How We Consistently Deliver Positive Cash Flow Properties
Photo by Christina Morillo from Pexels
This article overviews the process we followed for:
- Selecting our target tenant pool
- Developing a property profile
- Finding and validating properties
- Renovating properties to maximize return while minimizing costs.
It all started with selecting the right tenant pool.
The Right Tenant Pool
- We identified major employers in market segments that were doing well, and we expected to do better in the future.
- We studied the full range of employees and discovered a strong correlation between monthly rent and median tenant stay in years.
- We narrowed the focus to employees with what we call mission-critical jobs. Simplistically, they are fairly low-paid, but they generate a large amount of income for their employers. The only time a company lays off this tenant pool is to close its doors permanently. Even if this occurs, these employees are highly sought after by other employers.
Once we identified the target tenant pool, the next task was to select properties that they would be willing and able to rent. The illustration below depicts the process.
Finding and Validating Conforming Properties
Over the years, we've developed a property profile that our target tenant pool is excited to rent. However, the number of properties that conform to our profile is approximately 0.4% of all available properties. It is almost impossible to find such properties manually. So, we developed data mining software. The software is highly effective at quickly sifting through thousands of properties and finding this tiny set of properties.
However, finding these properties is only the first step in our process. Multiple members of our investment team must manually evaluate every property. See the illustration below for an overview of our process.
However, just finding conforming properties is not the end goal. The end goal is to maximize return while minimizing maintenance costs. This requires the right renovation.
Renovation
Renovation is the process of transforming a property to maximize rent and length of tenant stay while minimizing maintenance and overall cost. To this end, we developed a set of standard components that our tenant pool finds desirable and are also very durable. We keep long-term costs low by not following the latest trends.
For example, the current rage is quartz countertops. Quartz is easy to scratch, burn, stain, and cannot be repaired if damaged. Instead, we use builder grade granite, which is attractive and extremely durable and can be easily repaired.
Another key component to maximizing return is quality photos. Only bright, attractive, and inviting photos will get prospective tenants into the property. We work with a professional real estate photographer who does exceptional work. We believe the quality of our marketing photos is part of the reason our time to rent is low and rental rates are at the market peak.
In Summary
This article explained how we consistently deliver positive cash flow properties that perform well in good times and bad.