Rental property investment strategy: examining the snowball effect

The RPM Evolve blog

Rental property investment strategy: examining the snowball effect

Determining the right rental property investment strategy to use takes a lot of research. Let’s take a closer look at the snowball effect.

Investors who have been in the real estate market for years – and even those who are new to the idea – understand that there are many different types of investment strategies. It is essential to realize that each strategy will not work well for every investor’s goals. Sometimes, it takes trial and error – and a lot of research – to determine just the right rental property investment strategy to use. One popular choice is the snowball effect. Many investors have found this strategy to lead to incredible portfolio growth. So, what is it? How does it work? And just how effective is it? Let’s take a closer look.

Understanding the Snowball Effect Rental Property Investment Strategy

Have you ever built a snowman? You start with a small snowball that you can hold in your hands. Then, as you roll it along the ground, it gathers more and more snow, allowing it to grow and grow. This is how you get snowballs big enough to create a snowman! The snowball effect in rental property investment involves increasing your cash flow with each property you invest in.

The first property needs to be a good one that will generate a level of cash flow that will allow you to invest in a new one. And with those two rental properties, you want the cash flow to invest in another. You may use this cash flow to buy a new rental property or pay off your current rental properties. Either way, leaving you with one healthy rental property portfolio.

What You Need to Know About the Snowball Effect

The snowball effect sounds logical – and sounds like a great way to approach investing and even your personal financial growth. But, before you get caught up in all the future promises it brings, let’s get real for a minute and look at a few things you ought to know first:

  • Snowballing is a long-term investment strategy – not one that will increase your wealth instantaneously. You have to build up the cash flow from one property before investing it in the next. Over time, you will acquire more assets or pay them off – both benefiting you in the long run.
  • Be persistent and patient. As we said, it is a long-term strategy. You have to let your cash flow build up before you can begin investing it initially and for the future. The reward is often well worth it, though, if you keep your eye on the prize.
  • Flexibility is a must. You can set out the future of your investment portfolio today – and tomorrow, the market could change. You never know what may happen, so not insisting on sticking to a rigid plan is a good idea if you want to find success with the snowball effect investment strategy.

Below you will find a few tips for doing well with this rental property investment strategy:

  • Always have money set aside for expenses. Being prepared with a bit of extra cushion is vital for saving your future growth.
  • Set the right rent amount. You want to boost your cash flow, yes. But setting rent too high can backfire. Invest in a suitable property and set your rental rate following the local market. After all, it is better to have a rented unit rather than a vacancy.
  • Invest in properties that may increase your cash flow significantly based on the type of properties they are. For example, multifamily properties tend to turn a more significant profit.
  • Ask for help. Managing rental properties can be very demanding. You could move forward with handling them yourself, but know that it will cause you struggles along the way. Instead, to make life easier, you can turn toward those who know the best way to manage rental properties – while you continue to focus on what you do best.

How a Property Management Team Can Help

As you enter the world of rental properties, you need to take wise steps. Remember, you are trying to obtain the highest level of cash flow – and that means not doing anything that will cause you to lose money. So, when it comes to essential aspects of maintaining a rental, such as finding the best high-quality tenants or handling maintenance and repair, it needs to be done right. Let’s take a look at an example.

Suppose you don’t have the proper tenant screening tools and choose tenants who don’t pay their rent. In that case, you are not only going not to have an income from the rental property, but you will have to shell out money for the eviction proceedings to remove the bad tenants – and begin making repairs and getting the house ready to rent again. This is not the way to do it for someone trying to build their portfolio.

With a property management team, you have resources that you don’t have on your own. This team of professionals knows how to find high-quality tenants that you can count on every month for payment. They will keep your vacancy rates low, too. This means you will always have money coming in on your rental property, which is necessary if you are looking to engage in the snowball method.

Property managers also have a network to handle routine maintenance and repairs as they come up. And due to this relationship, the cost of these services is often much more affordable. All in all, having an experienced property management team on your side is one of the best options for real estate investors looking to have a positive cash flow when it comes to their rental properties.

Whether it is the snowball method or something else, the Real Property Management Evolve team can handle the day-to-day aspects of rental property management while you handle growing your portfolio. Take a hard look at your finances and then determine the right investment strategy that will work best for you. Once you do, run with it. With a steady focus, you will meet your long-term rental property goals one day.

Need management?
We are the complete property management solution for the serious investor
Free Property Analysis
(602) 368-5730

Get your free property analysis

Let us help you determine how to maximize the value of your rental property
Boost your monthly income
Explore tailored solutions to meet your individual needs
Market analysis and rent comps unique to your property
Discuss improvements that can be made to rent your home at its highest value and attract more tenants

Featured in