How to Make Money off a Rental
Anyone who’s serious about making money with income property knows that it’s important to treat investing like a business.
Without a business approach to your rental properties, this endeavor can quickly turn into a hobby –and an expensive one at that.
It’s important to recognize that not all real estate investment strategies are created equal. The secret to success in the investment world, in many ways, is just like running a profitable business. It’s all about capitalizing on current demand, while keeping an eye to the future.
Making money with rental property is possible –and the millions of landlords across the country can attest to this fact. In fact, industry leaders and experts say that owning rental property –or Rent Estate™ is a great investment, one that offers significant rewards in terms of equity, appreciation, cash flow, and tax benefits –and now is a great time to get started with it.
Countless investors, as well as homeowners-turned-landlords are making money with rental properties –and you should be too! Whether you’re an experienced investor who’s interested in adding rental properties to your portfolio, or new to investing, here’s how you can get in on the Rent Estate™ action –start your venture into real estate investing, and get the best return on your investment.
Make Smart Investments
In order to make money off of your rental investing venture, any property that you buy has to make sense from a business perspective. This means that you should look for a property that’s reasonably priced –and has good potential as a rental –the type of property that’s likely to appeal to the tenants that you’re looking for. Single-family rentals tent to perform exceptionally well as rentals, and are currently experiencing a surge in demand.
When vetting properties, you’ll also want to keep appreciation in mind. Not all areas appreciate at the same rate, and it’s important to do extensive research on the area, the neighborhood, and the local rental market. Check home values in the area, and look at historical charts that show how much they’ve appreciated over time. Look at the classifieds or check websites like Trulia, Zillow, and Realtor to see how much other, similar rentals in the area are renting for. Be patient, and avoid the temptation to jump at the first sign of a good deal. You’ll want to avoid making important decisions on gut feelings alone. Instead, do your research. Gathering all of the facts will help you to make informed decisions, and better investments.
Calculate Your Cash Flow
In any business, cash flow is an important consideration. When purchasing rental property, cash flow is something that should weigh heavily into your decision. Some areas boast gross rental yields that are, on average 20 percent –or even higher. Not too bad! But cash flow isn’t the only thing to consider –you’ll want to look at the bottom line as well. In addition to gross income, you’ll also want to calculate your projected profit and loss –taking into account things like property taxes, insurance, and maintenance and repairs. Don’t forget about long-term capital expenditures –your property will need a new roof at some point. You’ll also want to factor in vacancies –since the rental is unlikely to be occupied the entire time. It’s a good idea to assign a percentage of your gross rental income –usually around 5 percent, to maintenance, and estimate that another 5 percent will be used to pay for downtime and repairs in between tenants. Once you have your figures, you will be able to determine what your rate of return will be. Remember: just because a property has high gross yields, doesn’t guarantee a great rate of return. In many cases, rentals located in metropolitan areas with sky-high rental rates produce lower rental returns. Generally, a 4 to 10 percent annual cap rate is considered to be a reasonable rate of return by rental property investors, although many landlords aim for a higher percentage.
Explore Tax Benefits
Tax time might not be your favorite part of the year, but as a landlord, you can take comfort in the fact that tax breaks that are available for rental properties are second to none. Taking advantage of these opportunities for tax write-offs will help you to come out on top when it tax time rolls around. One significant expense that you can claim is depreciation –with rental property, you’re allowed to depreciate the value of your property over a period of time, usually 27.5 years for the structure of the rental. You’ll also be able to deduct many other expenses associated with the rental including travel costs to and from the property, accounting services, property management fees, as well as most maintenance and repairs made to the property –upgrades, though, are a different story. Taking advantage of tax breaks every year can add up significantly over time, and it may be worth enlisting the services of an accountant to help you understand where you can save.
Keep Your Vacancy Rates Low
As you know, vacancies can be costly –and can add up considerably over time. Each month that a unit sits empty is essentially one month of potential rental income that you will have lost. Not to mention, there’s also the expense of cleaning and repairing the rental in between tenants. As a landlord, one of your goals should be to keep your vacancy rates as low as possible. Thankfully, there are a number of things that you can do to help with this goal –including setting competitive rent as well as perfecting your tenant screening process to ensure that only qualified renters gain access to your property. Finally, keep tenants longer by providing them with excellent customer service. If you’re managing the property yourself, always respond to their requests and concerns promptly, and professionally –and never neglect repairs or maintenance. Treating your tenants fairly and maintaining a good landlord-tenant relationship will go a long way toward encouraging your renters to stay longer, helping you to keep your vacancy rates low.
Make It Easy for Tenants to Pay You
Your tenants are your customers, and it’s important to treat them right –and make things easy for them –especially when it comes to the monthly rent. Yet many landlords still operate with outdated cash or check systems. The fact is though, that most young renters these days don’t use checkbooks –and only own one so they can pay the rent. Instead of sticking with systems that are complicated and outdated, consider setting up an automatic payment plan so that the money will be transferred from your tenant’s account to yours every month, making rent payments simple and seamless –and less likely to be forgotten.
One of the best things about rental property investments is the level of control that you have over the performance of your assets. With stocks and shares, you’re largely at the mercy of the markets or the board of directors; but with rental property, the success of your investments is largely in your hands, and you can take steps to directly improve your rate of return. By making smart investments –and wise business decisions as you work hard to improve your rental property’s profitability, you can ensure a better return on your investment and will be able to join the scores of other investors who are using Rent Estate™ to earn passive income, save for the future, and build financial freedom.
Are you interested in Rent Estate™? Get in touch with a local Rent Estate™ Professional to talk numbers and see how much your home could be renting for. Or, find out how you can take the first step toward Rent Estate investing today.
Written by: Kevin Ortner