Are you earning money - or even breaking even on your Portland investment property?
It doesn’t happen right away.
Earning a profitable return on investment is important to all real estate investors, whether you’re renting out a single property or an entire portfolio. If you’re wondering when you’ll start to make some money, the answer is: it depends.
We know that isn’t exactly a satisfying answer, but the answer does depend on who you are, where you are, and what you own. There are additional variables, such as how you financed your investment, how old it is, and what you spend maintaining it.
If you’re working with a team of experts who can help you maximize what you earn quickly, you’ll start to notice some pretty serious investment benefits right away.
While most of your cash flow and ROI will depend on you and your property, there are some standards we can set across the industry. We have a few indicators that can help you set and manage investment and ROI expectations, and we’re sharing those in this blog.
How is Return on Investment Calculated?
Your return on investment, or ROI, can be calculated in a lot of different ways, which further confuses how it’s measured and expected. For our discussion, we’ll use this general understanding and define ROI as the profit you earn annually as a percentage of the total amount of cash you invested into the property.
This is why there are differing timelines for investors when we talk about when you can expect to break even and earn some money.
If you bought a single-family rental home in cash, your ROI will likely be much lower than if you financed the property. Your mortgage or loan leverages what you earn because you have not invested too much cash into the property at the point of purchase.
Currently, the real estate market has some of the highest prices we have seen. Homes have increased in value, which means if you invested five or 10 years ago, you’re likely seeing quite a bit of healthy ROI. If you invest right now with prices where they are, it will likely take you longer to see a return. This is based on the current purchase price and what investors will have to spend to acquire a home in Portland. If you bought a property at a lower price point, during a less competitive market, you’d see a larger return faster.
In Portland’s rental market, you will likely see a positive return after you’ve rented the property out for a few years, as long as you keep the home occupied with good tenants and you can reliably raise your rents a little each year. If you’re able to increase your rental value and you find ways to bring your expenses down, you’ll break even soon, and you’ll earn some nice profits soon after that.
Set Some Portland Real Estate Investment Goals
Before you can measure your ROI or get excited about what you’re earning, you have to know why you’re investing at all. This will also help you establish a timeframe for when you’ll begin to see a return on your real estate investment.
Do you have some investment goals in place? If you don’t, now is the time to set them. If you do have investment goals in place, make sure you are reviewing them periodically. This will drive what types of properties you buy and where you buy them.
Some potential investment goals might cover:
You’re investing to gain leverage and hedge against inflation. These are benefits and returns that you cannot get from the stock market. Only in real estate do you have the potential to increase what you earn with money that isn’t your own.
You’re diversifying your financial portfolio. There are so many options for real estate investments. You can own single-family homes, multifamily properties, or a mix. You can rent out commercial space or focus on short-term vacation properties. A diversified real estate portfolio will usually turn a profit and shore up ROI faster than a portfolio that focuses on one specific market or type of property.
You’re setting goals for long-term ROI. Real estate is the best investment for future earnings. You’re earning from compounded returns and investment growth. Your property values are going up and the amount of money you owe on those properties is going down.
You’re planning for retirement. Perhaps you’re renting out the home you’ll eventually live in yourself. If that’s the case, you’ve already earned a lot of money on this investment. It’s a tangible asset that will likely be paid off entirely by someone else when you’re ready to move in.
When your rental property isn’t delivering thousands of dollars in cash the first year, don’t get discouraged. You’re earning money. The ROI is still there.
Long-Term Earnings: Buying and Holding Delivers the Best ROI
Your investment goals, which we have already discussed, will set forth what you buy and what you do with the property after you buy it. There are quite a few real estate investors who build their portfolios around buying homes and then flipping them. This can be a great way to earn money in some real estate markets. It’s hard to do that now, and if your real estate goal is to earn some great returns over the long term, this isn’t a strategy that’s likely to help you reach those goals.
Real estate is not usually a plan to get rich-quick. Smart investors understand that it’s a process that requires patience and strategy, especially if you are looking for maximum earnings.
As experts in Portland property management and real estate investing, we recommend that you buy and hold your real estate investments. Prepare yourself to make more money over time. You’ll earn a bit of income with your rental payments every month. The real money, however, is made over time when rents are going higher, equity is growing, and properties are becoming more valuable.
Your real estate investment is going to make you money, especially when you have a reliable tenant in place who is paying rent and taking care of the home. You might not see a profit right now or in the next year or even in the next handful of years.
That’s okay because ROI isn’t something that can be measured at the beginning of your investment cycle. You’ve made an investment that a tenant is helping to pay for. The longer you’re willing to hold onto that investment, the higher your returns and earnings will be.
Easy ROI Metrics: Capital Appreciation and Increasing Value
Most investors in Portland don’t start earning money in the first months or even the first years that they own a rental property. That’s because home values here are high. It’s an expensive market to enter. Usually, the amount of rent you collect will not exceed the expenses associated with the rental property right away. You’ll find yourself paying out of pocket to fill those gaps.
In some cases, you might see some money coming in right away. Maybe you paid for your investment property in cash. Or, you refinanced a property you already owned while rates were low and now you’ve moved out of it and you’re going to rent out the home.
There are plenty of scenarios in which you’ll have positive cash flow right away.
Most investors, however, will earn their ROI through capital appreciation. This is the increase of a home’s market value compared to its purchase price or acquisition cost. When you factor appreciation into your investment strategy, you’ll see that it will help you earn the income you’re hoping for as the property increases in value. Portland real estate values will increase, and so will your appreciation and ROI.
How to Attract ROI: Good Tenants and Great Property Condition
You will earn maximum ROI as quickly as possible when you can be sure you have a fantastic rental property that’s well-located and well-maintained. A modern, functional, and attractive home will appeal to the high-quality tenants you need to have a profitable investment experience.
One of the best and easiest ways to increase what you earn is by making some cost-effective upgrades. You’ll wait longer to see returns if your kitchen has appliances that are 20 years old. Make sure the home is clean, painted, and shows well. When you install hard floors instead of carpet, you’ll see your rental value and your property value go up. When you invest in landscaping, put on a new roof, and upgrade the technology and the security - you’re seeing returns on those investments.
If your home is new and already in great condition, don’t spend a lot on upgrades now. To maximize your investment, you’ll want to wait until you need to begin replacing things such as floors, appliances, and fixtures. Upgrade your property during turnover periods so you can ask for higher rents. This will increase your short-term income and your long-term return on investment.
You’ll break even once you have some consistency in rental income and well-maintained property that’s occupied by a good tenant. You’ll see your ROI when you can raise your rent, reduce your expenses, and leverage all the benefits that come with real estate investments, such as tax breaks.
Let’s talk about where you stand and where you want to go. Contact us at PropM, Inc. for all your Portland property management questions.
