Maximize Your Returns on Your Portfolio
Renters Warehouse Blog
When it comes to investing, everyone has the same goal: to turn a profit. Of course, there might be many different ways to achieve this goal and many different roads that you could take to get there, but at the end of the day, you’ll want to ensure that the property you’re investing in meets your investing criteria, enabling you to reach your big-picture goals.
If you’re looking at a prospective property and it falls short, then you won’t want to tie up your capital in something that’s just not generating the returns that you’re looking for. You’d be better off continuing looking until you find something that meets your criteria.
In this article, we’ll take a look at some things that you can do to help your portfolio generate the returns that you’re looking for. Here’s a look at some steps that you can take to maximize your returns on your rentals.
How to Help Your Portfolio Generate Returns
Run the Numbers Before You Invest
Ideally, you will want to run the numbers before you invest.
ROI = (Investment Gain – Expenses) / Cost of Investment
In other words, take your annual gain, minus the yearly expenses and divide that by the purchase price of the property. It’s important to note that your gain should be cash flow as well as the projected annual appreciation.
While this is a decent starting place, it is important to keep in mind that your final ROI is ultimately determined by how you manage your property and tenants. This also plays a big part in maximizing your returns. Just because the numbers look good on paper doesn’t mean you are automatically guaranteed these numbers. There is still a lot of work that you must do to help ensure that you are profitable.
Looking for more information on ROI? Check out: Is the Investment Worth It? How to Calculate ROI on Your Unit, to discover how, exactly, you can calculate your returns.
Minimize Your Vacancy Rates
Next up, you’ll want to ensure that your vacancy rates are as low as they can be. Your best option is to oversee your property in a way that’s professional, do maintenance and repairs on time, and work to keep your tenants happy. Next, you’ll want to reduce the time that your rental sits empty in between tenants. Make sure you market your property well by listing your vacancy on as many platforms as possible to generate the most interest possible. Make sure your listing is eye-catching and contains plenty of good photos. Include all of the best features and amenities in the listing and the rental price as well. Having a good prescreening process, including a streamlined online system in place to funnel interested prospects through, can help you to screen through potential applicants early on in the process before you spend time on showings that don’t end up panning out.
Be Competitive With the Rent
Another way to maximize your returns is by taking a look at your rent. Setting rent can be a tricky area. On one hand, charging too much will make it difficult for you to find tenants, but going too low means that you’ll be leaving money on the table. Your best option is to shop around and see what other, similar rentals in your area are priced at. Or, work with an experienced property manager who will be able to help you set a competitive rent.
Keep Up With Maintenance
Believe it or not, another major way that you can increase your returns is with maintenance. Deferred maintenance might make your rental look more profitable on paper, at least at first, but over time, neglecting important maintenance can lead to much bigger and more costly problems down the road. For example, fixing the roof or catching a small leak under the sink can prevent significant water damage, something that can ruin drywall, flooring, support beams, insulation, and more. You’ll want to plan on spending roughly 1% of the property’s value per year on maintenance, so make sure you factor in the cost of maintenance when running the numbers before you purchase a property.
Update Your Screening Process
You’ll also want to improve your tenant screening process. It might sound like a stretch, but it’s true. A good screening process can go a long way in helping you to ensure that only qualified applicants gain access to your rental. Nothing kills a profit quite like tenants who don’t pay on time, cause damage to your property, or end up needing to be evicted. To help prevent this, bump up your screening process. You’ll want to ensure that you run potential applicants through the following checks:
- Background check
- Credit check
- Reference check – Previous rental references from landlords are vital
- Employment check – To verify employment and sources of income
These checks will help you determine if the tenant will be able to pay their rent on time and follow the terms of the lease. Just make sure your tenant screening policies are fair and that you run each applicant through the same checks.
Keep Your Tenants Happy
Another good way to maximize your returns is to keep your tenants happy. Keeping a good tenant happy can actually cost less than going through the process of advertising and screening new tenants, not to mention the prep work that will need to be done to get your unit back into shape and able to be rented again.
Fortunately, keeping tenants happy isn’t too difficult. Learn to be open with your communication, be willing to listen to their concerns, and address maintenance issues in a timely fashion. While there are plenty of other ways to help improve your tenant-landlord relationship, these are often the biggest areas of complaint when it comes to tenants.
A few other things you might consider when it comes to improving your tenant’s happiness are:
- Set clear expectations from the start – Always ensure that you have an airtight rental lease
- Offer convenient ways to pay rent – Make it as easy as possible
- Treat them with respect – Always be professional
- Offer multiple ways of contact –They need to be able to get ahold of you, or the property manager, in case of emergency
Keep your tenants happy and renting from you longer. Check out: The Basics of Creating and Maintaining a Positive Landlord-Tenant Relationship.
Hire a Property Manager
Another great way to boost your bottom line is to outsource the work to a reputable property manager. Not only can a property manager save you time (and money) by tackling all of the day-to-day issues that arise with your property, but they can also operate in your stead, helping to ensure that your property is managed to a high standard and in a way that’s in compliance with the law. They can create rental agreements, run applicants through airtight screening policies, do property showings, and more. Property managers are also experts at reducing tenant turnover rates and vacancies. If you lose a tenant, a good property manager can fill that vacancy quickly and efficiently, reducing the downtime that your unit sees.
Boost Your Curb Appeal
Boosting your curb appeal is always a good idea. Not only will this make your rental more attractive, helping it to generate more interest and rent more quickly, but in some cases, it can help the property to command a higher rent as well. This is especially true if the property is in-between tenants. This is the perfect time to increase the rent and having a rental that’s clean and in good shape will help your rental to attract good applicants, ones who are drawn to a neat and tidy place.
Here are a few ways you can improve your curb appeal without breaking the bank:
- A clean yard: Mowed grass, trimmed shrubs, weed-free flower beds, and fresh mulch
- Fresh flowers or greenery: In flowerbeds, pots around the front door, on the patio, or in hanging baskets
- A new mailbox
- Clean and damage-free gutters
- Freshly painted trim and windowsills: Or freshly cleaned if vinyl
- A fresh coat of paint or stain on an as-needed basis
- A new front door
- Updated exterior light fixtures
When your rental looks its best, you’ll leave a good first impression on potential tenants.
Weed Out Low Performers
Finally, the best way to ensure that your portfolio is generating the best returns is by weeding out the low performers. If you have a property that’s just not generating the returns that you’re after or one that’s in a market that’s experiencing extremely low appreciation, then you may want to consider whether it’d be a good idea to sell off the low performer and roll the funds into something a bit more profitable. Of course, this will depend on your investment strategy and whether you’re investing for cash flow, appreciation, or both. But if you’ve tried to increase your returns without success and know that you could be getting a lot better returns by investing elsewhere, then this is an option that you’ll want to consider. At Renters Warehouse, we make it easy for investors to buy and sell rentals. If your portfolio is managed through us, just log in, list the property that you want to sell, and one of our representatives will be in touch.
While taking steps to maximize your returns will sometimes require an initial outlay of time and money, it’s something that’s worth doing. After all, the goal of rental investments is to generate a profit, and if you can find a way to increase your returns, then you’ll want to take that step and make sure you’re not leaving money on the table. Most of the above strategies–improving your tenant screening process, performing maintenance on time, and keeping your current tenants happy–are all important things that you should be doing anyway, so it’s worth ensuring that you’ve covered all of your bases and have taken steps to get each of your rentals into a position to generate the best returns possible.
Looking to grow your portfolio? See how you can get started today! And if you’re looking for new markets to invest in, be sure to check out your free guide: How to Find and Buy the Perfect Investment Property.
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