How to Calculate the ROI on A Property Investment

How to Calculate the ROI on A Property Investment

Due to its potential for value growth through time, real estate is frequently viewed as an ideal investment opportunity. When purchasing an investment property to rent out, you are hoping its value will rise over time and that you’ll gain rental income.

Real estate investors evaluate a property’s probable Return on Investment (ROI) before making a purchase. ROI provides a long-term estimate of the profit you might expect from rental income. But how do you calculate it? This post serves to answer that question and more!

Return on Investment (ROI): What is it?

Return on investment (ROI) calculates the amount of profit that may be made on investment as a percentage of the cost of the investment. The ROI calculation enables you to determine whether investing in a specific piece of real estate is a smart move.

Determining a meaningful and workable ROI for a property can be difficult due to the number of particular variables involved. For instance, when the investor uses a mortgage to finance the home rather than paying cash, the calculations might become even more difficult.

Why is Return on Investment Important in Real Estate?

ROI in real estate is crucial because this estimate will show you how a particular property stacks up against others of a similar type and size and whether you should invest in it. The ROI also gives you an idea of your costs, which helps you calculate the property’s net operating income (NOI). Then you can decide if anticipated earnings will be sufficient to offset those expenses.

calculating investment returns

You might be wondering what the typical return on investment for real estate is. There isn’t, however, a single, undisputed average ROI in real estate due to the large number of variables to consider, including various capitalization rates for various markets. ROI is merely a forecasted metric, not a guaranteed one. ROI ultimately quantifies the underlying risks of an investment.

How to Calculate ROI

Here are some important numbers you will have to calculate once you have gathered all the necessary data about a property and are prepared to determine the ROI:

  • Net Operating Income (NOI) – The profitability of your investment is shown by the net operating income. It can be estimated by deducting your operational costs for the property from your total income.
  • The Cap Rate – This is also referred to as the capitalization rate, and it aids in your ability to compare rental investment alternatives rapidly. It can be derived by dividing your NOI by the property’s price, representing your return rate.
  • Cash-On-Cash Return – This gauges the anticipated return on your rental investment. The amount can be determined by dividing the property’s cost by the annual after-tax cash flow.
  • Annual Gross Rent Multiplier – Referred to as the GRM, it’s a tool for estimating the return on the rental investment. For instance, it can assist you in determining whether the asking price is fair. You divide the sales price by the annual gross rent to arrive at the GRM.
  • Annual Cash Flow – Net operating income minus debt equals annual cash flow. After all costs and mortgage payments are paid, this is your rental property’s annual profit (or loss).

how to calculate ROI

With the above information and numerical figures, you can calculate ROI using the following formula:

The Return on Investment, ROI:

= Profit or Gain/ Initial and additional cost of investment X 100

Note that the ROI is typically expressed as a percentage. Knowing your budget and considering the potential return is essential because various investors accept different amounts of risk. A property can appear impressive, but it still includes hidden fees and costs you weren’t aware of. For this reason, it’s a good idea to analyze your potential returns when investing in real estate constantly.

Tips to Increase Your ROI

If you own or invest in real estate, you should seek practical strategies to increase the return on your investment. Consider the following:

Property Management Automation

You may eliminate a lot of manual administrative effort by automating property management procedures. Technology can never entirely take the place of property workers in terms of importance. However, because employees’ time is so valuable, they should focus more on customer service rather than performing routine chores that can be automated.

Regularly Maintain and Renovate Your Property

As time passes, your investment property will experience some cosmetic and structural degradation. You can carry out several property maintenance duties to keep your building in good shape. Maintaining your home’s current infrastructure is the best and most straightforward approach to raising its worth.

maintain the rental and screen tenants

Showcase Your Property to the Ideal Clients

Contrary to popular belief, selecting the ideal tenants for your rental property can substantially impact the building’s condition and worth. To guarantee that you receive eligible applications, you must ensure that your marketing initiatives are directed toward the appropriate prospects. You want to rent to someone who is going to make consistent and timely rent payments and maintain the rental reasonably during their stay.

Reduce Tenant Turnover

Once you’ve found the ideal tenants, you’ll want to make every effort to keep them. You know that attracting new tenants costs more than keeping the ones you already have.

