Why Do We Invest In Real Estate?
If we have done our job correctly, each of our clients are investing in real estate for generally the same reason. They are not looking for quick hits and fast paydays. Real Estate investors who work with our company buying investment property in either Memphis or Dallas, are all looking for a long-term return on their investment. Nearly all of our clients are looking for an opportunity to – for lack of a better way to put it – invest and forget.
One of the most important things we do before selling property to an investor is make sure that their goals line up with our expertise. Single-family, deeded real estate investing is not like a study in science or an investment in a low, fixed-return offer from an institution. There is no fixed rate or steady as she goes model. When buying single-family homes on a one-on-one basis, actually owning the deed and having the title, there will be ups and there will be downs no matter how good the property. There are many theories and investment strategies to try and minimize the ebb and flow of investing, but in the end, they all use the exact same ingredient to make this type of investment a good one.
Single-Family Investing Uses Time To Maximize Returns
When we began publishing data fr0m our companies some time ago, one of the risks that we were warned about was the information not lining up with each individual investors experience. The concern was that anytime you are managing over 2,000 properties for 800+ real estate investors, not everyone is having the same experience. Each month there are vacancies. Each month there are unexpected maintenance bills. Each month there are properties that go vacant before the expiration of their lease.
A property management company could have a 5% vacancy rate on 2,000 properties and have one broken lease a month and 5% of the clients plus one unlucky investor with an early move-out are having a far different experience than the rest of the investors. That is where Time becomes involved.
On any given day we are managing approximately 100-130 properties that are vacant between Memphis and Dallas. Those properties are checked, reviewed and shown to prospect tenants on a weekly basis and sometimes on a daily basis. There often is neither rhyme nor reason for a property to remain vacant for an extended period of time past 30 days. We are always juggling a handful of properties that experience these extended vacancies. The same is true for a tenant breaking a lease early or failing to pay the rent on time. There will always be a percentage of these properties that we are managing for our clients.
If we have done a good job preparing an investor for their investment experience with our company, then an investor knows that time is their friend. We have an average length of occupancy of over two years and the data from the end of the 4th quarter will most likely show that number is closer to three years. We know that maintenance is lower than at any point since we started our company and is averaging just under 3.5% annually for our entire portfolio. We know that longer occupancy and lower maintenance means a more consistent and stable return on investment for a real estate investor. Now if we allow TIME to do its job, even a property that experiences a long than normal vacancy or a higher than normal maintenance bill or even a quick turn-over will make a solid and consistent return for its’ owner.
All Properties Will Experience Ups & Downs
The key thing to remember, as a single-family real estate investor is that Time Is On Your Side. If you have purchased for the right reasons and are going to let the compounding payments from a renter pay off your appreciating asset while earning a return, then your property will perform just as you expect over a period of time. It may look bad this month and maybe next month too. This year may be a down year, while last year or even next year will be exceptionally good.
Investors who purchase real estate for the long-term benefits sometimes have to ride the down turn of a property, but with high-quality property management, that property will soon turn around. We decided to publish our companies’ data even with the drawbacks because it was important to be accountable. We wanted our clients to know that we are fully aware that not every property performs on average. Every month there are a handful of clients and properties that get our undivided attention and are our #1 priority. We may not be perfect and every property may not perform perfectly every month, but that does not mean we cannot make that our goal!
What do you think? Are there always going to be issues with investment properties and management? Is time the factor that evens out a bad year for a property? Let us know your thoughts below....
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