If you’ve got cash to invest and you’re looking for the best way to see your money working for itself, investments are the way to go. As far as investments are concerned, it looks like becoming a landlord in a market where more people are renting than buying might be a smart move. But not all landlords make money. In fact, plenty suffer disastrous losses. How do you make sure you’re not counted amongst all the many failed landlords? You nail down the aspects that are really going to make you money.
Naturally, you’re going to make more money with a property that deserves a higher rent yield. This begins with choosing properties that are particularly in in-demand areas. You can look, for instance, at areas that look like they’re on the rise thanks to newly opening facilities and businesses nearby. You can also take the initiative and buy a cheaper property, but drastically increase its value through renovations and adding new spaces or features to it. However, the area around it will always play a role in how much you can expect to ask for it. If you’re working on creating a luxury property in a troubled area, the rent you can expect is going to take a hit.
The length of contracts
The property itself is but one side of the equation. The other side is the tenants you get in that property. One strategy for improving the revenue made from your properties is to focus on reducing vacancies as much as possible. The longer a house or apartment goes vacant, the more money you’re not getting. That’s why many landlords prioritize finding long-term tenants above everything else. However, long-term tenants bring their own pros and cons, as stated in Landlord Talking. For instance, if your plans change and you want to sell your assets to generate liquid cash, then being stuck in a long-term contract with your tenant can serve as a barrier to that.
The quality of tenants
The fact that they’re looking to stay long-term in a property isn’t all you should want from your tenants. It’s a good idea to vet anyone you invite to stay in one of your properties, especially if you only have one or two. Beyond potentially causing damage that you’re going to have to pay to fix if it goes beyond their security deposits, you don’t want tenants who are going to up-sticks and move if they decide they don’t like you as a landlord. Just as vacancies hurt your ability to make a profit on a property, so does turnover. Every time you have to pay to advertise the home, to fix it up and get it ready for new tenants, and changing the locks, you eat into the profit potential of the home. Choose your tenants wisely.
Setting the right rent prices for your rental property is going to depend on a lot of different factors, as The Balance can help you navigate. However, rent shouldn’t be fixed for years and years on end, either. In some cases, inflation and mounting costs are going to make it a necessity to increase rent. Make sure any contract you sign includes a clause that allows rent changes on renewals. Be sure to let the tenants know well in advance and give them a detailed explanation of why the rent has to increase. No-one likes paying more for the same service they’ve been getting so far, but many tenants will be reasonable and understanding about rent increases if you tell them about it like a decent, reasoned human being. On the other hand, you also have to know when to decrease rent. It does become a necessity sometimes. When the housing market flips and there are suddenly a lot more tenants to landlords in an area, you might have to get competitive or you could miss out on making any money whatsoever.
The organization of your systems
You have to treat rental properties like a business. The more of the day-to-day management you let slip to the side, the more chance you have of losing money. For instance, losing financial accounts will make it much harder to set rent prices or to see how much further investment in a property is prudent. If you have more properties than you can personally deal with, it might be worth looking at services like Vision Property Management, too. These kinds of services can take care of managing tenants, advertising the property, even maintaining it You have to set up as many systems as possible that allow your property portfolio to keep functioning whether you’re keeping a close eye on them or not. Otherwise, as it grows, you will find it harder to maintain to the point that cracks start showing and your profits start falling through them.
A little firmness
Of course, that doesn’t mean that you have to get completely hands off. In fact, when it comes to tenants that are late with rent or not paying it, you need to get involved personally. You can introduce late rent fees, for instance. It’s good to have a frank discussion about them up front with tenants in advance. You can make a policy that you will sometimes forego these fees if tenants let you know rent will be late in advance and can guarantee a later pay-date that they cannot fail to meet. One thing is certain, if you don’t send so much as a late rent notice when pay problems start to happen, you will find that some tenants are willing to take advantage of that perceived softness. Not all of them, of course, and you should be willing to give the benefit of the doubt at least once, and more if they’ve been especially reliable in the past. But you must also be on your guard.
The extra services
There are extra services you can add in there if you’re willing to spend more time on each individual property. If you only have one or two apartments or homes, it might be the most sensible way to maximize profits. Some landlords will use coin operated laundry machines, for instance. But if you’re renting higher end properties, then charging for services like landscaping and exterior maintenance is going to attract a lot of your tenants. You can also expand the home’s revenue potential beyond your tenants themselves. For one, consider renting out extra space like a garage or a shed as storage for others.
You should never sit on one house too long once you get into property investment, especially as a landlord. You can net a lot of profit from one home alone, it’s true, but you also increase your risks. You have all your money tied to one asset which means if it fails or it gets damaged and has to be taken off the market, that’s a loss across the whole board. Reinvest what profit you make as opposed to using it to fund your lifestyle. Grow your portfolio, whether it means investing in more properties or looking at other options like stocks and bonds. Everyone looking to get into investing of any kind should remember that diversification is the key to success, not just one hugely profitable option.
If you’re looking to start building your wealth using rental properties, you have to treat them like a business from the word go. The comprehensive list of steps you need to take and priorities you have to establish made above should help you do that.