4 Ways To Maximize Your Rental Property Bottom Line
Posted by Paul Esajian // March 16, 2018
Owning a rental property is more than simply finding a tenant and waiting for the rent on the first of the month. While anyone can passively manage a rental, there are a few important actions you need to take if you want to maximize your bottom line. Like anything else in real estate, it is always better to be one step ahead rather than one step behind. If you are forced to react act instead of being proactive you will ultimately lose the confidence of your tenants, and more importantly decrease your monthly cash flow. By looking at your rental property like an investment you will treat it differently, take care of it better and see a much higher return for a longer period of time. Here are four important actions to you help maximize your rental property bottom line.
- Buy the right property. Not every property makes a good rental. We have all heard the analogy of trying to put lipstick on a pig. Unless the property checks all the boxes of a solid rental you may be stuck with an asset with limited demand. The best rental properties almost always have a few main components in common. For starters, they are in markets or areas with high rental demand. You may pay a little more for these types of properties, but you will also realize a higher return. They should also have a minimum of at least two bedrooms, with three the perfect number. The property should also have ample parking, storage and the ability to add amenities for the market. It may take a little longer finding the right rental, but if you rush the process you will be left disappointed in the result. Your rental success starts with buying the right property.
- Value management. Regardless of how many properties you own you need to at least consider management. Owning just one single family rental may not seem like much but you are the sole point of contact for that property. Every time they have a problem with the washing machine, neighbors, rent or snow removal your phone will ring. If you dismiss the problems are minor or insignificant your tenants will start to wonder just how much you care about the property. The alternative is dealing with any issues as soon as they come which will prevent you from focusing on other tasks in your business. Most property managers charge at least 1% of the total rent received. On a property with slim cash flow margins this may not make sense on the surface. However, you need to look at the big picture and weigh the pros and cons. For just 1% you have someone else run the property, so you don’t have to worry about anything. If not, you will probably go to the house at least a few times a week and before long it can consume your day. Sometimes, spending a little money for management can help your business grow in the long run.
- Proactive maintenance. As we mentioned it is always better to be a step ahead rather than a step behind. The biggest area where landlords get in trouble is trying to constantly put band-aids on problems. Instead of performing season maintenance on the furnace, water heater, oil tank & HVAC they try to save money and wait until a problem pops up. When they inevitably do arise, the costs are much higher and may even cause the systems to be replaced rather than repaired. Instead of spending a hundred dollars or so and increasing the useful life by years they will be stuck with a major expense out of the blue. This creates a domino effect throughout the rest of the property. You will be forced to find capital or credit to replace these items or cut corners in other areas of management. There is nothing to you can to totally prevent or extend a mechanical but preventative maintenance sure does help.
- Selectively choose tenants. As a landlord, the goal isn’t to find a tenant but rather to find the right one. It is often assumed that your tenant will pay their rent and take care of the property. 99% of the time this turns out to be true, but bad tenants sneak through the cracks. In most cases, there are major red flags that should be evident. At a minimum, you should follow up with contacts provided on the application. Don’t be afraid to ask for income documentation or the number of their previous landlords. The minute the rent starts to come a few days late you should have a conversation and find out what is going on. As obvious as it sounds, everything revolves around receiving rent. If the rent stops coming in you are on the hook for all the monthly expenses, including the mortgage. Whatever it takes you need to spend a little extra time and effort in finding the right tenant.
Generally speaking if you take care of your property and your tenants they will take care of you. Even the best tenant will not treat a rental the same as they would a property they own. You need to expect and embrace that you will have to constantly stay involved in the property. However, if you remember these four important actions you will see an increase in your bottom line.