8 Ways to Ensure Your Rental Property is Profitable
Being a landlord can become a profitable way to make a living if you play your cards right. An attractive apartment in good repair is likely to be sought after by high quality tenants.
However, if you don’t do things right, that new rental property of yours could become a money pit. If you’ve just purchased a new rental property or if you have one that you’d like to make more profitable, you’ll want to take the right steps to ensure that the property makes money each month. Here are eight ways you can ensure that your rental property is full and turning a profit.
1. Buy in the right neighborhood
The location of your rental property will largely determine the types of people who want to live in it. A rental property that’s in the vicinity of a college or university will mostly likely attract college students. On the other hand, a home in a suburban neighborhood will likely have families or professionals as tenants.
In the first case, the property will come with vacancy issues when the students move out for the summer. In the second case, you stand a better chance of having a profitable property over the long haul, because the tenant will most likely stay longer. Alternatively, there’s almost always a flood of students looking for properties, so they are easier to find. When you’re shopping around for properties, keep this in mind so that you end up with a property that has the potential to make you money.
2. Reward good renters
All landlords have horror stories about bad renters. That’s why landlords who find good tenants treat them like gold. Most smart landlords take measures to ensure that their best tenants are happy, because they have had their experience with awful renters. They won’t raise the rent on a good tenant (or will do so rarely). They will willingly do repairs in a timely fashion. They will let good tenants make improvements. If you have good tenants, make sure they remain happy. The happier they are, the more profitable you are.
3. Avoid vacancies if you can
Vacancies eliminate the profitability of your rental properties. CNN Money suggests that landlords work to keep their rental properties 100% occupied. Not doing so costs you big time. You’ll pay 8.3% each month that your property stands vacant.
There are a couple of ways you can do this. Make sure that you haven’t priced your property too high. It might be better to lower the rent so that the property is easier to rent. Also, the minute your property opens up, make sure that you’re taking the steps to get it rented out as quickly as possible.
4. Use good strategies when you must raise the rent
Knowing when to raise your tenants’ rent, even on the good tenants, is a bit of an art. Some savvy landlords will only raise the rent after a major renovation. That makes the tenants feel like they’re getting more for the rent increase.
Others will visit with their tenants, telling them why they must raise the rent. (i.e. Increased property taxes, condo association fees, etc.) This helps the tenants understand that the increase in rent was not just arbitrary.
However, smart landlords will also ensure that their tenants are still getting a better deal in their properties than the tenants can get anyplace else. They will do their homework and find out what rents in the area are going for and adjust the rent accordingly.
5. Check the crime rates
If there is a lot of crime where your rental is located, you’ll have trouble keeping it rented. No one wants to live in a place that is unsafe.
When you find yourself in the market for a new rental property, do an in-depth investigation into the crime rate in the area. Are there a lot of cases of vandalism? Do the police visit a lot? Is petty theft a problem? All of these elements could influence how much success you have renting that property out.
6. Set aside a repair fund
Unexpected repairs can eat into the profitability of your property. Before you become a landlord, be sure to set aside some money each month to deal with the initial repairs that your property may have.
Later, make sure that you charge your tenants enough so that some of their rent can contribute to your repair fund. If you’re not sure how much that will be, Forbes suggests consulting a mortgage calculator. This should tell you how much your mortgage will be each month. Once you know that figure, you can calculate the “extra” that you’ll put it to pay for repairs.
7. Charge late fees
Some landlords feel reluctant to enforce late fees. However, as most landlords who have had this problem in the past will tell you, things rarely work out in your favor if you approach your business this way.
It is a business, and your tenants need to know that. Put the terms for late fees into the contract and remind them that rent isn’t actually fully paid until the late fees are paid.
8. Offer amenities
Some tenants will feel happy just having a solid place to live, especially if the price is right. However, in areas where there are more rental properties than renters, the properties with the most amenities often win the day.
Does your building have a pool? How about a washer and dryer in the unit? Security at the door? Whatever kind of amenities that you can offer, make sure that those wind up in your advertisement on your listing when you’re ready to rent the property. It could give you a competitive edge over other landlords in the area.