The St. Louis rental market provides a lot of potential for real estate investors, whether you’re hoping to buy your first property or add a few more to a growing portfolio. At AMOSO Properties, we are both investors and professional property managers. We understand the importance of making smart choices that will increase ROI and improve the investment experience.
Today, we’re sharing some of the tips that have worked well for us. We specialize in keeping costs down and profits high.
Making Money on the Purchase
When you purchase your investment property, you’re buying based on the expectations for what you will earn when you sell it. You make your money on the purchase of a property, not the sale. Why? Because you will earn more of a return on your investment when you make a smart purchasing choice. Buy the property that has potential and may be slightly undervalued by the seller. It’s in the purchasing process that you consider the home’s location, condition, size, and rental appeal. When you settle on a purchase price, you’re making money by establishing cash flow and earning equity.
It’s Not All About Appreciation
Investors always expect their properties to increase in value. This is an easy way to increase your ROI, but you have absolutely no control over the market. Appreciation will depend on market demand, the preservation of the condition of your asset, and fluctuating interest rates or economic performance. Don’t make investment decisions based on appreciation alone. To increase your ROI, you’ll want to drive up your cash flow.
Cash on cash return models may be appealing to investors in a general sense, but in St. Louis, relying on this math will most likely get you hurt in the residential rental market, specifically with single-family homes and condos. Your investment needs to be made based on the market conditions, the amount of rent you can earn, and the stability of the tenant pool. Putting a good, long-term tenant into your property and maintaining its condition will provide you with the best chance of increasing your ROI.
Budget for Rental Property Expenses
Talk to local investors who are succeeding with their rental properties. It’s always a good idea to listen to success stories, but don’t be afraid to ask about mistakes so you can learn from those errors. There have probably been expenses that they did not anticipate, and if you can prepare for them ahead of time, you can protect your ROI. Increasing returns requires you to keep costs down, so be realistic with your budget.
Some of the things you’ll need to factor in are:
- Vacancies and turnover periods.
- Marketing and advertising costs.
- Professional fees from property managers, accountants, insurance agents, etc.
- Potential evictions and property damage.
The most expensive costs are associated with bad tenants. When you place the wrong tenant, you put yourself at risk for cleaning up property damage, chasing late and unpaid rent, and possibly going to court for eviction proceedings. Make sure you’re investing in a thorough and consistent tenant screening process to protect your income and your asset.
If you have any questions about how to increase your ROI, please contact us at AMOSO Properties. We’d be happy to share additional tips and help you earn more on our St. Louis rental home.