Want to know the difference between a real estate investor and a portfolio manager mindset? Today we learn why rental property maintenance costs and tenant turnover are nothing to fear. In this episode of the Not Your Average Investor Show, Gregg shows a case study sharing what one investor has lived through for ten years in owning rental properties.
Real estate has five profit centers. These five profit centers have created more wealth than any other asset class for Americans. But the uncertainty of unforeseen maintenance costs can make it hard for beginning investors to think they can count on consistent returns. Therefore, is it okay to start off buying one rental property?
That's why we're diving into a JWB client's investing journey. Sean would never refer to himself as a “real estate investor,” yet he has owned properties with JWB for ten years. He has far exceeded his return on investment goals, despite having over $8K in maintenance expenses.
In this episode of the JWB Not Your Average Investor Show, we discussed the following:
- The difference between a real estate investor and a portfolio manager mindset (and how the portfolio mindset is the only way to win in this game)
- How to achieve consistency in cash flows for your portfolio even though an individual property may have a great year / bad year
- The cycle that all rental properties go through in terms of positive cash flow / negative cash flow that successful investors understand deeply
This show sheds some real light on the number one reason people underestimate their ability to create wealth through real estate. Consistency is critical in real estate investing if you want good outcomes, so we will be focusing on the benefits of building a consistent real estate portfolio.
What are the things you should be looking for in owning a rental property?
Start with acquiring one rental property in the right market in the right neighborhood. Next, you need to look at renovations or new construction to ensure no deferred maintenance can cost you more than you expect that would wreck your ROI. Then, it would be best if you had a property manager who focuses on long-term resident stays.
The cycle that all rental properties go through includes:
- Acquisitions for positive cash flow
- Construction that requires nothing more than standard maintenance
- Property Management that is aligned with your ROI goals
It just so happens that JWB is a vertically integrated provider of turnkey rental properties. Consistency is what gives real estate investment advantage over stock market investments.
However, even if you do these three things on an individual property, you will still experience ups and downs. It's inevitable. But let's get into it with this case study.
An individual rental property is not going to be consistent. When renting out your rental property and you build in your expectations for rents coming in and fees paid out, you are doing great when it's rented.
When it's rented, you're overperforming. But when a tenant leaves or a maintenance issue takes place, your returns can go negative. That's the rub and why people get scared of owning a single-family home.
How can you create a portfolio that can be consistent?
JWB has been working hard to help investors build a portfolio of multiple properties that will help gain consistency. It's diversification within the portfolio that will help stabilize the ups and downs of your properties. You will have some properties that perform very well and others that don't.
Think of this as coaching for your mindset. Many property owners get upset when there's a move-out or an eviction. But if you have a long-term approach and your overall portfolio shows consistency, you will still come out ahead.
When you look at your financial goals, remember that real estate is one of the best asset classes available. But all rentals require maintenance and repairs, taxes, insurance, tenant screening, and experience wear and tear.
Fortunately, the JWB property management team handles all of that for our investors. Our goal is to keep your tenants happy so they will stay in the properties for a long time and you can continue to receive positive cash flow as a property owner.
What is a success when it comes to rental properties?
Is your entire rental property portfolio performing well year after year? That's the best way to manage your expectations. There is a requirement to add more properties to your portfolio to have consistency within this asset class.
If your goal is to be consistent, go into this with your eyes wide open. You need to be at three properties by the time your first resident leaves. That's when you'll see the consistency you crave in your portfolio.
Should you not acquire properties if you can only buy one?
Don't be afraid to start with one rental property. This is the best time to buy one rental property because the interest rates are low, and JWB has the inventory to offer. It's better to get started with one than be afraid and stick with none.
If you work hard to buy one, then save up to buy properties number two and three, you will see your return on investment and consistency grow over time.
At JWB, we want to make sure we set clients' expectations, so no one who invests with us is disappointed. We do everything in our power to underpromise and over-deliver. We have had many investors start with one property, and they have done well for themselves over a full market cycle.
What about the high prices of real estate?
Inventory is still low, and the demand is still high, so we do not see a real estate market crash for Jacksonville anytime soon. The year 2020 was an anomaly, so COVID and the eviction moratoriums skewed the data. What was historically high in real estate sales was so high that anything happening in 2021 will look low in comparison.
Let's look at Sean as our case study. He is a family friend who came to JWB in 2012. Here is his beginning property portfolio.
Here’s what Sean purchased between 2012 and 2013.
Here is the Return On Investment per property from 2014 – 2021, and it does not include home appreciation.
We admit that there were times when the rental property performed very well but grossly underperformed! That’s why the three property rule is in place. Two will be overperforming while one underperforms, and you’ll see the consistency your rental property portfolio does well over time.
One property had a costly property turnover, and it underperformed that year. But there are other years where the same property had above-average returns. It all works out in the end. If you look at how all six properties are performing in 2021, they are still performing better than the stock market!
The best advice we can give is to get yourself in the game of building your rental property portfolio. Make sure that your assets pay for themselves. Hold onto your properties for a full market cycle of 10 – 20 years so you can take advantage of all five profit centers.
This is the summary of how this portfolio has performed for the total ROI of 19.47% (without factoring home price appreciation):
And with home price appreciation, there’s an ROI of 27%:
When looking at the five profit centers over a full market cycle, here’s how Sean’s six properties have performed:
Here is the total percentage ROI broken down by profit center (inflation hedge numbers not included):
- Cash flow is an 18% ROI
- Tax savings ROI are 7%
- Principal paydown ROI is 11%
- Home price appreciation’s ROI is a whopping 64%!
As you can see from these graphs, Sean’s portfolio of rental properties has performed well, and they’ve done so consistently over a decade. Plus, his returns are better than the average stock market portfolio of 10%! Therefore, investing your money in the Jacksonville, Florida real estate market is a smart move if you want a consistent ROI.
How Do I Find Out More About Investing With JWB?
Contact the JWB team to begin the discussion. If you want to invest in Jacksonville real estate, now is a great time to jump in. Go to www.ChatWithJWB.com and find out how we can help you reach your financial goals.
If you want to become part of the JWB online community, join us in the JWB Facebook Group at https://www.facebook.com/CashFlowProperties.
You can also go to www.JWBInventory.com to see what properties are currently available. We encourage you to contact the JWB team for a consultation to determine how our turnkey rental properties can deliver positive passive cash flow.
We hope you enjoyed learning about how JWB can help you with your real estate portfolio management and that typical rental property maintenance costs are not going to make your properties underperform in the long run. If you are a real estate investor who wants to purchase turnkey single-family homes from JWB, contact us today at www.ChatWithJWB.com. The Jacksonville real estate market is on track for continuous growth, and JWB is excited to help many investors grow their wealth through single-family home rentals.
To Your Success,