Author: Alita Hall

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Cost Control and Expense Management: Your Ticket to Maximized Profitability

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Cost Control and Expense Management: Your Ticket to Maximized Profitability

Introduction

When it comes to the real estate sector, the balance between revenues and expenses can mean the difference between success and failure. Thus, mastering the art of cost control and expense management is paramount. Here's how economies of scale, regular audits, and tech-driven automation can help you trim the fat, streamline costs, and pave the way for maximum profitability.

 

Economies of Scale: Expanding Your Property Portfolio

 

Economies of scale are achieved when increased levels of production lead to lower costs per unit of output. In the context of real estate, expanding your property portfolio can result in reduced per-unit costs and improved profitability.

 

For example, consider a property management company that oversees a single property versus a company that manages a portfolio of multiple properties. The latter can negotiate better deals with suppliers and contractors due to the bulk of the work. So, if you're maintaining ten properties, the per-unit cost of hiring a lawn maintenance service is likely to be significantly less than if you hired the service for a single property.

 

Regular Audits: Spotting Inefficiencies and Cost-Cutting Opportunities

 

Conducting regular audits of your expenses allows you to identify inefficiencies and potential areas where costs can be cut without compromising service quality or tenant satisfaction.

 

Let's say, during an audit, you notice an unusually high water bill for one of your properties. Upon further investigation, you find that the property has a leaky pipe, leading to excessive water usage. By identifying and rectifying the problem, you can significantly reduce your water expenses, demonstrating the power of regular audits in cost control.

 

Tech-Driven Automation for Process Efficiency

 

Investing in technology and automation can seem like a significant expense upfront, but it often leads to substantial long-term savings by increasing efficiency and reducing errors.

 

For instance, using property management software can automate tasks like rent collection, property maintenance requests, and lease renewals. Not only does this reduce administrative costs, but it also allows for better record-keeping, more timely responses, and improved tenant satisfaction.

 

Or consider energy management systems that automate heating, cooling, and lighting in common areas based on occupancy. Such systems can lead to considerable savings in utility costs over time.

 

In conclusion, adopting cost control and expense management strategies can lead to maximized profitability in the real estate sector. By implementing economies of scale, conducting regular audits, and embracing tech-driven automation, you can make your business leaner, more efficient, and more profitable. The road to success in real estate isn't just about increasing revenue; it's equally about strategically managing and reducing expenses.
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Financial Metrics and KPIs: Your Real Estate Performance Amplifiers

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Financial Metrics and KPIs: Your Real Estate Performance Amplifiers

Introduction

Numbers hold the power to speak volumes about the performance of your real estate enterprise. They distil vast complexities into quantifiable metrics, enabling you to track your progress and steer your business towards its goals. Although there are numerous financial metrics and Key Performance Indicators (KPIs) that could be valuable to a real estate firm, the following are essential ones you might want to keep on your dashboard: Gross Rental Yield, Net Rental Yield, Return on Investment (ROI), Debt Service Coverage Ratio (DSCR), and Loan-to-Value Ratio (LTV).

 

Gross Rental Yield and Net Rental Yield: Gauging the Earning Power of Your Rental Properties

 

Gross Rental Yield gives you a quick snapshot of the rental income potential of your property relative to its market value. It's calculated by dividing the annual rental income by the property's market value.

 

For instance, if you receive $24,000 annually in rent for a property that's worth $300,000, your Gross Rental Yield would be 8%.

 

Net Rental Yield, on the other hand, is a more accurate measure of profitability as it accounts for costs like maintenance, insurance, and property taxes. If you have $4,000 of annual expenses on the above property, your Net Rental Yield would be 6.67%, giving you a more realistic understanding of your return.

 

ROI (Return on Investment): Measuring the Fruitfulness of Your Investments

 

ROI is a critical metric that helps you measure the effectiveness of your investments. It's calculated by dividing the net profit from an investment by the cost of the investment.

 

For example, if you purchased a property for $200,000, invested $50,000 in renovations, and sold it for $300,000, your ROI would be 20%. This simple yet powerful ratio allows you to compare the profitability of different investments, guiding your future investment decisions.

 

DSCR (Debt Service Coverage Ratio): Monitoring Your Ability to Meet Debt Obligations

 

The Debt Service Coverage Ratio is a measure of the cash flow available to pay current debt obligations. It's calculated by dividing your net operating income by your total debt service.

