It’s no secret that real estate is a popular investment. Currently, there are over 48.5 million rental units in the US, making rental properties one of the most common investments in history.
However, the truth is that some of those properties will make money and some won’t. Luckily, there are ways to maximize your profits in the industry, and they’re easier than you may think. Let’s talk about how to get the most out of your rental property investment.
1. Choose The Right Property
Now, you may have already passed this step, but if not, don’t skip over this section. Understanding the property’s true value is critical.
The most important decision you can make when investing in rental properties is…. that it ISN’T just one factor. While real estate is an investment that is much more in your control than stocks, the property itself can still tank your investment if you’re careless and do not perform proper due diligence.
Obviously, choosing the right property in the right location is key. A property built a 100 years ago may require more renovation and upkeep but the uniqueness of the historic aspect may outweight the maintenance costs. A thorough review of the records, zoning, and a quality inspection are your best defense here.
There is no one size fits all for investors is the point. If the investor is a contractor and find that the historic house can be renovated much cheaper using your own sweat equity and helpers maybe the older house works out better due to cut reno costs. Maybe, the investor has never picked up a hammer, and wants to be a passive investor. That individual may prefer a turnkey rental with a tenant already placed for quick turn-around and no vacancy gap.
However, the location is always important. Whether or not a neighborhood goes downhill is entirely out of your control after purchasing, so it’s best to screen areas ahead of time. A broker who lives and works in the area is your best source for the direction of locales!
For example, generally some ideal locations tend to be near important landmarks. Parks, schools, public transportation, grocery stores, and downtown areas are great examples. We are also seeing since the Pandemic that populations are spreading further out of the city and want a good broker who can pinpoint something “private but not remote”. Brett & team can ID many newish trending towns/cities can be toured together that might tap a little into this new sub-suburb lifestyle without getting cabin-fever.
Although, it’s important to remember that even those can change over time. Ask the local town or city hall about upcoming plans, talk to neighborhood locals or other property managers in the area, and see what works best for you.
2. Plan Ahead
Always crunch the numbers before and after purchase. You’d be hard-pressed to find a single instance of a house purchase that was the same as the estimates to the dollar.
Because of this, it’s always best to plan for unexpected expenses, prepare for them, and adjust your plans as things change. Crunching the numbers shouldn’t be a one-time deal, but rather part of your routine.
For example, if you save 10 percent of your rental income for potential damages and another 10 percent for property taxes, you may wind up spending 24 percent of your rental income on the two for one year. Always try to keep extra funds in your checking account in case these large expenses come up.
Also, pay attention to when leases end, how old appliances are, when major repairs will be needed, and more. Write them down and keep them safe so that you have plenty of time to prepare for them.
If you manage to get a new tenant within a month of one leaving, then you only lost one month of rental income for that unit. However, that loss immediately doubles if you’re even a day late!
If you want to skip the hassle of the above headaches and ensure the number crunching is always on target, contact Realty Investments and they can manage the acquisition, management throughout the investment period, file all paperwork, provide you will quarterly and yearly reports on your investment, and help with the sale (to hopefully expand your porfolio and buy 2 more)!
3. Screen Tenants
The other most common issue that’s slightly out of your control is the behavior of your tenants. If you have any reason to think a tenant may harm your investment, it’s best to look elsewhere. Even one bad tenant can ruin your investment.
Every time you need to fill a vacancy, you should screen tenants by requiring applicants to show proof of income, credit report, rental history, and references. While it isn’t a perfect system, it is the best way to ensure that your tenant won’t damage your property, disturb other tenants, refuse to pay rent, or otherwise require an eviction.
*Realty Investments provides management to all property investors with it’s in-house maintenance team to keep costs lower and boost the investment’s ROI.
4. Communicate With Tenants
If you don’t see how this correlates with profitability, then we’ll gladly tell you. An open line of communication between tenants and landlords is essential for maintaining the property.
Not only will it encourage tenants to stay longer, which directly impacts profitability, but they will feel comfortable alerting you when something goes wrong.
For example, a tenant letting you know about a small stain on the ceiling in time could save your roof from destruction if there’s a leak. While that’s only one example, rest assured that proper communication is key to profitability in the industry.
5. Don’t Hesitate
An involved landlord is a successful landlord. When something is wrong, you need to fix it immediately! Happy tenants are good tenants and the more you go out of your way to show you mean to care for them like a neighbor, in most instances that comes back in the form of timely rent payments, more understanding tenants when things do break, and referrals to other tenants that it’s a great place to live.
Repairs to a property can be stressful (esp. for new investors) but if left untouched, small repairs can lead into larger repairs (roof leaf, pinhole leak in old pipe, etc.) AND if the place isn’t habitable during repairs, it leads to vacancy which is a huge drain on the investment’s ROI.
If you’ve heard the phrase “time is money”, that applies strongly to real estate investments. Whether that’s filling a vacancy or patching a hole in the roof, time is of the essence.
You will lose money the longer you wait on a number of issues. If you need to repaint a unit before filling it, give yourself a 7-day deadline! Try to operate with this mindset throughout your entire investment.
6. Ramp Up Your Marketing
Remember, lengthy vacancies can destroy your investment for an entire year, even after just a few months. It could be the difference between you paying for the mortgage out of pocket or not.
Conversely, the sooner you smooth out your tenant acquisition process, the better. That all starts with marketing to the right people. Find the platforms that work for you, market your vacancies, draw in the right people, screen them, and see the results!
When tenants are treated like gold (see #5) it usually doesn’t take too long to fill up out rental units at Realty Investments Corp. because many tenants who move out supply us with referrals for the next tenants that moves out. That and having some stellar fast rental agents in-house making the vacancy period for our current investors very minimal (usually just enough time for our crews to perform basic paint-and-fixup.
7. Get The Right Insurance
Finally, the best way to protect yourself from some of the risks of investing is to choose the right rental property insurance. Spending a little extra to get the right coverage is highly recommended, as anything can go wrong at any time. When it does, you want to know you are covered!
Start Your Rental Property Investment Today
Now that you know how to maximize your rental property investment, there’s no time like the present to put these tips to use. The sooner you do, the better off you will be. Stay up to date with our latest investment news and feel free to contact us with any questions!