5 Ways to Make More Money On A Rental Property

In this market, it is becoming more challenging to keep rental properties profitable. Follow these 5 tips to make more money on a rental property.

How to make more money from your rental

More and more investors are questioning if rental properties are a good investment. As the owner of a rental property, you are a business owner. The goal of any business is to be profitable. Higher home prices, higher interest rates, and increasing cost of goods make it more difficult than ever to keep rentals profitable and cash flowing Follow these five tips to keep your business profitable and make more money on a rental property.

5. Maximize Return on Investment (ROI) to Make More Money on a Rental Property

Most investors and business owners understand the concept of return on investment, or ROI. However, maximizing returns is often overlooked in the rental business. Using ROI to make decisions about how money is spent on your rental property is an excellent way to increase your properties profitability each month.  Money spent for any reason on your rental property should be looked at as an investment.  It doesn’t matter if it is shopping for insurance, or replacing the roof.  For any expense, identify several different options that each address the problem in a different way.  Then, weigh how each option will affect cash flow, rental rates, ease in filling vacancies, retention of tenants, future maintenance expenses, the quality of tenants the property will attract, etc.  Analyzing financial decisions in this manner will maximizing ROI, in-turn increasing your profitability.  

For example, a property owner wanted to replace the windows in a rental unit because they did not meet their personal standards.  However, the current windows were functional and appropriate for the rental market the home was in.  In this instance, replacing the windows was not needed. Rent could not be increased and it would not have decreased vacancy rates or improved the retention of tenants.  This would have been a huge expense to the rental businesses and there never would have been a positive return on the investment.

On the flipside, it is often necessary to invest money into a rental property and failing to do so results in a negative ROI.  Kokopelli Property Management strongly believes that having well maintained and clean rentals is a cornerstone to being successful as a business.  However, this doesn’t mean that money is spent wastefully. 

Appliances are often a hidden expense and when they breakdown, several thousands of dollars can be spent.  Instead of buying a new stainless-steel appliance from a big box store, it may be better to contact an appliance repair company and discuss options to fix the current appliance, or purchase a used appliance.  Often, repair companies offer used appliance with full warranties that are much cheaper than buying new. 

From windows and appliances, to routine expenses and major capital improvements, identify several different options that address the problem in different ways then, select a solution that will provide the best return for your specific property and situation. Analyzing expenses in this manner will help you make more money on a rental property. 

4. Decrease Monthly Expenses to Make More Money on a Renal Property

In order to make more money on a renal property, decrease monthly expenses.  As a business owner, it is important to constantly evaluate your fixed expenses.  A few percent here, a few dollars there, and by the end of the month it all can add up to a considerable amount of money that is eating away at cash flow.

Insurance and owner paid utilities are monthly expenses that can eat away at cash flow and decrease the profitability of your rental business.  Recently, while shopping for insurance on one of our rental units, we got quotes ranging from $38 to $88 a month.  Without calling around for other quotes, it would be easy to think $88 a month isn’t bad for coverage on a rental property.  However, that $50 difference accounts for a 16% increase in cash flow (on $300 a month) or $600 a year.

Owner paid utilities are often a large portion of fixed monthly expenses.  It is easy for utility expenses to creep up over time and before you know it, you are paying double or triple for these bills.  Often, it is a result of tenant overuse, but there are several other reasons for elevated utility usage. Leaking faucets, running toilets, sprinkler systems that are not optimized, and inefficient appliances all result in skyrocketing bills.  Installing low flow shower heads and fixtures, LED light bulbs, conducting routine property inspections, and setting clear expectations with tenants about utility usage are easy ways to make sure your monthly cash flow stays positivize. 

If you use a management company, their fees can also grow higher and higher over the years.  Management companies should be periodically evaluated and checked just like any other fixed expense.  It is common for management companies to have many hidden fees beyond the basic percentage collected from rents.  From lease set-up fees, lease renewal fees, fees for property inspections, the list can go on and on.  Not only can your management company have hidden fees cutting into your bottom line, there is the possibly they are not maintaining your property, inspecting your property, or placing quality tenants into your properties.  All this results in higher costs to you as the business owner.    

3. Reduce Vacancy Rates to Make More Money on a Rental Property

Vacancies are bound to happen, but how quickly a unit is filled has a drastic impact on your bottom line.  Take for example a unit that rents for $1300 and cash flows $300 a month.  If the unit is vacant for one month, you lost $1300, or 36% of your profit for the year.  Not many businesses want to take a 36% hit to their bottom line! There are many ways to help decrease vacancy rates, but how you advertise your unit and what you do to retain current tenants will have the biggest impact. 

First, when advertising a unit, it should be listed on many different platforms including Zillow.com, Facebook, Apartments.com, Hotpads.com, etc.  The bigger the reach your advertising has, the faster the unit will rent.  Also, you are using professional listing pictures, right?  If not, checkout why it is critical to use professional pictures when advertising your rental

Once the advertising is taken care of, make sure the unit shows exceptionally well to potential tenants.  Rentals that are professionally deep cleaned, free of damage, has fixtures and amenities appropriate for the rental market are going to rent much faster than rundown, dirty and damaged units.

Finally, tenants want to live in clean properties that are managed professionally.  If the tenant is happy, they are much more likely to stay year after year.  As a landlord, you are running a business and the tenant is your customer.  Make sure the tenant is taken care of and you will make more money on a rental property!  

2. Placing Good Tenants to Make More Money on a Rental Property

Through missed rent, legal fees for evictions and damage to the rental, a bad tenant can cause your business to lose thousands and thousands of dollars.  It can take years to recoup the lost profit from one bad tenant. If you want to make more money on a rental property, placing good tenants is key.

Diligent screening, background checks and maintaining strict rental qualifications are the first steps to placing a tenant that will pay their rent on time and take care of your property.  Regardless of the class of the rental property or the market it is in, you should conduct full background checks on potential tenants and only accept applicants that meet your minimum standards related to income and credit.  Background checks should consist of making phone calls for employment verification, landlord references and personal reference checks.  And no, texts and emails are not sufficient, you want to talk with a real person!      

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Once you move-in a tenant, the work doesn’t stop.  If payments are late, your late policy, as defined in the lease, should always be enforced.  Drive by the property and conduct routine inspections to ensure the property is being cared for.  If lease violations are discovered, be consistent and enforce the violations.  The rules outlined in the lease are there for a reason!

Placing good tenants that are well qualified and enforcing the terms of the lease are easy ways to make more money on a rental property property.

1. Maintaining Market Rents to Make More Money on a Renal

Finally, strive to keep your rents at (or above) market rents for your area.  Having clean units that are well maintained, advertised correctly, and managed professionally with the mindset of the tenant being the customer, will insure you get top dollar for rent. 

Also, be consistent with yearly rent increases.  Each year, increase rent slightly to match inflation and increases in the rental market.  Avoid not raising rents for several years and then doing a large rent increase.  Tenants are much more accepting of small yearly rent increases, as opposed to large increases.

All these tips will help help you make more money from your rental properties. If you have any questions about real estate, investing, or managing rental properties, feel free to contact us. Advice is always free!

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