How to Generate Better Returns With Rental Properties
Renters Warehouse Blog
Do you need help improving the returns of your rental property?
With housing prices rising and rents climbing, it’s no wonder that investors are rushing to get their hands on more property—and with costs on the rise as well, now is a perfect time to start looking into how to generate better returns with rentals.
While some landlords turn to Airbnb or short-term rentals in a bid to increase their returns, you don’t have to switch to vacation rentals to make money off your property. There are plenty of tried-and-true methods that can help put more money in your pocket every month—no need to make significant renovations or take on significant risks.
In this article, we’ll take a look at some simple yet effective strategies to help you generate better returns with rentals—including some that may surprise you.
Tips to Improving Your ROI on Your Investment Property
Spruce Up Your Property’s Curb Appeal
The external appearance of your rental property can be a make-or-break feature. Even if there isn’t anything wrong with the interior, addressing aesthetic issues with the exterior will make your property look fresh and modern. Renters will appreciate this, meaning you’ll have better success filling vacancies and collecting more rent. Here are some of the easiest ways to boost your curb appeal:
Plants and flowers enhance the appearance by adding color and texture to bare areas around your rental property. You may also want to consider adding a trellis over areas with climbing plants. Just ensure that you don’t overdo it—too much planting can overwhelm a small space if you’re not careful. Ideally, you’ll want to stick with plants that grow well in the region, things that don’t require much maintenance or watering.
You can repaint the exterior walls, doors, windows, and trim in a neutral color like white or light gray. That doesn’t need to translate to spending thousands of dollars—it’s best if you just paint over the existing color with a fresh coat.
Clean Up Clutter
Clearing the outside of any clutter, including old furniture, tools, and piles of leaves and branches left over from landscaping, helps you create an impression of cleanliness and order.
Repair Any Damage
Have any damages or problems with the exterior fixed before showing your property. That includes repairing damaged windows and doors, replacing loose shingles, and removing graffiti from walls or fences.
Furnish Your Rental Units
Furnishing some of your units opens up your rental to a larger pool of prospective tenants looking for more convenience when relocating, especially if your rental is in an urban area. They don’t have to worry about buying new furniture or arranging for moving services—especially if they’re relocating from out-of-town.
Depending on the market, some tenants may be willing to pay a premium for the convenience of being able to move into a fully furnished home right away. It means you can charge more rent and a larger security deposit without impacting demand from prospective tenants.
Spend some time researching the market. You’ll need to know what’s selling in your area and what people want so you can decide how much money, time, and effort to put into each unit. If possible, eliminate anything that doesn’t match or go together well. You don't want any mismatched colors or styles when trying to rent a property because it needs to feel like a potential home when the potential tenant visits the unit.
It’s always a good idea to add a clause in your rental agreement that stipulates how tenants should treat your furnishings and the consequences of damaging them.
Market Your Rentals Like a Pro
Real estate marketing is an excellent way to maximize your profit potential. But how can you ensure that your rentals get the most exposure and attract the most tenants? Here are a few marketing tips:
- Introduce a Tenant Referral Program
Encourage your tenants to find their replacements. A tenant referral program is an efficient and cost-effective way to help reduce downtime in between tenants. Consider offering outgoing tenants, say, $200 if they recommend someone who ends up renting the property.
- Use the Right Channels
Know how to best reach prospective tenants online. Which social media platforms are popular among younger audiences compared with older ones? What are the best websites for rental listings? Get the word out to as many people as possible to keep your vacancy rates to a minimum.
- Create Descriptive Rental Listings
When it comes to listing rentals, there’s a big difference between showing the space and being able to convince potential tenants that they should sign on the dotted line. Below are some tips for creating a rental listing that attracts prospective tenants:
- Make sure descriptions are detailed and accurate while showing off the best features. Don’t be afraid to use descriptive words like “beautiful” or “stunning” if they accurately represent your rental property.
- A good picture is worth a thousand words. We recommend using professional photography services to capture the best angles of your property. You can take this a notch higher with video walkthroughs.
- Use keyword-optimized titles but in an exciting way. Instead of “NYC Apartment,” try “Cozy NYC Apartment for Rent” or “Amazing NYC Rental at an Affordable Price.” Such titles sound more appealing and are still optimized for search engines.
- Include details about amenities and living spaces. If the rental has modern upgrades (think hardwood floors, stainless steel appliances, and granite countertops), make sure to outline them in your listing copy. Include information about local attractions, restaurants, and shops.
- Know what your competitors are doing online to understand what type of value proposition might work best given your local market conditions.
- Remember that less is more. People are unlikely to read through long paragraphs of text. Instead, provide just enough information to highlight the most important features of your property.
Screen Tenants Carefully
Your tenants can make or break your success with your rental. Screening tenants is critical to generating better returns with real estate investments. And while it’s one of the most time-consuming parts of tenant acquisition, it’s worth it.
- Credit Checks
A credit check should tell you how well the potential renter handles their finances. The higher the score, the more responsible they are likely to be as a tenant.
Credit reports are available through companies such as Equifax and TransUnion. The cost varies depending on how much information you want (including criminal background). But expect to pay between $25 and 75 for a single report.
- Income Verification
You must verify that a prospective tenant earns enough monthly income to pay the rent. You can ask for copies of recent bank statements showing income and deposits into accounts over several months. But you’ll also want to verify that all income listed on an application form comes from legitimate sources.
- References From Previous Landlords
This step gives you a chance to talk with someone who knows the prospective tenant well, which can help provide you with insight into whether they’re a good fit for your property or not. Ask about their experience with the tenant, including whether they paid rent on time and kept the property clean and safe.
Set Competitive Rent
Your goal is to charge enough rent to cover your expenses and leave some profit, but not so much that you turn away tenants. In this case, there’s no substitute for doing your homework.
