Landlords: 5 Tips to Maximize Return on Rentals

Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Marck: Hey, guys. Marck de Lautour here with SBD Housing is your host for the REI classroom for the day. Just wanted to reach out to you today and talk a little bit about rental activity and how we succeed with our rental property.
Mike: This REI Classroom real estate lesson is sponsored by theinvestormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Marck: We currently have over 450 rentals, so believe me, we know what we’re talking about here. There are five things that we do that may not be totally standard to try and help us maximize our returns on rental properties.
First one is professional photos. As you know, it’s an online world these days and the first place people are going to look is online. And so you have to have professional photos. And I don’t mean Samsung Galaxy S or an iPhone 7. No matter what they say, a professional photographer will work wonders. So please, spend the $85 to $100, get professional photos. Because again, when things go bad and you’re standing in front of a judge trying to show the bad things that a tenant may have done to your properties, the professional photos also come in handy to prove how good that property looked when you first hand it over to the tenant. But again, that’s not really a primary reason.
The primary reason is of course just how great the property is going to show online, you’re going to maximize return based on the number of showings, the number of prospects, the number of applications you receive. You’re about to pick the best tenant, not just the only tenant that applied.
Secondly, we always ask and encourage a two-year lease agreement. You might think that this is a stretch and a strain. But if you ask for it, does come true. We probably have about 35% to 45% of our people accept our offer of a two-year lease. And again, it’s a win-win because the tenant gets to fix their rent for a period of two years rather than just one, and it’s another good instance of saying to the tenant, “Hey, if you fix your rent now for two years, you give . . . ” it’s a win-win. But if you don’t, you can lay it on the line that you will be increasing rent after year one.
That kind of leads me into tip number three, is every year, it doesn’t matter if the tenant’s a good tenant, bad tenant, whatever, you have to raise rents every year. Insurance goes up, taxes go up, and general appreciation of the property. You have to be increasing your rents every year. A $10 increase every year is not going to cause a tenant to move. However, if you wait and wait and wait and get behind on rents, and then suddenly realize that you’ve got to jump it up by $100 a month because you’re so far behind, that’s when it really impacts the tenant. You might have them move out. So every year, raise those rents.
Fourth is that we never put refrigerators into our properties upfront. We do provide refrigerators. However, we typically buy houses at full closure. We’ll do nice full-on remodels to them, and we’ll be talking a little bit about the status of those. But we don’t install fridges, and here’s why.
We kind of have flip quality rental properties, so we really do high-end rental properties. And when you’re flipping a house, you never put a refrigerator in there. So either we’re flipping or renting, we never put a fridge in upfront. Now, the tenant moves in and says, “Hey, can we have a refrigerator?” “Oh yeah, sure, no problem. We just have to add $25 a month, or if you’d like a stainless steel refrigerator, $40 a month to your rent.” And of course they’d say, “Yeah, we need a fridge, so $25 more a month, not a problem.”
So it’s kind of like almost like a rent-to-own refrigerator. You go out, spend $400 on a fridge, they’re now paying you $25 a month. So within a couple of years, again two-year lease agreement, you know you’ve more than paid for that refrigerator itself. It’s just not something that’s necessarily needed to be done upfront and it’s a way to increase your rent on the back end.
Lastly, tip number five, and this kind of speaks to more of an internal philosophy in how you’re going to be running your rental properties. Some people just kind of do the bare minimum, maybe you’ve got cheaper properties, under $100,000, and are certainly not in the nicest parts of town. By all means, that’s one way to do it. We take the opposite approach and we try and get nicer rentals and better parts of towns anywhere from, again Kansas City from like $80,000 up to $200,000 is kind of our entry point, the after peer evaluation.
But even in the small homes that might only be worth $80,000, we put in travertine tile in the bathrooms, mosaic tile, back splash, granite in the kitchen and the bathrooms. And we’ve found that not only does that increase the rental rate, it keeps your tenant there longer because you have better properties for them to live in. The granite itself in the kitchen and in the bathrooms never gets beat up. We don’t have chips and dings and scratches like you do on for mica.
So in general, you’ve got a better quality, you’ve got a better home, you’re after peer evaluation is going to be highest. So if you’re doing a cash-out, refire, or something, it’s going to help on the appraise value. And in general, you just got a better home, a better tenant.
So those are my top five things, kind of to increase your rental portfolio. Again, professional photos, ask for the two-year lease, raise your rents every year, charge for fridges but wait and don’t put the fridge until afterwards, and then if you choose to, then by all means, try and do a nicer remodel. Stick into granite, stick into travertine tile, maybe put some nicer appliances, and surely, it pays off in the long run.
Again, Marck de Lautour with SBD Housing Solutions, proud to be your host for the day. All the best.
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