 

Suppose your property generates a net operating income of $120,000 per year, and your annual debt service is $100,000. Your DSCR would be 1.2, which is a healthy ratio as it shows you generate sufficient income to cover your debt obligations.

 

LTV (Loan-to-Value Ratio): Assessing the Risk Linked with a Mortgage Loan

 

The Loan-to-Value Ratio is a financial term used by lenders to express the ratio of a loan to the value of the asset purchased. It's calculated by dividing the mortgage amount by the appraised value of the property.

 

For instance, if you secure a loan of $180,000 to purchase a property valued at $200,000, your LTV ratio is 90%. A lower LTV generally indicates less risk for the lender.

 

In conclusion, these financial metrics and KPIs provide valuable insights into your real estate business's financial health and operational efficiency. By understanding and tracking Gross Rental Yield, Net Rental Yield, ROI, DSCR, and LTV, you can make data-driven decisions that enhance the performance and profitability of your real estate portfolio. But remember, these are not the only KPIs and financial metrics valuable to a real estate firm. Depending on your specific business model and strategy, other measures may be equally or even more critical to your success. In real estate, it's not just about numbers, but about the right numbers.

 

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Debt Management: Making Your Real Estate Investments Shine

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Debt Management: Making Your Real Estate Investments Shine

Introduction

 

Debt, when used appropriately, can be an incredible growth accelerator in the realm of real estate. It can propel asset acquisition and expansion, transforming your real estate ventures into profitable enterprises. Managing this debt effectively is crucial to maintain optimal financial health. Let's delve into some of the strategies you can utilize: diversifying your debt portfolio, monitoring your debt-to-equity ratios, seeking refinancing options when needed, and routinely reviewing your loan interest rates and terms.

 

Diversifying Your Debt Portfolio

 

Just as diversification is a sound strategy for your investment portfolio, the same applies to your debt portfolio. Diversifying your sources of debt allows you to tap into different interest rates, payment terms, and loan conditions, reducing the risk of over-reliance on a single lender or type of loan.
For example, as a real estate investor, you might opt for a mix of traditional bank loans, private lender loans, and real estate crowdfunding platforms. This mix reduces the risk of being caught in a financial crunch if a particular lender changes its terms or if a specific debt instrument becomes unsustainable.

 

Keeping a Sharp Eye on Your Debt-to-Equity Ratios

 

Monitoring your debt-to-equity ratio, a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance your assets, is key in maintaining the financial health of your real estate business.
A high debt-to-equity ratio could indicate that your business relies heavily on borrowed money, which could potentially alarm lenders and investors. On the other hand, a low ratio might suggest that you're not leveraging debt effectively to grow your business.
For instance, if your real estate business has a debt-to-equity ratio of 2:1, it means you're funding your assets twice as much with debt as with your own equity. If market conditions deteriorate, servicing this debt could become challenging, potentially leading to financial distress.

 

Seeking Refinancing Options When Needed

 

Refinancing your real estate loans can be an effective debt management strategy. It can help reduce your interest costs, change your loan term length, switch from variable-rate to fixed-rate (or vice-versa), or access equity from your properties.
Consider, for instance, you have an investment property loan with a high-interest rate. Given the current low-interest-rate environment, it might make financial sense to refinance this loan to a lower interest rate, reducing your monthly payments and freeing up cash for other investments or expenses.

 

Regularly Reviewing Your Loan Interest Rates and Terms

 

Interest rates and loan terms can significantly impact your loan repayments and overall financial position. Regularly reviewing these can ensure you're not overpaying and that your loans remain aligned with your investment goals.
Let's say you have a loan with an adjustable-rate that started with a low introductory rate, which has now increased significantly. If you were to review your loans regularly, you'd catch this increase and could consider refinancing to a fixed-rate loan or negotiating better terms with your lender.

 

In conclusion, effective debt management is paramount for a thriving real estate business. Diversifying your debt portfolio, vigilantly monitoring your debt-to-equity ratios, leveraging refinancing options when necessary, and frequently reviewing your loan interest rates and terms can turn debt from a challenge into a powerful ally. In the dynamic world of real estate investing, it's not just about the properties you acquire but also about how you finance and manage these assets over time.