Lessen the Cost of Operations

Your real estate investment will have a higher return on investment (ROI) if your operating costs are kept to a minimum. Take the time to carefully review all of the expenses associated with your home, from debt to day-to-day business operations costs. Then you can decide where to make cuts.

Bottom Line

A rental property has a different return on investment compared to other assets. Also, keep in mind that the profit margins change based on a number of factors. Your goal is to buy a property that projects strong returns. Once you’ve bought the unit, there are additional steps you can take to increase its ROI.

If you would like help calculating ROI on your investments or would like to work with a qualified and trusted property management team, turn to the experts at T-Square Properties today!

Tax Season Tips for Landlords

Tax Season Tips for Landlords

Landlords who own rental properties that earn an income from them, have a federal tax responsibility to file income tax returns each year. The Internal Revenue Service (IRS) defines rental income as any payment received for the use or occupation of property including normal and advance rent payments, security deposit, expenses paid by the tenant, tenant payment for lease cancellation, and property or services received as rent in place of money. 

Rental income taxes can be challenging for landlords as there are several factors to consider to ensure that your business doesnt get penalized by a wrong filing. Some of the challenges rental property owners face during tax season include:

  • Numerous financial uncertainties that come with the pandemic
  • Inflation is at a high and continues to soar
  • Eviction moratoriums ending
  • Rents rising to record levels

As a landlord, you are a business owner who is seeking to maximize income, and to ensure that this happens, you need to have several things in order. These begin with the onboarding stage where you ensure that your tenants are adequately screened before accessing your property. 

There are also some tax benefits and deductions that landlords should know about when filing their annual returns to maximize their ROI. To learn some tips to make tax season worry-free, keep on reading.

filing for tax deductions

Top Landlord Tax Deductions

Maximizing returns is critical for owners and thus you need to be aware of the tax deductions available for you. Its critical to note that the Internal Revenue Service will require the rental property owner to adequately support their claims with documented proof. 

These deductions can be claimed during tax filing to reduce the total tax payable to the IRS. Below are some of the deductions landlords can take advantage of:

Rental Real-estate Property Depreciation

Long-term assets depreciate over time and this decreases the value of the asset. When filing returns, the landlord should take into account the quantified level of depreciation to tax the correct property value. You should consider hiring professionals to determine the correct level of depreciation your property has undergone as there are varied techniques to derive the correct rate depending on the asset type. 

Insurance Coverage

As a landlord, you have most certainly purchased several insurance plans for your rental property. These can include landlord liability insurance, fire insurance, burglary insurance, and flood insurance. During tax remittance, landlords are permitted by the IRS to deduct some of these premiums paid to insurers.

Repair Costs

A rental property is sure to experience levels of wear and tear or damage over time. These will require the landlord to invest in repairs to ensure that their tenants are protected and that the property remains suitable for renting. 

writing-off repair costs

For repairs to qualify as a deductible they are required to be necessary, ordinary, and reasonable in amount. These include property repainting costs, gutter and piping repair, and broken windows repair. Landlords are eligible to claim these deductions when filing their rental income tax returns.

COVID Resources

With the COVID-19-influenced changes in real estate practices, there have been several unprecedented changes in the industry. Some of these changes include social distancing, transition to virtual property showings, and eviction moratorium regulations introduced. 

With these challenges coupled with limited access to financial resources, small and independent landlords received approximately 50% of their expected income during the pandemic as tough financial conditions came on the tenants according to a report by The Harvard Center for Housing Studies. 

The resources made available to landlords, to help mitigate these losses, included $25 billion worth of rental assistance in the 2021 COVID-19 relief package. Rental property owners were allowed to apply for funds on behalf of their tenants along with other resources such as webinars, forms, news sources, and editorials.

