5 Costly Mistakes to Avoid When Buying Your Rental Property

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Being a novice home buyer with intentions of renting it out can be potentially one of the most stressful, yet lucrative investments one can make in a lifetime. As industry leaders in property management, the Nomadic Real Estate team has seen first hand how unexpected set-backs can make or break the investment experience. Below are 5 costly mistakes commonly made with first time rental property purchases and some tips on how to avoid them.

1. Not Saving for Maintenance

Most investors underestimate the amount of money that can go into maintenance. A good rule of thumb is to set aside 2% of the property value in a reserve each year. Trust us, it causes plenty of problems when there is a major maintenance issue that needs to be addressed, but there is no cash in the bank to do it with. Keep in mind, that every little thing in your property has a life span and will eventually run through it. Setting aside monetary reserves specifically for maintenance and replacements means you’ll never be giving your tenants a reason to leave. It will also help preserve your cash flow, ensuring maximum income stability.

2. Being Your Own Handyman

So you’ve purchased a property that needs a few tweaks. These could all be fixed with a YouTube tutorial right Although we respect your level of ambition, think twice before picking up the hammer. Chances are, you’re working a full time job and investing as a side project, which means, you might not have the proper skill or dedication to see the entire project through. Pairing inexperience with limited time is a sure combination for failure.

A real estate investment takes many moving components all working together. Before you dive in, do your homework. Figure out exactly what renovations must be done and assign someone to each task. The longer the property sits, the more you are losing in holding costs. Proactively schedule professionals to handle those work items that are out of your scope. You want the renovations done immediately, so before purchase, have the work already lined up. Wasting the least amount of time and hiring professionals who know exactly what needs to be done will save you on the headache now and time and money down the road. There’s no substitute for an expertly-done job, especially when it comes to protecting your investment.

3. Over or Under Doing it on Renovations

One of the main keys components of renovating your property is to maintain the correct level of renovations. The “correct level of renovations?” This means don’t over-renovate or under-renovate you home as both can be costly. Do your research and calculate out the specific return on investment (ROI) based on market tolerances and trends in your neighborhood.

To ensure you’re making the best decision to meet your goals, it’s best to enlist the help of a local expert team. They can source competitive quotes from vendors, calculate potential ROI, and analyze your local market to help you through the many stages of the improvement process. Renovations can greatly increase your earnings over time, but only if done right!

A person holding keys after buying a rental property

4. Not Knowing your Market Conditions for Maximum Return on Investment

New investors can sometimes overlook the risks with taking on debt. Not understanding how debt works and how it can be leveraged in your favor, can prove to cut into profits. Usually, seasoned investors use debt in two ways:

1)Improve returns: If the interest rate on the loan is less than net yield, then the return is higher than if it was paid for in cash.

2)Expand buying power: Rather than spending $200,000 in equity, spread out that money into down payments for multiple properties.

New investors must be wary of expensive interest rates. Rates higher than the net yield will produce negative cash flow, forcing you to pay out of pocket to avoid defaulting on the loan. Understanding all the costs and revenues of the property in detail will allow you to make the best decision.

5. Not Hiring a Property Management Company

Along with having a full time job, you have better things to do than to be your own property manager.  Nomadic Real Estate specializes in full service property management. We find trustworthy tenants and our staff of specialized professionals take care of problems that may arise throughout the contractual period. From collecting monthly rent to plumbing, we do all the work so you don’t have to. The only finger you’ll ever have to lift, is when you check your bank account for monthly rent!

Avoiding these few mistakes before taking on a property can help you make a profit right away. Above all else, doing your own research and learning exactly what happens in each stage will prove the most beneficial. The more educated you are, the smoother your investments will go.

Looking for something?

Visit our Tenant Resource Center to submit a work order. Visit our Client Resource Center to log into your account. Check out our awesome DMV located rentals. Get in touch for our property management services.

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

You'll also find a month-over-month operating statement:

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Responses will show up in the conversation ticket:

  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Each conversation will be logged in its entirety:

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

View a snapshot of income and expenses on your dashboard:

See every transaction in real-time on your ledger:

Statements and forms will be posted to your documents library:

View a suite of real-time financial reports:

See a running list of all bills, and drill down for more detail:

Under Bill Details, you'll find dates/descriptions/amounts and more:

You can also communicate with your Account Manager through the portal:

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.