 

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Mastering Your Money Moves in Real Estate: The Dynamic Duo of Budgeting and Forecasting

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Mastering Your Money Moves in Real Estate:
The Dynamic Duo of Budgeting and Forecasting

Introduction

Who said ruling the real estate world was only about finding hot properties? Nope, there's a secret sauce—sophisticated financial strategy underpinning it all. And guess who are the rockstars in this band? Budgeting and forecasting!

 

Get ready to harness the power of cold, hard data, keep your finger on the pulse of market trends, and make technology your best friend. Let's dive into the exciting realms of zero-based budgeting and the constantly evolving world of rolling forecasts—your power tools on the journey to real estate stardom.

 

Zero-Based Budgeting: It's Like Spring Cleaning for Your Costs!

Imagine zero-based budgeting (ZBB) as your personal financial trainer— it won't let any cost sneak into your new budget without justifying its existence. This isn't your grandpa's old-school budgeting—ZBB starts fresh from a "zero base," putting every department under the scanner for its costs and needs.

 

In the bustling world of real estate, ZBB can be a game changer. It nudges you to keep a hawk-eye on all expenses and bid adieu to anything that's draining your resources without adding value.

 

Picture yourself steering a real estate company, with a portfolio chock-full of apartment complexes. With zero-based budgeting, you're dissecting each expense—be it maintenance contracts or landscaping costs for each complex, in every budgeting cycle. You're the budget detective, spotting opportunities for savings, whether it's time to renegotiate contracts or swap out vendors for more cost-effective ones.

 

Rolling Forecasts: Stay Agile and Keep it Real!

The real estate industry moves faster than a cheetah on a caffeine rush—a static forecast can quickly become a relic. Enter rolling forecasts, your secret weapon to maintaining forecasts that are as fresh as this morning's coffee. These forecasts are continuously updated, whether it's every month or every quarter, to mirror the latest data and market trends.

 

Rolling forecasts are your trusty navigator, helping you adapt your strategies based on the most current information. It's like having your very own crystal ball, keeping you prepared to dodge risks and snatch up any golden opportunities that come your way.

 

Let's say you're juggling a portfolio of rental properties, and suddenly, the market sees a surprise spike in vacancy rates. A static forecast would be left in the dust, but with a rolling forecast, you can revise your predictions to account for these new vacancies. Now you're ready to adjust your strategies on the fly—whether it's upping your tenant retention game or reconsidering your rent prices.

 

Tech to the Rescue for Budgeting and Forecasting

Tech tools have swept in like a superhero, transforming the budgeting and forecasting landscape in real estate. Software solutions like MRI Software or RealPage are like your trusty sidekicks, offering a suite of tools tailor-made for real estate budgeting and forecasting. They automate data collection, deliver real-time market trends, and provide predictive analysis to help you fine-tune your forecasts.

 

For instance, a software solution like Yardi Voyager doesn't just help manage property and financial data, it offers advanced forecasting features too. It takes your historical data and current market trends to craft insightful predictions, powering you to strategize and make decisions with a newfound confidence.

 

Wrapping up, budgeting and forecasting are not just necessary evils—they're your secret weapons in the quest for real estate dominance. Zero-based budgeting keeps your costs on a leash, while rolling forecasts equip you to dance with the market's ebbs and flows. And with the right tech tools, you're on the fast track to not just surviving but thriving in the real estate market.

 

Remember, in this game, it's not just about the properties you've got, but also the strategic financial planning behind it. So, let's rock this!

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Cracking the Cash Flow Code:

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Cracking the Cash Flow Code:
The Real Estate Mogul's Fun Guide to Winning Big!

Introduction

Whoever said "cash is king" was on to something, particularly when it comes to rocking the real estate world. Consider cash flow the lifeblood of your empire, powering your daily grind, settling debts, and igniting growth opportunities. Real estate conquerors know this: taming the cash flow beast can propel your business to unimagined heights. Here's the golden how-to:

Spying on Your Cash Flow: The Secret Sauce to Success

"Watch the pennies and the dollars will take care of themselves." That's a golden oldie that still rings true today. Consistently snooping on your cash inflow and outflow is like having your hand on the pulse of your empire's fiscal fitness. It helps you anticipate those inevitable highs and lows - like the summer surge in demand for leases or the winter drain on your wallet when that central heating system kicks the bucket.

