Investing in rental property can be a great way to make money, especially over the long term. You’ll have the potential to make rental income in excess of your monthly expenses, resulting in a monthly profit. On top of that, you can benefit from property appreciation, giving you a sizable profit when it’s time to sell the property.
However, this profitability is far from a guarantee. If you want to increase your chances of making a decent profit and increase your profitability as much as possible, you’ll need to employ the right strategies.
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Find the Right Property
As you might suspect, everything starts with your ability to find the right property. Your choice will have a massive impact on your bottom-line profitability.
Single-family or multifamily? Many new real estate investors try to purchase a single-family home as their first investment. Single-family homes tend to be cheaper and easier to manage. However, multi family homes tend to have fewer cash flow problems since it’s rare to have multiple vacancies simultaneously.
Neighborhood options. Your choice in neighborhood impacts many factors in your profitability. It will affect what people are willing to pay in rent, the attractiveness to future tenants, and even the long-term prospects for your property’s appreciation. Choose a neighborhood with low crime rates, good schools, access to job opportunities, and most importantly – upward momentum.
Purchase price. You’ll also need to think about the purchase price of the home. Just because it might collect good rental income doesn’t mean it’s a profitable choice. Review your options carefully and try to score a good deal that can help you make more money over time.
Other costs. Be sure to factor other costs into your calculations as well. For example, how much will it cost to upgrade this property and make it ready to rent? Is it an older home that will require more maintenance over time? What are the costs for property taxes, insurance, and upkeep? Make sure you can collect rent well in excess of all these expenses.
Find the Right Tenants
Next, you’ll need to find the right tenants for your property. Good tenants will be capable of paying rent on time, consistently, month over month, resulting in consistent cash flow and profitability for your property. They’ll also be more likely to take good care of your property, so you don’t have to worry about major repairs when they leave – or deal with a messy, expensive eviction.
How do you find the right tenants? Everything starts with a solid rental application. Collect as much information about this person as possible, then submit them through a tenant screening process. Run a brief background check to evaluate their credit score, their job history, their current income, their criminal history, and other factors – and only accept candidates who meet or exceed your expectations.
Invest in Tenant Retention
Good tenants are hard to find. But they don’t have to be hard to keep. With the right tenant retention strategy, you can ensure that your best tenants stay in your property for as long as possible. These tactics are simple, but they can improve your property’s profitability for years to come by keeping your best tenants happy:
Respond promptly. Communication is everything. When a tenant reaches out to you, respond promptly, and try to help them however you can.
Make repairs. Take care of your property by making repairs when necessary – and invest in maintenance to prevent problems in the first place. A better property will lead to happier tenants.
Issue upgrades. Periodically, consider upgrading your property. Major overhauls, like kitchen renovations, can be amazing for tenant happiness, but even small improvements (like a fresh coat of paint or better landscaping) can make a difference.
Reward loyalty. Reward your tenants for their loyalty. Give them discounts, freebies, or small gifts to thank them for their consistent rent payments.
Add New Streams of Income
Finally, consider adding new streams of income to your property to increase its profitability further. These could be things like:
Coin-operated laundry. In a multi-unit building, a coin-operated laundry area can help you make some extra money (and save your tenants a trip to the laundromat).
Extra storage or parking space. For an extra fee, you can give your tenants access to more storage space or a more convenient form of parking.
Vending machines. They’re simple, but they could help you generate a bit of extra money every month – and offer convenience to your tenants.
There’s no guarantee that your property is going to be profitable. But as long as you calculate costs accurately, invest in the right neighborhood, and attract and retain the best possible tenants, you’ll have a much better shot at high profitability.