Investing in rental properties can be a great way to generate steady, long-term income. But don’t get the wrong idea—generating a consistent rental income takes hard work and a proactive approach.
To become a successful property owner or property manager, you must run the numbers—and then run them again. You always need to know where you stand with your rental income and do what’s necessary to find the proper balance between revenue and effort.
Rental property real estate is considered a ticket to passive income, but for many property owners, maintaining cash flow rarely feels “passive”.
In a perfect world, property owners don’t need to participate in the everyday operations of maintaining a rental property in order to generate ROI, and if hiring a property management company makes sense and works within the limitations of their income stream, they can. However, not all property owners have a property management company to run the show, and for those who are going it alone, there’s much to do.
To achieve the passive income goals of a rental property investment, property owners must retain a steady stream of quality tenants year-round. Here are ways to accomplish this:
In order to ensure minimal vacancies and maximum appeal to quality tenants, setting the right price for your rental property is critical.
Setting the right price will make it easier for your rental property to appear in online search results, generate more inquiries and viewing appointments, and give tenants a good reason to sign a lease with you.
The best way to evaluate your rent price range is to view the property through the eyes of a renter. Research similar rental listings in your property’s area and evaluate the competition. A property management company can help you with this and at no charge.
Whatever you do, resist the temptation to get greedy.
Over time, you can increase the rent price to align with current market rental rates. When you do decide the time is right for an increase, notify your tenants 90 days in advance and don’t raise prices more than once in 2 years.
Always make sure to crunch your numbers. Predict your monthly fixed costs, including your estimated costs of repairs/maintenance, taxes, insurance, and homeowners association fees to ensure that you come out ahead at the end of each month.
Never underestimate the importance of choosing your tenants with the utmost caution. According to the National Center for Housing Management, 54 percent of apartments turn over every year. Vacancies, turnover, and evictions are the realities of property rentals, and most landlords should assume at least one month’s rent loss each year, mainly due to poorly screened tenants. Once you have good tenants who take care of your property and pay their rent on time each month, do what you can to retain them.
Here are some tips for finding and retaining good tenants:
- Thoroughly screen tenant applicants.
- Do not dismiss late rent payments or other lease violations, ever.
- Encourage tenants to sign a longer-term lease for more consistent cash flow.
- Request tenant feedback regularly.
- Be a good landlord. Being responsive, respectful, and true to your word goes a long way toward keeping reliable tenants.
- Focus on long-term rental opportunities. Short-term rentals can be good during the active season, but if you’re looking for consistent year-round income, long-term is better.
The value of long-term rentals tends to increase over time, whether or not you raise the rent. This is great news if you plan to sell the property down the road.
Smart property owners are always looking for ways to spend less and make more, and that includes taking full advantage of all available tax benefits.
Whether your rental property is a ten-unit apartment building or you’re just renting a spare bedroom in your home, it’s important to know about all the deductions you’re entitled to.
Make the effort to understand what taxes are deductible and, if you want to make it easy, consider meeting with a tax professional. The right tax pro can help you understand how to deduct everything from depreciation, interest, start-up expenses, insurance, travel expenses, car and transportation expenses, labor expenses, and casualty and theft losses
In the rental universe, maintenance costs can make or break you. To keep cashflow consistent, be sure not to overspend on fixes and upgrades.
Bear in mind, while some maintenance costs are non-recurring, it’s important to always have a firm cost estimation to ensure that no matter what comes up, you retain a reliable profit over time.
Messy record-keeping only creates confusion for a property owner or property manager, adding a time sink you don’t need in your already busy life.
Clean, accurate record-keeping makes accessing data and managing your properties a walk in the park. It’s the only way to ensure you’ll never be caught off-guard by a lease termination, vacancy or unexpected tax bill. It also comes in mighty handy when tax season rolls around.
While you’ll surely be tempted to cut corners at times, having a plan and sticking to it will increase the profitability of your rental properties in the long run. Whether you use a basic spreadsheet or a sophisticated CRM, be sure to have a system in place that’s easy to access, track and update.