If you’re thinking of getting your feet wet in buying and renting out properties, you’re probably wondering whether it’s financially worth it. The truth is that’s up to you. If you know what you’re doing or at least learn quickly, you could turn quite a profit. It takes a lot of preparation, persistence, and a keen eye but once you’ve got it down, owning real estate can make you a pretty penny. Wondering what can help? Read on for tips on how to make a rental property profitable.
Choose the Right Property
You might have read that header and thought, “Well, duh.” But the truth is far too many people don’t spend enough time on getting the right property to begin with. There are many factors involved in this, and the biggest is probably location, location, location. And this doesn’t just mean that you are mere steps from the beach, although that sure couldn’t hurt. On top of perks like this, you’ll want to look at things like the local job market, the schools in the area, the crime rate, property taxes, and what the neighborhood is like. Any renter worth his or her salt is going to be concerned about these things, so you should be, too. Nailing down a great location will lead to securing great tenants, which leads to long term rentals—these things lead to a bigger bottom line.
Don’t Get Pigeonholed into Long Term Leases Only
Long-term leases have benefits, especially if you have other jobs on top of being a landlord. Finding new tenants can be an arduous and lengthy process so the long-term lease helps with this. However, you might also consider being open to a month-to-month rental agreement. Because the risk vs. reward is greater for the landlord in these cases, it’s considered to be fair game that the landlord charges more. In short, you’ll make more money. And if you’re effective at managing month-to-month rental agreements, the reward could be much greater than the risk.
Decrease Tenant Turnover
Whether you’ve decided on long-term options only or ultimately offer the month-to-month rental agreement option, there’s one thing that’s true of both—tenant turnover will cost you money. To secure the best tenants, you’ll want your screening process to be top notch. Call the prospects’ former landlords, run background and credit checks, make sure they have the money to pay rent each month, and have time fill out an application. You’ll likely pay for these to get done and even if you handle it all yourself, you know that time is money. Plus, you must consider that leaving your property empty and advertising for the next tenants will cost you, too.
Once you’ve thoroughly screened the tenants, you want them to stay. When a tenant has an issue with an amenity on the property, you or someone you assigned should be easy to reach to get the issue resolved. Offer perks like giving them until the 3rd of each month to pay rent, discounts on a month’s rent for those who sign another year lease, and gift baskets during the holidays. It often comes down to just being pleasant without being overly involved, as tenants don’t appreciate landlords that snoop. In fact, the laws surrounding how and when you can go onto your property once it’s been rented are quite strict. Find a balance and you’re good to go.
Be Strategic About Increasing Rent
You don’t want to ask for too much, but charging too little can be an even bigger detriment. Be vigorous when researching how much to charge in rent, as you want to get this one right. The same goes for rent increases—it’s all about balance. As MONEY contributor Blake Hilgemann notes, “Tenants may be more loyal if they can’t find lower rent elsewhere. But this doesn’t mean that you should never raise rents when you have good reason to do so.” Tenants know that moving will take a physical, emotional, and financial toll on them, too. Hilgemann goes on to note, “If the value of their current rental is significantly better than the value of a new rental plus the cost of moving, you still have the upper hand.” If you are strategic about rent increases, they will work in your financial favor.
Follow these tips on how to make your rental property more profitable and you may just get the urge to buy another. Your empire awaits.