Building a successful real estate portfolio is a process. It takes work and requires you to be strategic with every financial decision you make. As you begin establishing a process to build your portfolio, it’s essential to pay attention to these three key areas:
- Managing your fixed costs
- Managing unexpected expenses
- Generating a positive cash flow
In our next few blog posts, we’ll dive into each of these areas more closely. Our goal is to help you develop a process so you can best manage the first two elements in order to achieve a positive cash flow. Let’s start with how to manage fixed costs.
Managing Fixed Costs on a Franklin County Property
Typically, the biggest fixed costs for property owners are divided into three buckets: loan payments, insurance premiums, and property taxes. Keeping a reserve fund that holds 6-12 months of cash to cover these expected costs is a good rule of thumb. Then, you start going about reducing them.
How to Appeal Property Tax Values
Property taxes in Franklin County are a fixed percentage of the property’s assessed value. So, the question is whether the assessed value is correct or not.
There are multiple ways to approach a property tax appeal, but one way to successfully reduce an assessed value is to state your opinion on the property’s value and then provide supporting documentation. The more support your opinion has, the likelier your appeal goes through. It can be pragmatic to hire a law firm that has experience appealing assessed values of properties to manage this process for you.
Steps to Take to Reduce Insurance Premiums
Next, look at your insurance premiums. While it’s a good idea to review your policy with your insurance agent at least once per year, it is even more important to look at what elements of the property are driving up your premiums. Often, there are simple changes – like installing two fire extinguishers per unit in a multifamily property – that shave down the premium by a noticeable percentage. When you meet with your insurance agent, make sure to ask what changes you could make to qualify for premium discounts.
Managing Monthly Loan Payments
Loan payments are typically the lion’s share of fixed costs, and with current interest rates, refinancing is often not as valuable an option as it was a few years ago.
Once your fixed costs are reduced as far as they can be, your property’s cash flow should increase. Next, your goal is for that cash flow not to get eaten up by unexpected expenses. More to come on that in our next post.
As you look for ways to grow your investment portfolio, feel free to ask us your questions. At RL Property Management, our priority is to help investors maximize their earnings and minimize their spending by taking a strategic approach to property management. To learn more about how we can help you be successful with your investment in Columbus, Ohio, contact us today.