As 2021 kicks off, there are still various unknowns going on in the world. You might be wondering what rental investing, and specifically your rental investing strategy, is going to look like this year. Since last year took many unexpected turns, it can be frustrating to reflect on all of the things you were unable to accomplish. For example, you might not have been able to meet investing goals or expand your portfolio. However, it’s essential to look at this time as an opportunity for you to reevaluate your investment strategy to determine your goals for the present and the future — both of which might have shifted within the last year due to changing circumstances.

Determining how you can make the most of your rental property business and how you can achieve the best return on your investment should always be your top goal as a property investor. As you probably experienced, the ways in which landlords ran their rental business had to change in 2020 — even more so, you might have found that different investment strategies work better for different properties. Below, I want to highlight three property investment strategies to consider this year.

1. Leaving Your Rental Vacant

With federal and state eviction moratoriums still in effect, many landlords are choosing to leave their properties vacant. This strategy is based on the inability to evict tenants for nonpayment of rent. With tough financial times, it could make sense for some investors to wait for the right tenant or choose not to renew leases. Here are the pros and cons of leaving your rental vacant:

Pros 

• You could avoid renters who are unable to pay rent and potentially save money as eviction moratoriums are still in place.

• Landlords can take advantage of a vacancy to make upgrades and renovations to their rentals. This will increase the value of your property and attract more tenants.

Cons

• Leaving a rental vacant can give way to potential squatters.

• With no renters, you might be stuck paying utilities and other basic upkeep.

• Even if a property is vacant, you still have to pay your mortgage, so it’s always a matter of doing the math and seeing what option will work best for you.

2. Short-Term Rentals

While vacation rentals were initially hit hard early in the pandemic, that trend is shifting as more safety precautions have been initiated with services such as Airbnb and Vrbo. Furthermore, people are finding the need for getaways and staycations as the pandemic continues. Here are the pros and cons of making your rental available for short-term stays:

Pros

• Short-term rentals can be very lucrative for rentals located in desirable locations.

• When there is a vacation boom later this year or next, your rental will be ready and hopefully have accrued positive reviews to help fill dates.

• Those choosing to pay for a getaway are more likely to have the funds to do so, making your profit more guaranteed.

• You don’t have to worry about evictions for nonpayment of rent.

Cons

• You will need to have strict cleaning practices, especially now more than ever, to ease people’s minds. This could add up.

• If you are flipping your long-term rental into a short-term, you will need to fully furnish the rental to include everything a guest might need.

• It’s hard to predict if your rental location will impose stricter travel restrictions at any given time, which could mean inconsistent funds.

3. Long-Term Rentals

Managing long-term rentals during a pandemic was challenging for many landlords due to circumstances out of their control. However, long-term rentals are still considered a high-performing and great long-term investment strategy, though it’s evident that screening your tenants is now more important than ever. Here are the pros and cons of continuing long-term rentals this year:

Pros

• Longer lease lengths will help you receive consistent monthly payments, unlike short-term rentals or leaving a vacancy.

• If you screen your tenants and find a renter perfect for your property, they could become a renter who renews their lease in the future.

• Landlords won’t have to pay utilities and fees like you would for the other two investment strategies.

• Owning properties for longer can help you accumulate wealth and provide more opportunities to increase the value of your rental.

Cons

• If you do not screen tenants properly by running a background check, credit check and eviction history report, you could be stuck with a non-paying tenant.

• Currently, you cannot evict tenants for nonpayment due to federal and state eviction moratoriums.

• You may have to negotiate lower rents with tenants if you need the constant cash flow and they are struggling financially.

Regardless of which investment strategy you choose, or if you implement a mix of them for different properties, always prepare and properly go over your finances to see what the best decision for you and your rental business will be. Staying flexible and adapting when necessary will help you stay afloat and see continued success with your rental business.

Source: Forbes

Polk & Associates

Large enough to serve a diverse clientele, yet small enough to maintain a hands-on approach, we are committed to maintaining the highest accounting and ethical standards with continuous education, extensive research resources, and excellent quality control.

Polk and Associates is a member of the Michigan Association of Certified Public Accountants, and the American Institute of Certified Public Accountants. The firm participates in the AICPA Peer Review Program, and has always received the highest level of award for its audit practice and quality control.