About half of the money you earn from renting out a property will go right back into the property, to cover expenses like the mortgage payment, insurance and taxes, repairs, upkeep, and so on. But that doesn’t mean you’re destined to only be able to pocket half of the rent you make forever.
You can do a lot to maximize your rental profits. You’d be surprised at how much more profitable you can make a rental property simply by keeping it rented every day of the year and keeping your best tenants around to sign lease renewals. Be strategic when you increase the rent. Manage the property yourself to save on property management costs. Charge late fees to tenants who don’t pay rent on time and treat collecting rent like a business, because it is. The right approach can help you get so much more out of your rental property.
Any time your rental property is vacant is time it’s not making you money – in fact, it’s time when it’s costing you money to maintain and keep tenant-ready. A mere month of vacancy can cost you 8.3 percent of your yearly rental revenue. You can’t afford to let your property sit empty between tenants, and most properties aren’t suitable for short-term rentals.
To minimize vacancies, make sure you start advertising the available unit as soon as you know that a tenant will be moving out. As long as there is reasonable demand for rental units in the area, you should be able to line up new tenants to move in as soon as the old tenants have moved out and you’ve completed any turnover repairs and updates. That way, you can be earning rental revenue every month of the year.
If you’re wondering how to increase rental property value, you can definitely get more out of your property by reducing turnover. Turnover refers to the rate at which tenants move out of your properties. If your tenants typically stay to renew their leases multiple times, you have low turnover. But if tenants are heading for the hills as soon as their lease terms expire, you have high turnover.
Even if you can always find new tenants to move in right away, turnover costs more than keeping the same loyal tenants in your units year-in and year-out. At the very least, you’re going to need to throw a fresh coat of paint on the walls and do minor repairs between tenants, and that costs time and money. Tenants who are already living in your units are going to be fine with the same paint and the same flooring for a while, possibly until they move out. Plus, keeping good tenants is easier than finding new tenants every year.
Be Strategic with Rent Increases
Your local rental market can probably bear a one to three percent increase in rent each year. Take a look at rental listings to see what comparable properties are renting for. You may not be able to get away with a large rent increase if you want to keep a long-time tenant, but you should raise the rent a little bit each year to keep up with market rates. Be strategic about it by scheduling renovations and updates for around the same time as the rent increase, so the tenant feels like they’re getting their money’s worth. You may also want to offer to make some small improvements to the property to make the tenant more comfortable, and better about paying more rent.
Manage the Property Yourself
Property management firms take 10 to 20 percent of your rent revenues off the top in exchange for managing the property. This can be worth the expense if you live far from your rental unit or don’t have the skills to manage repairs, tenant background checks, and evictions yourself. But if you can handle managing your own property, you can save the fees and put more money in your pocket.
Charge Late Fees
It can be hard to press tenants for late rent, but adding late fees into the lease will give them some incentive and maybe you won’t have to chase them for the rent at all. While it can pay in the long run to be understanding to long-term tenants who have fallen on temporary hard times, you shouldn’t let your tenants take advantage of your generosity, either. Be diligent about collecting rent on time and collect on those late fees, too.
The more money you can make from your rental property, the faster you can pay it off and buy more properties – and therefore create more passive income. Do what you can to maximize the profitability of your rental units, so you can reach your financial goals sooner.