better rates.
We believe that if we are able to focus on doing those two items well (acquiring the right properties and managing them efficiently), then we have a great opportunity to deliver high returns over the long term. We want to make it easy for all investors to participate in these top real estate investing strategies. Sign up below to begin investing in Arrived and start earning income quickly.