“How To Make A Rental Property Profitable”
Are you thinking of how to make a rental property profitable? It’s not as hard as some suspect, although it does take some commitment.
It can also take different approaches. For example, you might invest in the rental property to make it more profitable, i.e. spend money to make money.
However, it’s also possible to make a business more profitable by cutting away unnecessary costs. That’s applicable to rental properties too.
These are just a few of your options when you’re trying to bring up profits for your rental business. There are more, of course.
Today, we’ll talk about several of them. Below, I’ll provide the first-time landlord’s guide to how to make a rental property profitable.
How to Make a Rental Property Profitable in 8 Ways
Rental property profit is dependent on rental strategy, location, and the level of investment. That’s why you can learn how to make a rental property profitable (or more so, compared to before).
Some of the factors affecting a property’s profitability can’t be changed, of course. You can’t alter the location of your rental property, for instance.
But you do have control over others, like your business strategy and investment in the property. Managing these things wisely, you can learn how to make a rental property profitable.
For example, you can adapt your strategy to keep the costs of running the property down. Saving a dollar on rental property costs is often easier than earning more income to get that same dollar, after all.
Tips like these answer the question of how to make a rental property profitable. We’ll go over a few more of them below.
1) Avoid Tenant Turnover
How to make a rental property profitable is a question that real property investors ask themselves. Usually, one of the first answers is to reduce tenant turnover.
You call it turnover when an existing tenant moves out and you have to find another one to replace them.
You’ll find it expensive since every time a tenant moves out, you have to do some repair to refresh the property. In addition, you have advertise yet again for new tenants.
In refreshing a rental property or restoring it to its original condition, you have to do overall cleaning. Aside from that, you also have to do garbage disposal and replacement of old appliances that have stopped working.
Furthermore, if you have a property manager, you also have to pay a leasing fee.
That’s a hefty list of expenses. That’s why avoiding tenant turnover is integral to how to make a rental property profitable.
The key to lessening turnover is to keep tenants contented and happy. That’s one answer to your question of how to make a rental property profitable.
Make an effort to know what problems tenants have and try to solve them as quickly as you can. If the tenants request something that will also make the rental property gain something, consider buying it.
It can be cheaper than the cost of turnover. You can make them happy even as you increase the value of your property, and that’s how to make a rental property profitable.
2) Hire Tenants to Do Work
Asking tenants to do certain repairs in the unit can be added to the list of answers to your question of how to make a rental property profitable.
If your tenants have certain skills, it will be cheaper to hire them for work on the rental property than to hire another contractor.
Consider paying them for the work that they do but don’t make rental property rent lower. Pay them separately by cash or by cheque.
In that way, the price of the rent will still show the value of the property. This will be used to get the maximum price at the time you plan to sell the property.
3) Pay Cash Instead of Staggered Payment
In searching for the answer to the question of how to make a rental property profitable, you can choose to consider the following.
Contractors will often give discounts on their rates when they are paid in cash. That’s because more often than not, they don’t have to claim the income on their personal tax returns.
Turn the cheaper price to great advantage. Record the contractor’s details on a book with the amount paid and ask them to sign it.
If you have their business card, email or any written correspondence, your handwritten receipt with a signature, along with a copy of withdrawal slip from a bank will serve as proof for a deduction on your tax return.
Doing those things will give you an answer to your question of “how to make a rental property profitable”.
4) Do Renovations Based on Target Market
While you’re in the process of a renovation project, it’s so easy to just replace everything to make the property look brand new.
You may even consider making your rental property look like something you desire to own. That’s not always advisable.
That’s because the first question that landlords must ask themselves when renovating aside from “How to make a rental property profitable” is “Who is my target market”.
You should do the renovation based on what your target market needs or expects.
Let’s say that you own a property in a cost-conscious town. Then it’s not appropriate to install a marble fireplace and countertops.
Of course, buyers in those cost-conscious areas will love the look of it, but the cost of the improvement will likely not be recovered.
