When you imagine yourself as a landlord, you likely envision a profitable property that yields consistent monthly income. Besides, why else would you invest in a rental property if not to make money from it?
Many inexperienced real estate investors lose out on rental profits because they make common mistakes.
Below are ways you can make your rental property more profitable and fulfill your dreams of being a happy landlord.
8 Ways To Make Your Rental Property More Profitable
1. Know How to Crunch the Numbers
One of the first factors that can make your rental property more profitable is knowing how to properly analyze the deal from the start. When you find a property that interests you, it is essential to first calculate all expenses and what you can expect from rental profit.
If you miscalculate this figure, the purchase can turn out to be a mistake when you realize that the monthly rental income you collect is barely enough to cover the property’s monthly expenses.
Working out the math in detail may seem tedious, but it will save you from serious trouble.
Once you crunch the numbers, you will know how much to charge for rent to make a profit. One industry guideline is the 2% rule, which sets the rent price at 2% of the purchase price to ensure a positive cash flow.
This is not always the case, however, you will have to assess your current market condition.
The market is what really sets rental prices, which makes it very important for you to research the market completely in the targeted neighborhood. Vacant units will certainly cut your profits, but so do rental prices that are way below market value.
You must stay competitive without losing profits. This can be achieved by conducting a thorough analysis long before you sign the purchase contract.
2. Choose the Right Location
Location, location, location! We all know that location is the name of the real estate game. Consulting with a realtor can give you a better idea of the best neighborhoods for rentals, especially if you’re a beginner.
Renters look for properties that are close to schools, shops, restaurants, parks, and public transportation.
If you purchase your rental property at a desirable location, you will likely find renters very easily. It will also be more feasible to charge a higher rent. Therefore, choosing the best location will maximize your earning potential.
3. Turnover Units Quickly
Taking too long to turn over units can get expensive when you consider you have to pay for the mortgage, utilities, repairs, housekeeping, and advertising while it is empty.
Thus, finding new tenants quickly and avoiding extended vacancy periods will help you ensure maximum profits.
At the same time, you also want to ensure proper screening of all tenants. Evictions cost an average of $3,500 and can be taxing on your time. Although you want to avoid vacancies, a problem tenant is sometimes far worse.
4. Make Maintenance a Priority
Another issue that cuts profits is poorly maintained properties. When issues go ignored, a simple problem can turn into a costly ordeal.
For instance, a minor leak that is neglected can one day cause an expensive problem when a unit floods.
During turnovers, while units are empty, is a perfect time to schedule inspections and do the necessary maintenance. Keeping all units in optimal condition attracts better quality tenants who are likely to take greater care of the property and pay on time.
An important component of keeping the property up to par is a great landlord-tenant relationship where there’s open communication. The renter is the first one to notice any issues and if they feel comfortable with you, they will likely report it immediately.
Unattended issues can become serious if your tenant feels it is more of a hassle to call you than to report issues. When you are a diligent landlord and maintain the property in excellent condition, tenants are more likely to respect the units and return them as they initially received them.
The more you care, the more your renters will care as well.
The key is to quickly perform repairs with reliable and qualified contractors. The sooner you complete any necessary maintenance, the sooner you’ll be able to put the unit on the market.
Taking too long will lead you to miss out on rental income.
On the other hand, over-improving the unit above the market rental rate may not get you a return on your investment.
5. Comprehensive Tenant Screening
In the attempt to turn over the unit quickly, sometimes you may want to skip the important step of a thorough tenant screening. This could be a costly mistake!
You want to take your time to completely screen each tenant to make sure you choose someone that will be responsible for the unit and pay promptly.
Screening services such as SmartMove are great tools to quickly and easily screen tenants. You can pass the cost onto the renters in the application fee.
Taking the time to do a proper screening is priceless. There’s nothing better than having a respectful tenant that always pays rent on time and causes you the minimum amount of stress.
Being proactive at the beginning will result in more profits in the long run.
6. Ask For a Higher Security Deposit
It is common knowledge that you must ask for a security deposit, but knowing the proper amount can be challenging for many landlords. Not asking enough for a deposit is a mistake that is frequently made with rental properties.
The first step to calculate a proper deposit amount is to become familiar with your state laws. Each state sets a limit on the amount a landlord can ask for a deposit.
If you violate these laws it can cost you much more than the value of the deposit.
It is also crucial for you to know what the security deposit covers. This may also vary by state and will determine if it could be contested in court. The rule of thumb is that a deposit does not cover the normal wear and tear such as a fresh coat of paint or new carpeting.
However, broken or missing items are usually covered by the security deposit. In many states, the landlord can use the security deposit to cover unpaid rent.
This brings up an important point…As an owner, you must keep meticulous records of all repairs and costs. Even if you do the work yourself, keeping receipts and documenting what you’ve done will help you in case there’s an issue.
7. Keep Paperwork Organized
Another pitfall landlords make that lowers their profits is maintaining poor documentation and paperwork. You are essentially running a business and you must stay current with all of your administrative tasks.
To successfully handle your finances, you must keep track of expenses, security deposits, and other important items. This paper trail will allow you to properly file taxes and avoid scary situations with the IRS regarding penalties and audits.
Organized financial records can increase your profits by saving you money during filing as you take advantage of tax breaks that are available to you.
Another important piece of documentation is the lease agreement. Most landlords use a generic lease that likely doesn’t protect them.
You are better off having the lease professionally prepared or doing your own research to ensure the document is legally compliant and protects your interests.
Finally, I recommend keeping a file for each tenant during and after tenancy that includes emergency contact information, security deposit details, references, and other important details.
When you cover all your bases, you will be prepared for any situation.
8. Complete Proper Move-In and Move-Out Inspections
Another common mistake is not properly conducting inspections when the tenant moves in and as they move out.
If you don’t document the condition of the unit in great detail when the tenant moves in, it makes it extremely difficult to prove they caused damage when it’s time for them to move out.
Going over every detail of the unit with the tenant when they move in, helps them understand their responsibility and protects your investment.
Make a detailed report that includes all damage and be sure to give the renter a copy.
Proper move-in and move-out inspections ensure that the landlord will be able to use the security deposit to cover any damage the tenant causes.
At the end of the year, these figures add up and can make a difference in the amount you take home as profit.
My Final Thoughts on Making My Rental Property More Profitable
To make your rental property more profitable, you must be aware of the responsibilities and rights that both you and your tenant have. Stay ahead of the game by being proactive and diligent.
Never cut corners and make a habit of doing everything with excellence.
The more you care for your property, the more profitable you will be in the long run. Housing is not just another service, it is deeply personal.
Tenants want to feel secure in their homes knowing they have a good landlord that strives to make the rental experience the best possible.
Please leave a comment below and share your successes or challenges of being a profitable landlord.
Thank you very much for taking the time to visit my blog and read this post, it is truly appreciated. Have a great day.