Real estate experts from the Zibo community share insights and predictions to help you make the most of your rental property business in 2021
With all of 2020’s challenges, landlords today are making a New Year’s resolution to make the most of their rental property investment in 2021. Today’s historically low interest rates and high stock market gains mean that more people are thinking about investing in real estate. Residential rental properties can be a tax-efficient way for investors to build wealth, diversify their portfolios, and save for retirement.
Whether you’re buying your first investment property or growing your rental portfolio, here are landlord tips to help you maximize your real estate investment in 2021.
1. Look at key market indicators
When deciding where and when to purchase an investment property, consider the following key market indicators:
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Positive net migration: This measures the number of people coming to a market versus leaving. While expensive, highly regulated cities like New York and San Francisco are currently not too appealing, smaller, less dense cities and suburbs could be a smarter investment.
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Market peak: In real estate, knowing when you’re at the top of the market is way more important than knowing the bottom. Find an investment that is a good deal in today’s market, has the potential to withstand economic downturns, and has an opportunity to appreciate in both value and cash flow over the next several years.
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Interest rates: Interest rates play a vital role in determining how much money you’ll spend on your home. If interest rates creep up, the real estate market will slow down.
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Supply and demand: Total U.S. housing inventory hit a record low of just 2.7 months' supply in September. Before buying, know your market intimately—from available units and vacancies to rent prices.
2. Take advantage of historically low interest rates
During COVID-19, the 30-year fixed mortgage rate sank to its lowest level on record. Investors eager to buy or refinance shouldn’t wait on the sidelines, as rates are unlikely to drop much further.
To help level the playing field for independent landlords competing against institutional investors, Zibo’s lending solution gives landlords access to top mortgage providers for agency and non-agency mortgage products — including acquisition, refinancing, and bridge loans for single-family, multi-family, and portfolios of rentals. Whether you’re purchasing a new investment property or refinancing, our streamlined application process will help you get competitive rates and find the best mortgage provider for your needs.
3. Think of short-term rentals as a long-term play
Short-term rentals were a very hot market and fantastic cash flow assets until the pandemic hit — but the trend will be around for the long-term. Once the economy opens up, short-term single family rentals will continue to grow in popularity — and the pricing will adjust so owners can recoup losses from the pandemic, explains Kellie Tollifson, President of the National Association of Residential Property Managers.
Real estate investor and co-host of the BiggerPockets Business Podcast J Scott suggests investing in short-term rentals as a long-term play. In other words, buy a short-term rental property today at a price that makes sense for long-term rentals, and rent it out with an annual lease. In 1-3 years when the economy is back, convert it to a short-term rental. You’ll be able to sustain the property no matter where the economy is.
4. Get long-term returns with multifamily investing
With rent increases every year and high turnovers, multifamily investors see attractive returns. In fact, a 2018 study by the National Multifamily Housing Council revealed that multifamily buildings have the best 5-, 10- and 15-year returns of any real estate asset class.
“People don’t necessarily want to own a house anymore. They like to have the freedom to move from market to market,” said Doug Bibby, President of the National Multifamily Housing Council. While obviously more expensive than single-family homes, multifamily properties are easier to finance and are highly tax advantaged.
5. Capitalize on landlord tax strategies
Savvy investors know that real estate carries unique tax benefits that can reduce their overall tax burden. For example, landlords can carry back a Net Operating Loss (NOL) five years, thanks to the CARES Act. Brandon Hall, CEO of The Real Estate CPA
Landlords can further reduce their taxes by conducting a cost segregation study. Cost segregation helps to accelerate asset depreciation, resulting in lower taxable income and higher cash flow for property owners. Warren Dazzio, Executive Vice President of CSSI - Cost Segregation Services, Inc., says an engineering-based study can generate $30,000-$80,000 in tax savings per $1 million in building costs.
No matter which tax strategy you pursue, you can stay organized with Zibo’s free financial services platform, which helps landlords track income and expenses and tag transactions by Schedule E classification and property.
6. Don’t overpay for property insurance
Zibo is the only national online commercial insurance platform and helps to make sure you get the right insurance coverage at the right price. We help landlords understand their current coverage and find ways to reduce payments, streamline policies, and ensure they’re not over- or under-insured. By increasing transparency and choice throughout the insurance-buying process, landlords will be able to easily compare terms and choose a policy that’s right for their business.
And it’s not just for new real estate purchases — you can optimize your portfolio’s existing coverage or get a better policy if you’re refinancing.
7. Set up online rent collection
For existing real estate investors, setting up online rent collection in 2021 will help you stay organized while reducing the extra stress of tracking down tenant payments. Online rent collection is more secure than paper checks, and provides increased efficiency and flexibility for both landlords and tenants. Finally, online rent collection also increases transparency, enabling landlords to automatically send reminders to tenants and track payment status.
8. Let your money make money
Between rent payments and security deposits, landlords manage a lot of cash. Most landlords keep that cash in checking accounts, since savings accounts that offer interest are less flexible. But that means that real estate investors are leaving cash on the table by not collecting interest on their deposits.
That’s why Zibo launched an FDIC-insured business checking account to help real estate investors earn 3.75X the national average interest rate with no monthly fees and no monthly minimum balance. We also offer a 1% cash back debit card so landlords can earn points on all signature-based transactions while managing their rental business in one place, with one login — for free.
While rental property owners will still face economic uncertainties in 2021, these tips will help you tackle the market’s unique challenges while saving time and maximizing your investment.
DISCLAIMER
Zibo, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.