It's not about becoming a number-obsessed hermit. Rather, it's about uncovering the trends, deciphering the market's mood, and learning to predict the impact on your own fiscal tides. And with a little planning, you can even schedule those costly property makeovers during the quieter rental periods. Sneaky, right?

Building Your Treasure Chest: Because Surprises Happen

From sudden boiler bust-ups to unexpected market downturns, the real estate world is full of surprises. Having a treasure chest of cash reserves makes you the financial Indiana Jones of the real estate sector, always ready for the next adventure.

But this isn't just about having a 'break glass in case of emergency' fund. It's about the freedom to pounce on those oh-so-tempting investment opportunities that suddenly pop up. Consider stashing away three to six months' worth of expenses. It's like having a personal genie granting you financial wishes whenever you need them.

Mastering the Cash Flow Tango: Timing is Everything

In real estate, timing is not just a good thing—it's everything. Syncing your income and expenses is like finding the perfect rhythm in the cash flow dance. It ensures you always stay ahead of the beat.

Try to get your rent payments in before those nasty bills strike. If your mortgage takes a bite on the 15th, ensure your rent comes in by the 10th. Smooth-talking your vendors into aligning their payment schedules with your income stream is another smart move. It's all about owning the dance floor!

Tech Magic: Your Personal Cash Flow Oracle

Today, technology is like a sorcerer's stone, transforming cash flow management from a cumbersome task into a fun, manageable process. There's a treasure trove of applications out there that act like your personal finance wizard, casting an overseeing spell on your cash flow.

Automating your tracking, forecasting future trends, alerting you to upcoming cash crunches, and showing the impact of various scenarios on your cash flow - these apps do it all! QuickBooks, for instance, is like having your very own financial wizard, helping you master the mystical art of cash flow management.

Being a whiz at cash flow management is not just about making sense of cents—it's about adopting a 360-degree approach. By turning cash flow watching into a strategic game, padding your financial safety net, nailing the timing of income and expenses, and embracing the power of tech, you're not just running a real estate venture—you're reigning over an empire! Because in the world of real estate, the chant isn't just "location, location, location"— it's "cash flow, cash flow, cash flow".

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Elevating Your Real Estate Business: The Power of Financial Management Excellence

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Elevating Your Real Estate Business:
The Power of Financial Management Excellence

Introduction
Are you ready to take your real estate business to the next level of success? It's time to uncover the secret of the industry leaders - Financial Management Excellence. This isn't just about crunching numbers. It's about insightful planning, strategic resource utilization, adept cash handling, smart investment decisions, and savvy cost controls. This is your road to unparalleled growth, profit maximization, and economic resilience. Let's explore how!

Mastering Cash Flow Management for Real Estate Powerhouses
Cash flow management is your secret weapon. When skillfully handled, it not only fuels your operations but also services debt, and powers growth opportunities. Become a master of:
    • Regularly tracking and interpreting cash flows
    • Setting aside a safety net of cash reserves
    • Strategically timing income and expenses to maintain a cash flow surplus
    • Harnessing tech tools for real-time cash flow oversight.
Budgeting and Forecasting – Your Path to Real Estate Dominance
Ready to set your financial targets and outperform them? Budgeting and forecasting are your trusted navigators. Use historical data, market trends, and innovative business tools to forecast with precision. Adopt:
    • Zero-based budgeting for stringent cost control
    • Constantly updated rolling forecasts for greater flexibility and accuracy.
Debt Management: Making Your Real Estate Investments Shine
Debt can be a powerful ally in real estate, catapulting your asset acquisition and growth. Handle it wisely to keep your financial health in peak condition. Become adept at:
    • Diversifying your debt portfolio
    • Keeping a sharp eye on your debt-to-equity ratios
    • Seeking refinancing options when needed
    • Regularly reviewing your loan interest rates and terms.
Financial Metrics and KPIs: Your Real Estate Performance Amplifiers
Nothing speaks louder than numbers. Financial metrics and KPIs quantify your performance, guiding you to your goals. Keep these vital metrics on your dashboard:
    • Gross Rental Yield and Net Rental Yield: To gauge the earning power of your rental properties.
    • ROI (Return on Investment): To measure the fruitfulness of your investments.
    • DSCR (Debt Service Coverage Ratio): To monitor your ability to meet debt obligations.
    • LTV (Loan-to-Value Ratio): To assess the risk linked with a mortgage loan.
Cost Control and Expense Management: Your Ticket to Maximized Profitability
Trimming the fat and streamlining your costs is your golden ticket to maximized profitability. Implement:
    • Economies of scale by expanding your property portfolio
    • Regular audits to spot inefficiencies and cost-cutting opportunities
    • Tech-driven automation for process efficiency.
Capital Structure and Financing Options: Shaping Your Real Estate Empire
Your choice of capital structure and financing options is a cornerstone of your firm's financial health. Make strategic decisions based on market conditions, interest rates, and risk appetite. Explore:
    • Equity financing from investors or profits reinvested into your business
    • Debt financing, like bank loans and bonds
    • Hybrid options, like convertible securities.
Building an Unshakeable Financial Strategy for Economic Storms
An economic downturn isn't a setback – it's an opportunity. Be ready to stand tall during the storm, maintaining liquidity, controlling costs, and seizing golden opportunities. Build resilience by:
    • Creating a diverse property portfolio to distribute risk
    • Carrying out contingency planning and stress testing your financial models
    • Spotting and seizing counter-cyclical investment opportunities.
Conclusion
Real estate financial management isn't one-size-fits-all. It's about shaping your unique blend of strategies to fit your vision, market conditions, and ambitious goals. By embracing the pillars we've just explored, small to mid-sized real estate firms can cultivate the financial resilience, supercharge their profitability, and carve out their path to enduring success.