Always make sure that any renovations you make match what your target market expects and is willing to pay for.
5) Postpone Maintenance until the Right Time
Some tenants can be a headache because they always expect even the smallest damage in the apartment to be fixed by you.
Keep in mind that you don’t have to do everything your tenants ask you to do. Doing that will only take you away from answering your question of how to make rental property profitable.
However, that does not mean that you should ignore all of their requests.
There are things that you can’t provide for them and there are repairs that you have to delay because you have a priority project or you have inadequate cash flow.
Regardless of what you do, you have to share your plan with your tenant so that they know. Let them know if ever there will be a delay or anything else, and explain why.
If you do that, your tenants will appreciate your effort to inform them even if they may not like the idea of having to wait.
6) Intently Deal with the Property Manager
It is important to closely manage or have control over the property manager. The major problem in cost control with property managers is because they often do maintenance and manage tradesmen for a fee.
There is a conflict of interest here because the more maintenance and repairs they do, the more the property manager gets paid.
Keep yourself updated on everything they do, or perhaps it would be better to give them a maximum limit to seek your approval.
If they don’t do that, make it clear that you will not pay for the expenses. It’s important to do it to be able to have an answer to the question, how to make a rental property profitable.
Have control over repairs that are done and when they are done. You can look for the best pricing with tradesmen to save more money.
It is important to avoid setting up your rent payments to be paid net at the end of the month too. Instead, set it to be paid gross at the beginning of each month.
If you do it otherwise, your property manager may deduct the maintenance costs and just give a statement showing the repair or maintenance done.
By that, you don’t have a chance to approve if they decide on their own to go ahead with the maintenance and repairs.
You may hear excuses that these repairs were very urgent, or the tenants were whining or complaining, or that they failed to remember the spending limit.
Whatever happens, stick to the policy you have set and make sure that they don’t spend your money without your consent.
7) Forget about Evictions
Make it a point to avoid evictions. Otherwise, the question of how to make a rental property profitable will lose its sense.
That is because evictions are often expensive. You’ll have to go through tribunal costs or you pay fees for evicting someone, legal costs, time off work, damages, sheriff costs, and more.
Most of all, you’ll spend a fair bit of your time dealing with all of these hassles even if you hire legal representation to help.
Remember this — the only time that you should consider an eviction is if the tenant has an absence of reaction to your persistent demand for them to leave or there’s no way to contact them at all.
8) Lessen Property Expenses
Make it a point to pick one expense for your property and try to reduce it. Conversely, try to increase your income. That’s how to make rental property profitable.
Let’s say you decide that you will review the property’s electricity bills in detail, and look for ways to lessen the tenants’ electric consumption.
Some ways to do it include installing energy-saving lamps, using energy-efficient lighting, cleaning ducts, cleaning the central heating system, and more.
It’s better to pick one expense per month since most people are overwhelmed when creating a long list of what to do for their rental property.
Additionally, some tasks take a longer time to finish than estimated. It may be overwhelming if there are so many things in mind to finish.
Final Thoughts on How to Make a Rental Property Profitable
Now you understand how to make a rental property profitable. The tips above should do a lot to increase your revenues at your rental business.
Let’s go over them again. First, do all you can to reduce vacancies in your rental units.
Doing what you can to keep your real estate property occupied covers your overhead and maintains its cash flow. Unless a property needs a complete restoration, you’re losing money.
When it comes to hiring a tenant to work for any repairs in the unit, you must pay for the job separately. Agree on the price and the time of completion.
You can arrange to pay for the work in stages or when the job has been completed. The rent should stay the same. That’s how to make a rental property profitable.
As a wise investor, there should be an understanding of cost savings and the correct way of maintenance or renovation too. Thus, you should avoid spending money on your rental property just because a property manager or a tenant wants you to.
Eventually, by following these answers to how to make a rental property profitable, you’ll be able to see more profits and have more contented tenants living in your property.
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