Owning a rental property as an investment isn’t as easy as most outsiders assume. It requires a lot of hard work, due diligence, and ongoing maintenance. Thus, it makes sense that you’d want to maximize your profitability. The question is, how?
When it comes to increasing cash flow and bolstering your profit margins, it’s all about pulling the right levers. Here are a few that can produce some pretty impressive results when layered together.
1. Refinance to a Lower Rate
Interest rates on mortgages haven’t been this low in years. And the chances of them ever being this low again are slim. If you locked in a high interest rate several years ago and have yet to refinance, now is the time to do so. You could potentially save several hundred dollars a month just by shaving off a percentage point or two.
2. Bring Rent Up to Market Rate
How long has it been since you raised your rental rates? If it’s been a couple of years, you’re well within your rights to increase the monthly cost (within the legal limits of the contract you signed with your tenants). If you’re planning a significant increase, it’s best to do it incrementally. A little now and a little later makes it less painful for the tenant.
3. Improve Tenant Screening
Green Residential, a San Antonio property management company, believes tenant screening is one of the most important factors in rental property cash flow. (And they aren’t alone.) You can talk to anyone in the industry and they’ll back this up. If you want to stay profitable, attract good renters.
Thorough screening can seem like a pain in the rear at the time, but the long-term benefits are clear. Good tenants pay on time, take care of your property, and are more likely to stay in the property for a longer period of time.
4. Allow Pets on Your Property
If you aren’t already allowing pets in your properties, this could be a good way to generate some extra income. However, make sure you follow a very systematic plan. (Otherwise, it could end up being more of a hassle than a help.)
Real estate investor Matt Frankel suggests a two-prong approach: “First, charge a nonrefundable pet deposit that should cover a deep cleaning and any other potential damage — $250 seems to be an industry standard. And then consider tacking on ‘pet rent’ of, say, $25 to $50 (depending on your market) per pet per month.”
When you approach it from this direction, it removes most of your risk and transfers it to the tenants. This means they’re more likely to take care of the property.
5. Monetize Additional Services
Depending on the type of property you own, there may be additional ways for you to monetize services for tenants. Here are some ideas:
- If your property is located in a busy city and the unit has a garage, you can charge extra for parking a vehicle. If the tenant doesn’t have a vehicle, you may reserve the right to rent the garage out to someone else.
- If you own a multifamily property, consider putting a couple of washers and dryers on the property and charging for use.
- Have an upscale rental property? Partner with a landscaping company to provide a weekly landscaping service to your tenants and add it to the monthly rent.
6. Minimize Turnover
Turnover is costly. Not only does it open you up to the risk of a prolonged vacancy (which erases your income altogether), but it also creates a laundry list of other expenses. This includes cleaning, deferred maintenance, tenant screening, and other one-time costs.
If you want to avoid expenses such as these, you must find creative ways to minimize turnover. As always, it starts with finding and keeping reliable tenants who show a propensity for being stable in their personal and professional lives. Once you find the right people, invest in those relationships. When appropriate, incentivize tenants to enter into longer-term leases (even if it means offering a discounted rate).
Maximize Your Rental Property’s ROI
There’s no magic button that you can press to instantly improve your cash flow by 10 or 20 percent. However, if you master the finer details, you’ll find it possible to increase cash flow and grow your rental business. Hopefully, this article has given you some food for thought.