Real estate is one of the best ways to build wealth. In order to maximize your rental property ROI, you should treat your property as a business. It’s important to consistently be running the numbers (and re-running them) to ensure your property is performing as an investment.
We’ve put together some of the top things you need to maximize the returns from your rental property.
Difference between appreciation and cash flow
Appreciation is the difference between how much you paid for the property and its current market value. Typically, the longer you’ve owned a property, the higher the appreciation. Though, keep in mind that you can’t usually access the appreciation you’ve earned until you sell the property.
Cash flow is the amount of income you make after you’ve paid all your expenses. For example, consider a property that rents for $2000. If your mortgage, insurance, taxes, and other costs add up to $1500, your monthly cash flow is only $500.
When calculating your rental property ROI, you should monitor both appreciation and cash flow.
Maximizing cash flow
Here are some of the best ways to maximize the cash flow of your rental property.
Set market-rate rent
The rental market is constantly changing. If you’re listing a new unit for rent, make sure you’re familiar with the current market rate for comparable rentals. If you have an active listing, check your local area to make sure the rent you charge matches your rental's comps.
You could be leaving hundreds, if not thousands, of dollars on the table every year by undercharging for rent.
Rent your property fully-furnished
Fully-furnished properties and executive rentals often earn a premium. This is particularly true in major cities that see a lot of business travel.
Many types of renters who might be looking for a move-in-ready option. From vacationers and business travelers to newcomers. Quality, fully-furnished rentals can be hard to come by, making them high in demand.
This strategy will require some up-front investment to furnish the unit. However, the rental returns can be higher and pay for the investment several times over.
Offer benefits and amenities
Benefits like in-suite laundry, parking, or pet-friendly rentals can help your property stand out from others. In many situations, you can even charge additional fees for providing these benefits, ultimately increasing your cash flow.
Making sure your tenants are properly screened
Tenants that are unreliable or don’t pay rent on time can become costly. By screening your tenants, you can feel confident that you're renting to a reliable tenant. Some things you can do include:
- Checking credit score
- Verifying income
- Interviewing multiple tenants
- Conducting reference checks
Offering short term rental options
One other way to increase your cash flows is to convert your rental properties into short term rentals. Short term rentals can often command higher monthly rents but may end up requiring more upkeep and work.
As with anything, it’s a trade off but it may be helpful to consider the options.
Here are some of the common things you can do to ensure you’re getting the most out of your property’s appreciation.
Maintain your property
It can be easy to forget or forgo maintenance. However, a home in good condition is always going to hold better market value so make sure to keep things in a good state of repair.
In most states, landlords are required to maintain a standard of habitability. Though, if things break, it may be better to get a high-quality replacement. This way, the replacement can stand up to more wear and tear.
Add amenities or upgrades
Adding amenities or upgrading your property can help increase rental value. However, these upgrades can also help with appreciation. Certain renovations, such as kitchens and bathrooms tend to see the highest rate of return. Even small things like new lighting or fresh coats of paint can improve your current market value.
Research neighborhoods before purchasing a property.
A property in a good area with good access to schools and shopping will often see property values. That’s why purchasing a rental property in the right neighborhood is extremely important for appreciation.
When considering a buy-and-hold option, you’ll also want to consider new developments in the area. Are there any upcoming changes in the neighborhood that will decrease or increase the future value of your property?
Reducing costs and losses
Minimizing your costs and reducing the likelihood of cash losses can help improve both your cash flow and appreciation.
Use services like Nophin can help you automatically manage your finances from rent collection to bookkeeping. By automating the cash coming in and out of your rental property, you can make sure everything is paid on time and accurately.
Think long term
Planning to maintain your property over several years helps you iron out any kinks in your cash flow and also helps you ride out any downturns in the real estate market.
Take advantage of lower interest rates
Even a slightly lower interest rate can help you save a large chunk of cash every year. Whether this means taking advantage of lower rates by refinancing or negotiating your rates on a new investment, make sure you’re choosing the lowest possible rates.
Lower rates mean lower costs and higher rates of return.
Reduce your taxes
There are many ways for real estate investors to reduce tax obligations. Make sure to familiarize yourself with effective investment tax strategies or use Nophin to help you keep track of all of your deductions.
Get appropriate insurance
As a landlord, having insurance for your home is critical. Carefully consider how much insurance you need and compare your rates with different providers. Ideally, you want to pay the least amount for insurance while sufficiently protecting you when situations call for it.
Our two cents
Think about your rental properties like a business. To make it easier, try Nophin out. Nophin makes it easy for real estate investors to manage property finances, collect rent on time, and track write-offs with every single swipe. Sign up for free today!