Records Needed for Tax Season

Accurate record-keeping is mandatory to support all the deductions sought by the landlord. The landlord has to verify the validity of their requests such as proof of valid repair costs, premium payments, and depreciation of the property in that tax year. 

necessary documents for tax season

Some of the records that must be maintained in good order for the IRS to approve the discussed deductions include: 

  • The leases or written agreements with the tenants
  • All legal documents required for the property including fines
  • Inspection reports
  • Court appearances
  • Any permits were taken out of the property 
  • Insurance policies
  • Loan/mortgage documents
  • Past tax records
  • Any documents pertaining to the rental property
  • Real estate investment papers such as property title deeds

Given the specificity required in filing rental income tax returns, landlords also need to prepare other documents supporting their tax deduction claims. These include property marketing costs, loan interest, business credit cards, legal fees, repair receipts, rent payment receipts, and utility costs receipts where applicable. 

How to File Your Taxes

Landlords file their annual taxes depending on their ownership of the property. The scenarios are when the property is individually owned when the property is co-owned, and when the property is owned through a business entity. 

Individual rental property owners file IRS Schedule E, Supplemental Income and Loss and rental property co-owners each file their own tax return, using Schedule E. 

Where the property is owned by a business entity, income and deductions from the property are made using IRS Form 8825, Rental Real Estate Income, and Expenses of a Partnership or an S Corporation. There are additional filing requirements reliant on the type of business entity.

Bottom Line

Staying on top of all these tax filing details can be particularly challenging for both new landlords and seasoned ones. Additionally, you do not want to be on the wrong side of the IRS as it can put your rental property business in jeopardy. T-Square Properties is an expert property management company that will help you and ensure your business is compliant. 

Additionally, our company can help in handling tenant evictions, your property maintenance, and repairs, potential-tenant screening, tenant lease agreements/contracts creation, and can provide top-notch property marketing to ensure you achieve your occupancy goals. Contact us today to learn more about our services!

How to Be a Long-Distance Landlord

How to Be a Long-Distance Landlord

Landlords aren’t immune to life’s challenges! A life event can require you to operate your rental business from out of town, or even out of state. And that may bring some challenges in the way you manage your rental property. 

It may no longer, for instance, be easy to collect rent or respond to maintenance issues. But does this mean that being a long-distance landlord can’t work? Not at all! You will however need to make certain changes to your operations for everything to work smoothly. 

In this blog, we’ll walk you through 7 tips to help you be successful as a long-distance landlord. 

1. Have a Thorough Tenant Screening Process

It’s the goal of every landlord to rent to reliable and trustworthy tenants. That is, those that abide by all terms of the lease agreement, including paying rent on time and caring for their rented premises. 

And this is especially crucial when you are a long-distance landlord. Because, unlike before, you can no longer inspect your property as often as you’d like. Months could pass before accessing your rental property.

When choosing a tenant, you’ll want to be extremely cautious. Your ultimate goal would be to find a tenant with the following traits:

  • Good credit rating 
  • Zero histories on eviction 
  • Good income level 
  • Great rental background 
  • Stable employment history 
  • Zero relevant criminal history 

tenant screening procedure

Go a step further and verify all the information the tenant provides. For instance, when it comes to screening a tenant based on their rental background, make sure to call prior landlords to inquire about what the tenant was like in their previous rental. 

2. Improve Your Communication Strategy 

Communication is the foundation of any great professional relationship. And needless to say, it’s paramount when you are a long-distance landlord. The following are some tips to help you enhance your communication strategy:

  • Keep your promises – No one likes missed appointments and late calls. If you made a promise to fix something, for instance, make sure to follow through on it. And if you can’t for whatever reason, make sure to be honest, and reschedule the repair while respecting the tenant’s time. 
  • Respect their privacy – Don’t just show up unannounced. Your Washington tenants have a right to privacy. Washington state law requires that landlords offer their tenants “reasonable notice” before entering. A 24 hours notice should suffice. 
  • Quickly respond to maintenance requests – State law gives landlords 10 days to make repairs after being notified of the issue. If you don’t, your tenant may have several legal options to pursue including repairing the issue themselves and then deducting the costs from future rent payments. 

communicating with tenants

By improving your communication strategy you can protect your landlord-tenant relationship and feel confident that your tenants and property are well-cared for. 

