If you’re thinking about investing in your next Salt Lake City, UT rental property, there is one crucial question that you need to ask yourself first: what’s my goal for this rental property?
Your answer determines how you should invest your money and evaluate success. Do you invest to build significant cash flow, or are you more focused on appreciation? Or both? The answer is often yes (to both)—but the reality is that it is difficult for property owners to have high cash flow and high appreciation rates simultaneously.
How can your real estate investing goals affect ROI? Today the best residential property management company Salt Lake City offers delves into this question!
Why Can’t Rental Property Owners Have It All?
We want to be clear: you can have wildly profitable rental properties that help build significant wealth! However, many investors quickly realize that conquering cash flow goals and high rates of application (together) is a challenging way to reach long-term income goals through real estate.
You can do it, but typically properties with great cash flow have lower appreciation rates, and properties with higher levels of appreciation usually don’t generate as much in monthly rent. Of course, this isn’t always the case, and it does depend on location and other factors. However, in rapidly appreciating markets like Salt Lake City, there is typically a disconnect between great appreciation and great cash flow.
For example, a Salt Lake City property that sells for $225,000 and rents for $2,250 a month might generate excellent cash flow for the property. However, it could have a slower estimated appreciation rate every year. In contrast, a property in a Class A neighborhood that sells for $500,000—and rents for only $2,500 a month—may generate lower cash flow for an investor due to a higher mortgage payment. Still, it could have a higher expected annual appreciation rate.
To experience the best success through rental property investments, most property management companies recommend setting goals based on either generating cash flow or focusing on the appreciation.
What Can You Expect from Real Estate Investments?
Property owners should set goals to own rental properties that generate enough income to support themselves while adding significant value over time. Of course, savvy investors often look for opportunities where both forces are present—but this takes careful planning.
Several factors play into determining if an investment property will provide good cash flow and high rates of appreciation, including:
The location of a rental property makes a big difference in both cash flow and the rate of appreciation. This often includes multiple factors like crime rates, other properties in the area, income levels, environmental concerns about that location (like noise), and more.
2. Property Improvements
Significantly improving a property can increase its value, and it can also help investors increase the monthly rent amount to boost short-term ROI. In addition, property improvements can also improve long-term return on investment potential depending on how much you invest in improving your property compared to what you will earn when you sell it. However, residential property managers advise that improvement projects should be carefully considered so they don’t sacrifice current or future cash flow potential.
3. Ongoing Maintenance
Many investors think that fixing up rental properties is an easy way to boost their value over time. However, there are plenty of additional costs that go into fixing up a rental property before you can sell it, and those repairs may require more cash flow from the property. In addition to the costs associated with making these improvements, an investor must also consider how long they’ll have to hold onto their rental before investing in other properties—and if they’re earning enough income from this investment over time.
One way to reduce the amount of cash you’ll need to put into a property before selling it is how well you keep up with property inspections and routine maintenance while you own the property. Being proactive with maintenance helps retain more tenants and minimize significant repair costs—two factors that can greatly increase your cash flow and ROI.
Determine (and Reach) ROI Goals With a Salt Lake City Property Management Company
Many investors find themselves stuck because they want both: high rates of appreciation and high levels of cash flow. When this happens, a property manager will recommend taking a step back and deciding which goal is more important for your long-term vision as an investor.
If you decide that cash flow is a bigger priority, you may need to do a little research on the expected cash flow from your investment property. However, if you decide that appreciation is more important than cash flow, then there are also several strategies you can take to boost your home’s value without compromising long-term ROI potential due to repair costs or other upfront investments. A Salt Lake City property management company can help you calculate estimated ROI based on rental rates and other factors.
Reeder Asset Management is here to help! With our local experience and professional property management services, investors can identify (and reach) ROI goals for rental properties. Reach out soon to learn more about full-service property management!
Calculate ROI with our free Rental Property ROI Calculator!