Stay tuned! We're about to dive even deeper into the seven pillars of Financial Management Excellence. Armed with this knowledge, you'll be poised to elevate your real estate business to unprecedented heights. Let's unlock the potential together – because in real estate, the sky truly is the limit.

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Excel vs. QuickBooks Desktop: Why Landlords Should Make the Switch!

Introduction:

👋 Hey there, Landlords! Ready to take your rental business to the next level? Say goodbye to spreadsheets and hello to QuickBooks Desktop! In this post, we'll explore the top 5 benefits of ditching Excel and embracing computerized accounting systems, with a special focus on QuickBooks Desktop. Let's dive in and discover a whole new level of efficiency!

1)Simplify Tenant Invoicing:

📝 Say goodbye to manual calculations! QuickBooks Desktop automates invoicing, making it a breeze to determine what your tenants owe. Generate professional invoices effortlessly, and wow your tenants with a comprehensive rental history statement they can show off to future landlords or lenders.

2) Eliminate Double Data Entry:

⚡️ No more wasting time on redundant tasks! With QuickBooks Desktop, input your data once, and it automatically updates related records, reports, and accounts. Say hello to time saved and goodbye to tedious double data entry.

3) Bid Farewell to Math Errors:

➕📉 Forget about formula blunders! QuickBooks Desktop ensures accurate calculations without the headache of spreadsheet errors. Say goodbye to manual error correction and hello to peace of mind.

4) Powerful Reporting Features:

📊 Unlock the power of reporting with QuickBooks Desktop! Track liabilities, expenses, assets, revenues, and equity effortlessly. Generate Balance Sheets, Profit & Loss Statements, and more with just a few clicks. Simplify tax preparation and reduce prep fees by sharing comprehensive reports with your tax preparer.

5) Streamlined Rental Property Management:

🏡 Manage your properties like a pro! QuickBooks Desktop offers features like classes, allowing you to easily track and generate property-specific Profit & Loss Statements. Say goodbye to complex spreadsheets and enjoy a seamless experience for your rental business.

Bonus Benefit: ✨ QuickBooks Desktop saves you from spreadsheet design headaches! No more spending hours creating and modifying complicated spreadsheets. Focus on providing the data, and let QuickBooks Desktop handle the rest. Imagine the time you'll save for more important tasks, like analyzing deals or spending quality time with loved ones.

Conclusion:

🚀 It's time to bid farewell to the limitations of Excel and embrace the powerful features of QuickBooks Desktop. Simplify tenant invoicing, eliminate double data entry, and ensure accurate calculations. Enjoy robust reporting capabilities and effortlessly manage your rental properties. Say goodbye to spreadsheet struggles and say hello to increased productivity and peace of mind.