3. Try Your Best to Visit Your Property at Least Once a Year

Normally, landlords should be able to conduct four types of rental inspections in a lease term. That is, when tenants first move in, between changing seasons, while driving by the property, and when moving out. However, that may not be possible when you’re a long-term landlord. Try your best to inspect your property at least once a year. 

Note that traveling costs can be tax-deductible. You may even be able to deduct costs such as hotel stays, plane tickets, and meals. Be sure to stay up-to-date on property and tax laws before making write-offs. 

4. Stay Connected with the Local Community

Even though you may no longer live or work directly in the community, it’s still important to stay connected to the area. As a savvy landlord, you’ll want to stay in the loop regarding the goings-on with the local business environment and government policy. 

This is because the rental market doesn’t exist in isolation. So many factors play a crucial part in influencing your rental business. For example, the local economy could change and that would impact desirable rental rates. Consequently, depending on the impact, you’d need to raise or lower your rates to stay competitive. 

having local connections

Also, there could be changes in the local landlord-tenant laws. And without being in sync with the local community, you may find yourself in potential legal trouble. 

5. Set Up a Digital Rent Payment System for Tenants

Requiring your tenants to pay rent online can help minimize missed or late rent payments. And this is even more important if you’re a long-distance landlord. Several apps can help you set up an online payment system within no time. Some top options include:

  • ClearNow
  • TurboTenant
  • Rentec Direct
  • Avail
  • Zillow Rental Manager

6. Connect with Local Resources

You want to have connections to people on the ground. For instance, when a tenant requests a repair, all you’ll have to do is turn the job over to a trusted handyman you know in the area. 

Of course, only work with vendors and contractors that have years of experience under their belt. Also, insist on working with those that are bonded, licensed, and insured for peace of mind. 

7. Hire an Experienced Property Management Company

As a long-distance landlord, you can gain a lot of peace of mind by hiring a property management company. Preferably, go with one that offers a comprehensive suite of property management services. This way, you’ll be able to ensure that they will handle every aspect of managing your Washington property. 

hire a trusted property manager

The following are some of the services you could expect from a good property management company:

  • Marketing your rental property
  • Screening prospective tenants 
  • Collecting rent and doing any necessary follow-ups
  • Carrying out routine inspections
  • Providing regular financial reports on the performance of your rental property

Bottom Line

Managing your rental property while out of town is completely doable. But, it’s not without its challenges. 

If you would like help managing your rentals call the experts at T-Square Properties. We’re a professional property management company that has been proudly serving King and Snohomish Counties for years. Get in touch with us to learn more!

How to Boost Your Rental Property’s Curb Appeal

How to Boost Your Rental Property’s Curb Appeal

The curb appeal of your rental property matters a lot because it can result in higher rental rates and better tenants. You may also get a greater return on investment should you choose to sell it in the future. 

Think of the curb appeal as the first impression your home makes. If it looks attractive, a prospect will be encouraged to look inside. However, if it isn’t, then a prospect may choose to walk away and look elsewhere. Now, improving the curb appeal doesn’t necessarily mean spending large sums on rental property upgrades. Small efforts can also help you make significant changes to the look and feel of your rental property. 

The following are 15 tips on how to boost your rental property’s curb appeal. 

Update the Look of the Front Door

The front door is one of your home’s focal points. If it looks like it has seen better days, a prospect won’t be inspired to enter your home. On the other hand, your property’s curb appeal will skyrocket if you install a new door. 

If you don’t have the budget to install a new door, then consider installing new hardware to the door. The hardware may include the doorknob or door knockers. Doing this can achieve almost the same effect as installing a new door. 

Landscaping and curb appeal

Add Plants and Flowers to the Yard 

To freshen up your curb appeal, add more greenery. Adding plants and flowers can help make your property appear vibrant and welcoming to prospective tenants. What’s more, this kind of environment helps create a more tranquil and serene atmosphere. 

To get started, consult with a professional gardener. You may also want to insist on planting easy-to-maintain plants. The last thing any tenant wants is to get burdened with caring for the lawn. 

Step Up the Lighting

A dark entryway can be a turn-off to a prospect. This is especially true if the front door sits under long, low porches. Luckily, lighting up an entryway doesn’t have to cost much. You can stop by a hardware store, and select a new fixture. Besides illuminating the entryway, you may also want to illuminate the whole front yard. 

