4 Ways To Maximize Your Rental Property Bottom Line

It’s the New Year and it might be time to consider getting into rental properties or understanding better how to maximize your rental property’s bottom line.

Owning a rental property is more than simply finding a tenant and waiting for the rent on the first of the month. While anyone can passively manage a rental, there are a few important actions you need to take if you want to maximize your bottom line. There are 4 important principles you should consider before acquiring rental property or maximize properties you may already have.

• Buy the right property. Not every property makes a good rental. We have all heard the analogy of trying to put lipstick on a pig. Unless the property checks all the boxes of a solid rental you may be stuck with an asset with limited demand. The best rental properties almost always have a few main components in common: they are in markets or areas with high rental demand. You may pay a little more for these types of properties, but you will also realize a higher return; they should also have a minimum of at least two bedrooms, with three the perfect number; they have ample parking, storage and the ability to add amenities; and, they should appeal to a large consumer base.
• Value management. Regardless of how many properties you own you need to consider management. Owning just one single family rental may not seem like much but you are the sole point of contact for that property. Every time they have a problem with the washing machine, neighbors, rent or snow removal your phone will ring. If you dismiss the problems or do not respond in a “timely” manner your tenants will start to wonder just how much you care about the property. The alternative is dealing with any issues as soon as they come up or leveraging the resources of a property management company. Most property managers charge at least 1% of the total rent received. On a property with slim cash flow margins this may not make sense on the surface. However, you need to look at the big picture and weigh the pros and cons. For just 1% you have someone else run the property, so you don’t have to worry about anything. If not, you will probably go to the house at least a few times a week and before long it can consume your day. Sometimes, spending a little money for management can help your business grow in the long run.
• Proactive maintenance. We are big believers in “it is better to be a step ahead rather than a step behind.” The biggest area where landlords get in trouble is trying to constantly put band-aids on problems. Instead of performing seasonal maintenance they try to save money and wait until a problem pops up. When they inevitably do arise, the costs are much higher. This creates a domino effect throughout the rest of the property. You may be forced to find capital or use credit to replace these items or cut corners in other areas of property management. There is nothing to you can do to totally prevent or extend property issues but preventative maintenance sure does help.
• Selectively choose tenants. As a landlord, the goal isn’t to find a tenant but rather to find the right one. It is often assumed that your tenant will pay their rent and take care of the property. 99% of the time this turns out to be true, but bad tenants sneak through the cracks. In most cases, there are major red flags that should be evident. At a minimum, you should follow up with contacts provided on the application. Don’t be afraid to ask for income documentation or the number of their previous landlords. The minute the rent starts to come a few days late you should have a conversation and find out what is going on. As obvious as it sounds, everything revolves around receiving rent. If the rent stops coming in you are on the hook for all the monthly expenses, including the mortgage. Whatever it takes you need to spend a little extra time and effort in finding the right tenant.

Remember, you are the property and landlord.  It is your responsibility to care for the property, not the tenants.  To expect otherwise will only bring disappointment and frustration. When you stay involved, remain proactive, and remember these four important actions you will see an increase in your rental property bottom line.