Ready to level up your rental business? Explore the wonders of QuickBooks Desktop and experience the transformation firsthand. Get in touch with AMH Bookkeeping LLC for expert guidance and maximize your success! 💪🏾💰💼

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Landlord Bookkeeping - Managing Tenants

Level Up Your Landlord Game with QuickBooks Desktop and Statement Charges! 💃🏾🔥

🎉 Hey, Queens and Kings of Real Estate! Are you ready to slay your landlord game and conquer the world of tenant management? Well, get ready to upgrade your hustle with the powerful combo of QuickBooks Desktop and Statement Charges! 💪🏾✨

Benefits of QuickBooks Desktop:

🔹QuickBooks Desktop is your ultimate secret weapon for managing tenants like a boss. Here's why it's time to get on board:

1️⃣ Streamlined Onboarding:

🚀 Say goodbye to tedious paperwork! QuickBooks Desktop simplifies tenant onboarding, making the process smooth and effortless.

2️⃣ Tenant Information Management:

📋 Keep track of crucial tenant details like rent charges, payments received, and security deposits in one centralized place. No more scattered notes and sticky reminders!

3️⃣ Efficient Rent Charge Management:

💸 Create statement charges for rent in a snap! QuickBooks Desktop allows you to automate rent charges for all your tenants with just a click. Cha-ching! 💰💃🏾

4️⃣ Time-Saving Memorized Transactions:

🧠 Memorize those rent transactions, honey! Save yourself the headache of manual data entry every month. QuickBooks Desktop remembers the charges for you, giving you more time to slay in other areas.

 

Statement Charges for Move-In and Move-Out:

✨ Now, let's talk about the real magic – Statement Charges! Here's how this feature can level up your game when tenants move in and out:

✅ Move-In Checklist Made Easy:

📝 Wave goodbye to endless paperwork and confusion during move-ins! Use the move-in checklist to document any existing damages and get that tenant's sign-off. QuickBooks Desktop keeps everything organized and foolproof.

✅ Smooth Move-Out Inspections:

📷 Snap, snap, and you're done! Capture pictures of damages during the move-out inspection and have your tenants sign off on them. QuickBooks Desktop lets you easily track repairs, replacements, and cleaning tasks needed.

✅ Hassle-Free Security Deposit Management:

💼No more fussing over security deposits! With QuickBooks Desktop, you can effortlessly deduct repair costs from the tenant's security deposit and track any refundable amounts. It's like having your own personal financial wizard!✨

Work with AMH Bookkeeping LLC:

💼Ready to take your landlord game to the next level without the bookkeeping stress? Cue the entrance of AMH Bookkeeping LLC – your fairy godmother of numbers!✨

💙Focus on Growth, Let AMH Handle the Books:

📚 Say goodbye to bookkeeping headaches! AMH Bookkeeping LLC specializes in QuickBooks Desktop and can handle all your financial needs while you focus on expanding your empire.

💙 Personalized Bookkeeping Magic:

✨ Get the magical touch of AMH Bookkeeping LLC with personalized solutions tailored to your unique real estate business. Your success is our priority, and we've got your back!

🌟 It's time to level up, darling! QuickBooks Desktop and Statement Charges are the dynamic duo that will revolutionize your tenant management. Streamline your processes, save time, and conquer the world of real estate with ease. When you're ready to add a sprinkle of AMH Bookkeeping LLC magic to your journey, we'll be here to slay with you. Let's make those numbers work for you, fam💃🏾💰💖! 

 

👉🏾 Learn more about how AMH Bookkeeping LLC can elevate your landlord game at amhbookkeepingllc.com. Get ready to shine like the badass rental property owner you are! ✨✨✨

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Five Things to Consider When Buying Your First Investment Property

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Almost all of us know that real estate is one of the most versatile ways to grow wealth, right? What most of us DON'T know is how to go about purchasing out first investment property. Wanting to know more about how to do just that, I asked a colleague of mine if she had any tips or things to look out for when purchasing my first investment property. She came up with a fantastic list and I asked if I could feature it on my blog for you guys. So without further ado, here are 5 Things to Consider When Buying Your First Investment Property by Sharetha Holman of Apex Realty of the Carolinas!

The ownership of real estate has resulted in some of the world's wealthiest people, so there are many reasons to consider it as a sound investment. In order to make the best of your investment, there are few key things to keep in mind when you are considering the purchase of your first rental property.