Landscaping lights come in a variety of options, ranging from path lights and spotlights to post lights and floodlights. 

Apply a Fresh Coat of Paint to the Property’s Exterior

When renting out a property, normal wear and tear is guaranteed. So, after some time, you may begin to notice that your property appears dull and faded. 

Done well, paint can add immense value to your property. In fact, in some circumstances, painting a home has been shown to offer the most return on investment. And best of all, it’s probably the easiest and quickest upgrade a landlord can do. Ideally, you should repaint your rental property every 5 years if your budget allows for it. 

cleaning and painting home exterior

Power Wash Your Property Regularly

This is something that many landlords often don’t think about. However, as years go by, your home will get covered by dust, dirt, pollen, and even allergens. The same applies to sidewalks and driveways. Consequently, the surfaces get dirtier. A good power washing will help get rid of all organic debris, giving the surface a fresh, new look.

10. Clean the Windows

Windows, just like other features, contribute immensely to a property’s curb appeal. However, windows don’t come cheap. Luckily, giving the older ones a spot-free cleaning can help you achieve great results without causing a dent in your budget. 

11. Add some Outdoor Furniture

Adding some snappy furniture to your home’s exterior can help add a fun twist. The furniture can include a porch swing or Adirondack chairs. 

12. Have a Routine Cleaning Schedule

A clean home is always attractive to prospective tenants. Take some time to get rid of clutter, clean outdoor furniture, and power wash the walkways and driveways. A well-maintained property will make a prospect assume that the interior is equally cared for. Also, it may incentive a tenant to give it the same level of care when they eventually move in. 

13. Update the Mailbox

This is a feature that is often overlooked by landlords. Fortunately, upgrading a dated mailbox is an easy and relatively inexpensive task to do. A vintage-style cast-iron box, in particular, can help add an elegant touch to the look of your property’s curb appeal.

home mailbox

14. Upgrade the Garage Door

Just like the mailbox, the garage door can often get neglected. But, as a landlord looking to attract a great tenant, you may want to upgrade it to make it stand out. 

Entirely replacing the garage door can be costly. However, just like the front door, that may not be necessary. You can also upgrade it by simply adding some antique-style hinges and handles to add some character or give it a fresh coat of paint. 

15. Add Some Crucial Elements of Convenience 

Tenants nowadays are looking for ease and convenience. Generally speaking, a property with smart tech features will be more attractive to savvy tenants than one without. Some of the smart features that renters find desirable include keyless entry, video doorbells, automatic timers, smart bulbs, motion sensor lights, and remote unlock capability. 

Bottom Line

There you have it, 15 tips on how to boost your rental property’s curb appeal. Boosting your curb appeal will elevate your rental space, thereby making it stand out from the competition. As a result, you may find the marketing process a bit easier. 

If you’re looking to partner with an expert in this regard or any aspect of property management, T-Square Properties can help. We’ll manage your rental property with professional care and provide owners and tenants with peace of mind. Contact us today to learn more about our services!  

How to Avoid Water Damage in Your Rental Property

How to Avoid Water Damage in Your Rental Property

Water damage resulting from leaks is one of the most disastrous events to occur in a home. It can ruin the floors, furniture, and walls. With the exorbitant cost that water damage carries, preventing it from happening ensures your finances are intact. There are many reasons why water damage can occur but most commonly it’s attributed to weather, plumbing, and/ or appliance issues.

If you want to learn how to better protect your property, keep on reading!

What Are the Likely Causes of Water Damage Issues?

Water leaks are the top causes of water damage but even more serious are hidden water leaks. Tracking them down is of prime importance to reduce the negative effects. However, it’s easier said than done. Most of the time, the signs are slow to reveal themselves. A good tip is to engage the services of a plumber to find the source of the leak and resolve the issue.

