Real Estate Investing – Tapping the hidden source of cashflow and capital in your rental portfolio
In the Maclean’s article “Is real Estate still a good investment for Canadians?”, Romana King raised a number of good points about real estate investing pitfalls and advantages
We work with hundreds of real estate investors, typically independent landlords and investors that might have 2-4 partners in a venture. These groups then have to decide which channel their operating model is focused on: flip or rent.
The current trend is moving away from flipping properties. Increasingly the attraction is to rent and hold. As AJ Agrawal pointed out in his recent article (Aug 23) “4 Reasons why Property Management” about 2,500 renters enter the US market each day whilst only 500 landlords do. The data supports the case for investing in rental management, but it also supports the case for property management as a service to those investors. As AJ rightly says, property management is the doing the dirty work!
Invariably, investor and independent landlords who start to accumulate 5, 6, 7 and more doors start to consider outsourcing the property management. Why? Because it’s distracting, time consuming and plain tiring. As we’ve heard many times from our clients “we accidentally turned into property managers instead of investors”. Choosing a good property manager is therefore important. But choosing the right property manager is where we find new source of capital and could elevate your portfolio.
Instead of running a tender or appointing who you’ve heard is good, pause for a moment to work out the capital value of your book of business. It’s completely distinct from the assets you own, their future value or the cash flow they will generate while you own them. The right to manage your doors also has a cashflow stream. A high quality and well capitalized property management company should be willing to pay for the right to serve you and help expand your portfolio.
They will likely require certain assurances over the future outlook but nonetheless, you would be realizing a new source of capital and cashflow that you hadn’t tapped into before. In some cases, this might be enough for the next refurb or acquisition.
Investing in this way could be even more rewarding. Play to your core strengths and unlock hidden sources of value from your past hard work.
Zdravko (Zed) Loborec @ firstname.lastname@example.org