Down payment

If you are financing the purchase of your rental property, in most cases, the down payment requirement for properties used for investment purposes is more than for primary residences (owner-occupied properties). This is because banks typically consider investment loans to be higher risk than loans on primary residences (think about it: if you were to run into financial trouble, which mortgage would you pay first? The mortgage on an investment property or the mortgage on the home you live in?).

Because of this, the down payment required is typically around 15%-20% of the purchase price of the home, whereas owner-occupied properties can be purchased for 0%-10% down, depending on the loan program you choose.

Understanding rents

It is important to understand the rents in the area you are considering a rental property purchase. Things like the location, a property’s size, availability of rental properties, property features and area community or neighborhood amenities all play a role in the amount a property may potentially rent for. And understanding how much income a property can generate from rents is very important, as this income is what is used to cover the property expenses.

Consider vacancies, maintenance, repairs

It’s nice to think that your property will remain fully occupied year-round, and the property will forever remain in great shape. The truth is: vacancies happen and repairs are sometimes needed.

Much like researching rental rates, you can research vacancy rates for certain properties as well. These vacancy expenses should be included as part of your analysis.

When it comes to maintenance and repairs, your property should be regularly maintained (otherwise, small problems can eventually turn into big ones!). Small repairs may need to be completed while a property is being rented or in between tenants.

Understanding other property expenses

In addition to the expenses previously mentioned, it’s important to have a good understanding of all of the property’s expenses, such as HOA fees, taxes, insurance, trash collection, utilities, and management fees if you decide to have a property manager.

Some expenses may be able to be passed on to your tenant, but this should be clearly defined in your lease agreement.

Have cash reserves

“Reserves” simply refers to any liquid assets you have leftover. A property “savings account,” if you will.

Setting aside a percentage of your rental income each month helps absorb any unexpected expenses and major capital repairs (for example, new HVAC units or water heaters) that may eventually happen. Having funds set aside helps ensure that you’ll be able to maintain the property for the long term.

Final thoughts

As with any investment, purchasing a rental property may not produce a large monthly paycheck right away. But being diligent in your selection and management of your property could lead to big rewards in the future. If you’re looking to purchase a rental property in North Carolina or South Carolina, I’d love to schedule a call with you to discuss your options.

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Landlord Reports: KPIs – What Are They and What Can They Tell Me?

Landlords, let's talk reports and which of them you should analyze regularly.

Obviously you are familiar with the P&L Statement and the Balance Sheet but how about your Tenant Turnover, Rent-Ready Costs, and Revenue Growth Reports? These reports are your KPI Reports, Key Performance Indicators.

How many of you can raise your hands to say that you are even tracking these things? It's okay if not many of you raised your hands. You don’t know what you don't know. I will explain a little about the 3 reports I mentioned above and talk a little about how your bookkeeper can help you begin tracking these vital pieces of information about your business.

Let's start with the Tenant Turnover Report.

Tenant Turnover, for those of you who are new to landlording, is the process of getting a rental ready after a tenant has moved out. This report is vital because it can help you determine just how much it costs to fix any repairs in the unit, cleaning costs, and all the administrative costs associated with getting the unit occupied again. These costs include but is not limited to:

• Marketing
• Application Processing
• Showing the Rental (your time is money)
• Excessive Damage due to an upset tenant (this can be in the THOUSANDS)

When you are making your business budget for the year, you must look at this report to help you decided if you need to increase the budgeted amount in one of these mentioned areas or decrease it.

Rent-Ready Costs, similar to those reported on the Tenant Turnover report, these costs are, in my opinion, related to the materials needed to get a unit rent ready. Materials like paint, outlet covers, light bulbs, drip pans for the electric stove, etc. Knowing these costs, on a per unit basis, keeps you efficient. You will know just how much of a security deposit you will keep or if you need to raise the deposit on a particular unit.

Outstanding Debt and Revenue Growth go hand in hand. You cannot determine if you are increasing your revenue without first knowing what you outstanding debt is and how that effects your cashflow month to month. This is essentially your income to debt ratio report which can help you determine if a property is leverageable.

These are 4 of some of the most common Landlord KPI reports and should be monitored every month. Some you can push out quarterly or even annually but keeping a close eye on them monthly can help you make changes quickly before cashflow truly begins to be effected.

Ready to get these reports set up with your accounting system? AMH can help with that. Schedule a consult with us now!

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