10 Ways To Improve Rental Property Cash Flow
Whether you are a first-time property investor or a seasoned rental property owner, it is likely that your investment goals are similar: making your rental properties as profitable as possible.
While you may think that your profitability comes mainly from the amount of rent you’re able to charge, the process of owning a profitable investment property begins long before you collect that first security deposit or rent check. In fact, your chances for investment property profitability begin even before you purchase your first rental property.
Here are 10 tips for increasing the odds that your rental properties will be profitable:
- In Your Agent You Trust
When you begin your search for a rental property, make sure you are working with someone you trust. If that someone is a real estate agent or broker, make sure that they have a good knowledge of the area where you would like to buy and also of your wants, needs, and limits. Overpaying for a rental property is the first step to losing out on earnings. A good agent will put together a competitive analysis for you so that you can see what properties in the area have sold for and what they are leasing for. With all of the facts and a reliable agent on your side, there will be little room for surprise when it comes time to buy.
- Sometimes, It IS Who You Know
If you’re looking for an investment property in an area near where you live, you may already have the up-and-up on other buyers. If you know other homeowners or landlords in your community, they may be able to tip you off on prime properties that are coming available. For investment properties that are further from your home, your real estate agent may have a valuable source for what hot properties could be up for sale.
- Location is Key
For far more reasons worthy enough of fitting into just one “tip,” location is a major factor to consider when searching for an investment property that is likely to be profitable. Just some of the factors that location can touch on are safety, job potential, and amenities, not to mention schools, neighborhood feel, or property taxes. Not only should those factors be important to you, but they are also undoubtedly important to potential tenants. Choose very carefully when selecting where to buy an investment property.
- Know Who You Want to Attract
Almost going hand-in-hand with your rental property’s location is your possible tenant. Is your rental property near a college or university? Is it in a neighborhood near highly-ranked schools? Is it within walking distance or an easy drive to many desired amenities? All of these questions will likely go through a potential tenant’s mind when they look at your rental property. So, if you know, you would like to attract college students, professors, or other staff members, finding an investment property near a university would be ideal.
- There is No “Flipping” of Rental Properties
When you are searching for an investment property, don’t be fooled by thinking you can take a “fixer-upper” and inexpensively “flip” it into the rental property of your potential tenants’ dreams. It is only natural that an investment property may be in need of some minor repairs and enhancements, but major renovations equal major time and money. You don’t want to get in over your head on a rental property.
- Do Not Skip Out on the Home Inspection
Once you find an investment property that you think is right for you and your offer has been accepted, you want to be sure to have a thorough home inspection. It is likely that you will foot the bill for hiring your own home inspector, but the minimal upfront fee will pale in comparison to major repairs that may come up later if problems are uncovered after the sale.
- Understand How the Market Works
With a red hot market in the Washington D.C. metro area right now, you can expect home prices to be at a bit of a premium. While that may seem like an immediate investment profitability detractor, a hot real estate market can actually be a great thing for a rental property owner. Here’s why. When home prices are up, rental prices typically are too. So, if you’re able to negotiate a great deal on a property that you plan to rent out, you could already be increasing your investment profitability potential before a tenant even signs a lease.
- Find a Property that is Likely to Appreciate
It may seem like every investment property out there is likely to appreciate in value in a hot market. But, the market takes many twists and turns, so how can you select one that is likely to withstand a few market downturns? Investment properties that are near educational institutions, areas where jobs are abundant, or mass transit are typically the safest bets. And, when the market is on the rise, properties in those areas will only get hotter.
- Show Your Finances Who’s Boss
Regardless of whether this is your first investment property purchase or the next in a line of many, you need to know how much money you have coming in and going out on a monthly basis. If you plan on financing the purchase, a good grasp of your finances and credit will help you to qualify for better financing rates when you go to apply for a mortgage. Particularly with investment properties, knowing where you stand each month is a good thing in case you end up having to cover any months where you do not have a tenant.
- Do the Math
In the end, your rental property profitability can be figured out mathematically, too. When you’re ready to make an offer on potential investment property, you can predict your own profitability. Simply take your expected monthly rent payment and subtract your mortgage payment, plus the costs of taxes, insurance, maintenance, and any possible emergency repairs. Your remaining balance? Money in your hands!
For more information on how you can increase your chances of owning a profitable rental property:
Investopedia’s Top 10 Features of a Profitable Rental Property
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