Start with researching local housing costs and trends. You can use Zillow’s rent estimate tool to identify the average amount landlords are charging in similar areas as yours. You can also contact your local real estate agent or study online listings for local properties. For online listings, check the ad details, including lease terms and monthly rent amount for some comparison.
It’s a good idea to try to set a price that at least matches comparable properties in your neighborhood. If you intend to charge more than the going rate, ensure your property has something unique that justifies the higher cost. Lastly, ensure your rental income will offset your property’s ongoing costs and expenses. This includes maintenance costs, repairs, insurance premiums, taxes, and vacancies.
Stay on Top of Maintenance and Repair Tasks
Another way to generate more returns from your rental property is to ensure it’s consistently in good repair. Your goal should be to create an environment where tenants want to live and feel safe.
No matter how carefully you choose your tenants, there will be times when things break down. You can’t just hope that someone else will handle them; you must prepare for these situations. Setting aside a reasonable amount of money each month for maintenance and unexpected expenses will help eliminate the stress of scrambling for cash at the last minute.
While some landlords can handle minor repairs, others may need help from professionals who charge by the hour or project. But don’t just settle for any contractor. Ask around town or conduct online research about various companies. Either way, make sure that whoever ends up doing work on your property is qualified for the job.
Regular inspections are an inevitable part of rental property management. That includes checking smoke detectors to ensure they’re functioning correctly, checking out for structural damages and water leaks (and fixing them immediately), and ensuring tenants only use appliances as intended.
Cut Monthly Costs Where You Can
You don’t want to stick with an asset that keeps eating into your bank account. Here’s how to cut costs so you can maximize your real estate investment profits:
- Set strict rules against destructive behaviors or things that cause can cause damage.
- Switch to LED light bulbs. They use less energy and have longer lifespans.
- Have a professional caulk around windows and doors. It helps reduce the air flowing in and out of your rental units, making your heating and cooling systems’ jobs easier.
- Upgrade to energy-efficient appliances. ENERGY STAR-certified appliances will save you money on utility bills (if you’re paying them). If your tenants pay the utility bills, they’ll appreciate this cost-saving measure.
- Install programmable thermostats. They can help your tenants to save money on heating and cooling bills by automatically adjusting temperature settings according to preset schedules.
- If you can, have tenants pay for utilities such as gas, water, or electricity.
- Minimize turnovers to cut marketing, repair, and cleaning costs and loss of rental income.
- Have structural, plumbing, heating and cooling, and electrical issues addressed before they escalate into costly issues.
Encourage On-Time Payment of Rent
For investors like you keen on keeping renters happy while getting maximum returns on their property investment, here’s how to encourage your tenants to pay rent on time:
- Simplify the Process
With so many payment opportunities available these days, giving your tenants multiple channels for payment means you not only simplify their lives, but you also are more likely to receive rent when it’s due. Be aware of potential fees for websites like PayPal or Square, but be open to multiple channels of payment.
- Be Transparent About Late Fees
It may seem like common sense, but putting late fee conditions in your contract not only encourages prompt payment but also protects you as a property owner from any situations where payment delays are extensive.
Take Advantage of Rental Property Tax Deductions and Credits
The federal government provides several incentives to foster investment in rental properties. Below are the top deductions you can leverage to save money on tax and maximize returns from your rentals:
- Mortgage Interest Deduction (MID)
MID lets landlords deduct the interest on mortgages taken out to build, buy, or make significant improvements on a rental property.
- State and Local Tax (SALT) Deduction
The SALT deduction allows you to subtract property taxes paid to the state from your federally taxable income, but only if you itemize your deductions on Schedule A of Form 1040. It’s subject to an annual cap of $10,000.
- Depreciation Deduction
Depreciation allows you to recover the cost of a particular capital asset over its useful life rather than all at once when you sell or dispose of it. The purpose is to account for the decline in value of an asset over time, which may be due to normal wear and tear.
Land is not subject to depreciation because it doesn’t wear out or lose its value over time. However, you can claim depreciation deductions for your rental property, provided it has a minimum useful life of one year and can last for more than one year.
Other expenses subject to tax write-offs include property insurance, professional services, and repairs. Check out this post for more on tax deductions for rental properties.
Hire a Reputable Property Manager
A good property manager will ensure your rental property maintains its value and generates a steady income stream. You enjoy the peace of mind that your property is in good hands while allowing you to focus on other tasks, like growing your real estate portfolio.
A rental property management company typically handles these responsibilities for you:
- Tenant acquisition
- Setting competitive rents
- Rent collection
- Routine maintenance and repairs
- Dealing with tenants’ complaints and concerns
- Record keeping
The cost of hiring a rental property manager varies considerably. Some professionals charge a flat fee, mainly if your rental income is at the lower end. There may be additional fees for:
- Lease renewal
- Tenant placement
- Tenant eviction
- Routine inspection
A competent professional has solid experience managing properties in your area. They should also demonstrate an in-depth understanding of the local real estate market and working knowledge of the state and federal laws governing rental properties. You also want to contact their past clients to find out how satisfied they were with their service and whether there were any problems.
As a landlord, it’s important to continually be on the lookout for ways to increase your returns. The above tips are easy to implement, and while they won’t all guarantee results every time, when used together, they will certainly improve your chances of keeping as much income as possible. Take a careful look at them, and then do your due diligence to figure out which idea or combination of ideas is best for achieving higher profits for yourself.
Not sure how much rent you should be charging to maximize your rental returns? Get started with the Renters Warehouse Free Rental Price Analysis tool and see how much you could be getting for your rental. And suppose you're wondering whether or not you need professional help managing your real estate portfolio. In that case, this free guide should ease your decision-making: 10 Signs You Should Outsource Your Property Management.
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