Improve Your Real Estate Returns by Renovating Your Existing Properties When Deals Are Hard to Find

Finding promising equity deals in today’s housing market can feel like a needle in a haystack. Whether you’re an active or passive real estate investor, facing this challenge means it’s important to focus on making the most of your existing investments. By improving the things you own now, you can improve their performance and ensure they’re aligned with your long-term goals—and put more money in your pocket along the way. Here is a direct guide on how to do that.

Understanding the Need for Development

When new real estate deals are difficult to come by, it becomes more important to focus on expanding your existing portfolio. This is your chance to improve the value and performance of the properties and deals you already have—especially commercial opportunities, where every dollar you save or create can increase the value of the project’s output.

However, the optimization process does not begin with generating revenue and cost savings, but rather with evaluating each property to ensure it fits your financial goals and adjusting it to suit current market conditions.

How to Improve Your Current Accounts

Even if you’re a passive investor who can’t hold back, you can still gain significant value by following steps one and two and staying up-to-date with your operator in steps three and four.

1. Define your goals, risks, and timeline

Start by identifying—or revising—your investment goals. To make meaningful changes to your investment, ask yourself:

• What are my investment goals? Am I aiming for capital preservation, diversification, consistent cash flow, long-term equity growth, or a combination of these?
• Are my current investments aligned with my long-term goals? How are my investments performing relative to my long-term goals, and are they consistent with my current strategies?
• What do I want my portfolio to achieve in the next five to 10 years, and what level of risk am I willing to take to meet this timeline? Have I clearly defined what success looks like in my portfolio over the long term? Am I comfortable with the level of risk associated with achieving these goals within the time frame I desire?
• How do I track the performance of my investments? Do I regularly review my investments to make sure they are on track, and do I make adjustments if needed?

These questions will help you assess whether your investments are meeting your goals and guide you in making the necessary changes.

2. Reevaluate your portfolio based on your goals

With a clear understanding of your goals, risk tolerance, and timeline, it’s time to reassess your investments to make sure they’re still aligned with your strategy. Treat each asset in your portfolio as if you were testing it for the first time. Here’s how to deal with it.

Rate each area on a scale from one to four—four being the best—in these key areas. This will help you identify which investments are meeting expectations and may need adjustments or replacements:

• Savings: Are your investments protected against market downturns? The goal is to avoid losing and stay in the game during difficult times.
• Cash flow: How does each building perform in terms of revenue? Consider ways to improve rental income, such as renovating accommodations, improving amenities, or changing rental strategies.
• Equity Growth: How does each building contribute to your overall economic growth? Look for properties that appreciate in value and improve the value of your portfolio.
• Timeline: Are your investments aligned with your financial goals and plans for the future? Check that each area is on track to help you meet your long-term goals.
• Tax Benefits: Are you taking full advantage of deductions and tax benefits? Effective tax management can significantly improve returns.
• Use: How does your use of borrowed funds affect your investment plan? Proper leverage can increase returns, but borrowing too much can increase risk.
• User functionality: How effective is your property management team or investment partner? Proper management is essential to maintaining the property’s value and ensuring tenant satisfaction.

If a property scores low in any key area—such as one—consider it worth holding on to. If improvements aren’t happening, it may be time to sell and reinvest that money in better performing opportunities. Or if the deal is a transaction, designate those funds for redistribution—for example, moving that equity position into debt when the deal exits.

Reassessing your portfolio in this way ensures that each investment is aligned with your revised goals and helps you make informed decisions about keeping, replacing, and investing in new properties.

3. Deciding to sell

When deciding whether to sell a property, it is important to see if it fits your investment goals. If not, preparing it for sale may be the best move.

Start by making any necessary repairs and improve the appearance of the area. Improving curb appeal can make a big difference in attracting buyers. Also, consider updating your marketing strategy to highlight local strengths and reach more potential buyers. Sometimes, increasing the rent can make a property seem more valuable to buyers.

For example, I recently sold a short term rental (STR). To prepare it for sale, I changed property management companies to improve its performance. Although it didn’t meet my financial goals, the new buyer was drawn to it because it fit their lifestyle needs and equity growth. They also appreciated the improvements I had made to deal with income issues.

The same approach can apply to single-family homes, multi-family properties, and other types of real estate: Making smart improvements can help you sell the property more effectively.

4. Deciding to hold

If you choose to hold a deal, the first step is to assess whether your current strategy is still compatible with your investment goals, real estate market conditions, and the local property market itself. If your current strategy is no longer working, it may be time to think about a change.

Ask yourself if the strategy needs to be adjusted or if moving to a different market might yield better returns. For example, if you are using a long-term lease (LTR) strategy but market conditions favor medium-term leases (MTRs), you may need to switch. Conversely, if STRs are no longer profitable, switching back to LTRs or MTRs can be profitable.

If your strategy is still working or if you’ve made the necessary changes, focus on increasing local revenue using these strategies:

• Adjust Rental Prices: Always review rental prices to keep them competitive with local market rates.
• Upgrade Resources: Invest in property improvements to justify higher rents and attract better tenants.
• Add an income stream: Consider additional sources of income such as pet fees or rent, utility fees, laundry income, storage income, etc.

While improving your income, it is equally important to manage your expenses to maximize profits:

• Credit Management: Review your loan or mortgage terms to see if refinancing or restructuring may lower your payments and secure better rates.
• Insurance: Check your insurance coverage to ensure it is adequate and economical.
• Taxes: Explore tax-saving strategies to reduce your tax liabilities, including filing your property taxes.
• Property Management Fees: Negotiate administrative fees, if possible, without sacrificing quality of service.
• Other Contracts: Always review and negotiate contracts with vendors (lawn care, pest care, snow removal, etc.) and consultants (bookkeeping, tax, legal, etc.) to ensure you are getting the best value for the services provided.

Once you’ve adjusted your income and expenses, establish performance monitoring systems and set a timeline for reassessments:

• Monitoring Systems: Use regular tracking systems to monitor revenue, expenses, and overall asset performance. This can include financial software or property management tools. A simple checklist that reminds you when certain policies renew and contracts expire can be a great planning tool.
• Timeline of reassessment: Set up a timeline for periodic reviews—such as after six months or a year—to evaluate the effectiveness of the change and make additional changes if needed. This may mean setting aside time on your calendar!

By carefully evaluating your strategy, maximizing revenue, managing expenses, and implementing regular review programs, you can ensure that your property remains an important, productive part of your investment portfolio.

Final thoughts

When finding new real estate deals is difficult, optimizing your holdings becomes an important strategy for both active and passive investors. By understanding your financial goals, reassessing each deal, and making strategic changes, you can improve your portfolio’s performance and ensure it is aligned with your long-term vision. This practical approach will not only help you get the most out of your current investments but also prepare you when new opportunities arise.

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A Note About BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BiggerPockets.