Investing in residential and commercial rental property is an excellent way to generate a stream of monthly income. The two best things about property investments are the capital appreciation of your unit and stable rental income. However, often waiting for the capital appreciation to be high enough so that you can turn it into cash when you sell the property can take a long time. So, what can you do? This is where rental income plays an important role in ensuring that you’re winning the rental game.
As properties typically have rental limits or restrictions based on the size of your properties and your rental agreement, the question is, how do you maximize your property rentals? As a real estate investor, you can make excellent returns on investment in the long run, particularly if you get strategic and make the most of some tips and best practices in order to optimize the performance of your rental property.
You have to be strategic because while collecting rent, finding new tenants, and addressing their concerns and problems might not sound like tough work, if you are not careful, then expenses can easily creep up on you, leading to a dip in revenue.
Here are five ways to optimize your rental property income.
1. Lower your Turnover Rate
You should try your best to keep your tenants in place long term as it’s one of the best ways to stay in the black. Keep in mind that an empty rental unit means one thing— considerable lost revenue. You will have to be diligent and thorough as a property owner or manager when it comes to turning over your units, finding tenants, and keeping the units leased. You can also list your property on several rental websites and post ads on Craigslist before your current tenant decides to vacate. You should also inform your current tenant that you may have to show the property before they move out.
Also, the longer you keep your tenant in the rental property the lower your total cost will be for repairs, maintenance, and advertising. Hence, minimizing your overall turnover rate is in your best interest.
Providing some of the following amenities will help reduce your turnover rate:
- Parking space (off-street or on-street, as long as it’s convenient)
- Outdoor space (such as a patio, yard or balcony)
- Recycling
- Modern updates
- In-unit washer and dryer
- Capitalize on Tax Savings
You are permitted to deduct several costs and expenses at tax time as a landlord. You have to make sure that you take advantage of every possible tax deduction to reduce your taxable income. Some of the costs you can deduct are maintenance costs, insurance premiums, advertising costs, and management fees.
In addition, you can deduct mortgage interest and the costs that you incurred buying your property. You cannot deduct the latter all in a single year, so you have to do it via annual depreciation. This is because a property is classed as an asset similar to vehicles and machinery.
As a real estate investor, you should also look to defer property taxes on your investment property. One great way you can increase your bottom line is by deferring or eliminating taxes on your real estate investment income as well as profits by investing with your retirement account. Consulting a tax professional can be immensely helpful in this regard. Make sure that you do not overlook things, such as operating expenses and commissions that you pay for tenant referrals.
You can also take advantage of “green” tax incentives by installing efficient solar panels on your residential property while they are still available.
- Screen your Tenants
Effective tenant screening is important to optimize your income from a rental property. You should follow a comprehensive and thorough tenant screening process in order to make sure that you find a tenant who not only pays rent on time but also takes good care of your rental property. One way to this is to set clear criteria strictly in accordance with Fair Housing Laws in order to find the best fit based on the criminal history, income, credit score, and rental references of your prospective tenant.
We recommend that you do the following things:
- Require a rental application
- Host a few individual property showings so that you can get to know your prospective tenants
- Require your tenants authorize tenant background checks and tenant credit reports
- Contact your prospective tenant’s employer to verify their income
- Contact their prior landlords in order to learn about their prior behavior
4. Strategically Renovate
Could your rental property generate more rental income, if modernized? Does your rental property lack the curb appeal and attractiveness to draw a quality tenant who will be willing to pay a little extra? For example, curb appeal makes a lot of difference when it comes to positioning the value of any property. You can often separate homeowners from renters fairly quickly when you drive through a typical neighborhood subdivision. It all starts at the curb, and people take just a few seconds to form an initial impression of your property. This is why strategic renovation is essential to enhancing your rental income.
Another excellent renovation is to replace your old kitchen countertops. You can choose from a variety of options that will add value, appeal, and style to your property. Installing countertops made of slate, granite, or quartz will enhance the look of your kitchen, and help you earn higher rentals.
5. Rent Storage Space and Parking Spots to Tenants
You can easily increase your rental income by including parking or storage. The other option is to charge an additional fee if your tenants are interested in storage or renting parking spots. If you are including storage or parking in your rent price, you should ideally mention this in your online rental listing.
Final Thoughts
These are some of the best ways to increase your rental income from a property. Investing in real estate is usually a marathon, not a sprint. So, you have time to leverage new technologies, educate yourself, and experiment with different strategies to determine what works best for you.