The following list covers most of the common causes of water damage but isn’t exhaustive. Common causes include:

  • Damaged toilets where plumbing is seen to malfunction
  • Incidence of water heaters blowing up or malfunctioning
  • Supply hoses on washing machines that have exceeded their life expectancy. Normally, they need to be replaced every 8 to 9 years to ensure that they’re free from leaks
  • Gutters clogged with dirt and leaves which redirects the flow of water
  • Water build-up resulting from equipment damage, clogged pipes, and mineralized deposits
  • Presence of busted water pipes that have blockages or leaks

common signs of water damage

  • Frozen pipes that increase the pressure given the expansion of water inside
  • Corrosion happening inside the pipes can create leaks inside faucets and water valves
  • Invasive tree roots that can damage water supply lines
  • Pressure coming from obstructed appliances and garbage disposal
  • Failure of PEX and CPVC plastic pipes
  • Existence of harsh chemicals, potable water, and unsuitable installation of the pipe
  • Incidence of rodents biting off the PEX
  • Sewage backups arising from severe rainstorms and floods

How to Spot Signs of Water Damage

Although damages might not always be obvious to the naked eye there are several ways to spot potential issues. These are signs indicative of water damage:

  • The appearance of mold or smell of mildew in the bathroom and kitchen despite the regular cleaning sessions
  • Ceilings that display stains can be due to water leaks on floors or walls
  • Cracks in walls and the formation of bubbles on the wall paint
  • Discovering water pools on your floor and wood floor cupping
  • Seeing dry rot in wooden elements of the property
  • A higher than regular water bill fee

How to Prevent Water Damage?

Prevention is always better than dealing with the aftermath of water damage. You can reduce the possibility of water damage by setting up safeguards in your rental properties. Here are great ways to do it:

preventing water damage in rentals

Inspect the Gutters

Gutters must be cleaned and maintained regularly. A good rule of thumb would be after a rainstorm and at the end of each season. To ensure that the gutters filter the incoming debris, you must take time to get rid of the blockages. 

The gutters’ angle must also be positioned downwards. This drains the water away from the structure instead of gathering and releasing it onto the foundation. 

Examine the Downspouts

Make sure that your gutter’s downspouts are extended and positioned away from the property. Drainage is crucial and the water must be prevented from gathering around the property. If the downspouts are installed properly, flooding issues are avoided. Inspect if there are damages on the downspout so you can have it fixed or replaced right away.

Grade the Yard

The grading of the property must be examined. When there’s heavy rain, the volume of water rises quickly on the level ground. This can expose your property to increasing risks. Ideally, buildings should be designed with a sloping lot to drain the water effectively.

Investigate the Outside Drains

It’s essential to check the drains outside, especially the ones located close to your doors. Debris must be cleared to limit flooding issues.

Inspect Your Roof

It’s vital to conduct roof inspections to facilitate repairs or replacements when you discover missing shingles. Water should not find its way in through any roof leaks as this can increase the risk of water damage in your home.

protecting your property from water damage

Correctly Seal the Windows

Observe your windows and if you find any cracks. Should you find any have them repaired right away.

Check that Your Sump Pump is Functional

To get rid of water from basements, a sump pump is installed. It can perceive changes in water levels or pressure. You must ensure that the sump pump is in working order. If damages are present, it can increase the moisture of the basement and lead to unwanted effects such as mold growth.

Probe the Walls for Cracks

Cracks in the walls of your property open the opportunity for water damage by seeping into the foundation. This can render the building unsafe.

Inspect Perimeter Walls and Drains if Flooding Occurred

Contact a foundation expert when water gathers on your exterior walls. This can indicate a structural issue and must be repaired immediately. Walls must be properly sealed.

Remove Cooking Fats the Right Way

Improper disposal of cooking oil can lead to clogged pipes. Cooking oils turn into solid matter after a cooling-off period. It’s advisable to pack them tightly and throw them in the trash bins instead of washing them down drains.

Remove Blockages from Your Floor Drains

Clear floor drains from the accumulation of dirt and hair. Schedule regular cleaning to prevent the costly effect of water damage inside your property. 

Bottom Line

Reducing risks is better than spending a lot on fixing the damage brought about by water issues. With these tips, you’ll be better equipped to protect your property. However, if you’re a long-distance landlord, it might be best to engage the services of a property management company to ensure your property is protected.

If you would like help managing your rental properties, contact the team at T-Square Properties today!

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