Everyone who enters the real estate industry has a common goal of maximizing returns on their investment. You may want to see your property appreciate in value, increase the number of units and tenants it holds, move into niche markets, all with one aim in mind- to get more returns on your investments.
Anyone who has been in this industry for a while will tell you that owning property does not mean passive income. Maximizing returns on property investments requires you to plan some innovative strategies, to go beyond standard operations and turn your investment into a high yield financial powerhouse.
In this article, we will look at certain techniques that will help you improve the efficiency of your business and empower you to unlock the full potential of your real estate assets.
What is property management?
A property manager looks after the day to day operations of a residential property like an apartment, house, multifamily unit, or condo, or a commercial property like an office, warehouse, shop, etc. These daily operations include collecting rent, repair and maintenance, paying property tax, and tracking financial performance of the property.
What is financial alchemy?
Traditionally, the term ‘alchemy’ refers to a process of transforming base metals into noble metals, like transforming lead into gold. Financial alchemy is a metaphorical term that is used to suggest transformation of an asset or resource into greater financial gains.
It means using your knowledge, insight, and skills to improve results from your financial investments. It typically involves understanding the market, assessing your investment portfolio, and learning to use different analytical tools.
Importance of maximizing gains from real estate
As the world population grows, there is lesser space for people to live, work and function. In this context, land ownership is becoming increasingly valuable over time. If you own or manage real estate, you are in a market that has high potential for growth.
It is important to make the best out of these assets so that you can build wealth, generate income for your daily sustenance and plan for inflation. This economical stability will enable you to develop infrastructure and create job opportunities.
How is return on investment (ROI) calculated?
Your ROI will tell you how much profit you are able to make from an investment. To calculate ROI, you just need to know how much revenue you collect, and how much money you had put in to begin with. We will look at a much simplified version of how ROI is calculated.
Let’s assume you purchased a rental property for $200,000. The tenants move in, you start collecting rent. After a year, you have gained $15,000 in rent. You have to spend $5000 on maintenance, property tax, utilities, etc. Next year, you sell the property for $220,000.
Now how do you calculate your gains from this investment? First, you calculate all that you earned- the rental income and the selling price. Then, from that you minus your total expenditure- including the initial amount you paid for the property, and the money you spent on maintenance and taxes.
Selling price + rent – cost of investment + maintenance and other costs = ROI
$220,000+$15,000−$200,000−$5,000=$30,000
Hence, ROI = 30,000/200,000 x 100= 15%
Here, the ROI on this investment is 15%, meaning that for every dollar you invest, you earn a return of 15 cents. When you calculate ROI in real life, you will also have to consider factors like market conditions and changes in property value over time. Z
Strategic reinvestment of funds
When you earn profit from an asset, e.g. earning equity from a stock, or earning rent from a property, some of these funds are for personal use, like sustenance and luxuries. Some part of the funds should essentially be used for further bettering your investment.
In the context of a real estate investment, a portion of your income can be used for acquiring more properties, renovating existing properties, marketing, research, learning new skills, community engagement, and corporate social responsibility.
Impact of renovation costs on rental income
Renovation is the process of upgrading the features of a property and adding certain facilities. It improves the functionality, monetary value and overall appeal of the property. Renovation does require you to pay some costs upfront. That’s why, it is important to make sure that your gains will outweigh these costs in the long term.
Upgrading your property with advanced features will certainly attract more tenants. Modern kitchens, bathrooms with heating systems, and renewable energy sources like solar powered appliances justify higher rents.
These facilities will keep your tenants happy, and it will lead to longer lease durations, resulting in a stable flow of income. With decreased vacancy rates, and more lease renewals, you will save up on turnover costs and ensure that your tenants are happy.
Moreover, some renovations end up saving costs in the long term. For example, fixing and upgrading wire insulations, heating and cooling systems, and switching to more efficient energy sources can help you cut costs on utilities. It will add to your cash flow in the long term.
As you renovate your property, you will be setting higher standards for your competitors. Your property will stand out in the rental market, and will attract more applicants. So in case your existing tenants vacate, the property won’t sit unoccupied for long, thus reducing gaps in income.
Financing and management practices for medical commercial properties
Integrating technology
In the context of a medical commercial property, technology can be used to promote telehealth services, setting up an electronics patient records system, creating mobile apps for patient engagement, protecting patient data with security access and control systems, etc.
Accurate reporting of finances
Healthcare real estate is a highly regulated and complex area of investment. It is important to prepare and submit reports on time for shareholders and tax department. It builds transparency and trust, ensures legal compliance, provides data for budgeting and forecasting, and helps in conducting comparative analyses against industry standards.
Effective communication
Effective communication is required with all stakeholders like patients, employees, property manager or owner, etc. It fosters a sense of trust and confidence, helps align their expectations with the goals of the business, facilitates the exchange of timely updates and makes the business more responsive to needs of stakeholders.
If you are a investor interested in medical commercial properties, it is important to plan for growth in returns in the early stages of investment. We hoped this article gave you an overview of the strategies you can use to maximize your returns from a real estate investment.
