Investing in a rental property promises exponential wealth growth, or so claim many who have bought and managed townhouses, multifamily real estate, and the like. The truth is far from it. You could be generating passive income, but only if you make sure that the rental property remains profitable.
Focusing on the right strategies will not only increase the long-term value of rental property, but it can also generate extra resources to help grow your portfolio. Here are a few tips to boost your asset’s earning potential.
1. Look Towards the Right Exterior Upgrades
Once you have bought a rental property, your first order of business is to check whether it looks good from the curb. An outdated exterior diminishes its ability to compete for qualified tenants and reduces its overall value, so consider which exterior enhancements are worth pursuing. If you bought a decades-old apartment building that hasn’t been through years of neglect, you may want to repaint the walls and check the roofing for damage and missing shingles. You also have the choice of fixing damaged moldings and replacing rusty fixtures.
Explore ways to beautify the landscaping, such as planting hedges and installing features, such as walkways. You might also want to get a paving company to repair parking spaces and give them a fresh layer of asphalt. Whichever the case, these enhancements can make the property more appealing to renters and, therefore, contribute to better cash flow.
2. Offer the Right Rates
Your rental property may look attractive and updated to rental hunters, but they wouldn’t hesitate to move along if the rent is too high. While you want the property to increase its earnings, it shouldn’t be at the expense of being desirable to budget-conscious tenants. Setting the rent too high will only leave you with more vacancies than you can afford to shoulder. Go too low, and you will suffer from decreasing returns and the likelihood of attracting tenants with bad records.
To strike the right balance, research average rates among similar properties in the same area so you can come up with a competitive figure. You can do a more extensive analysis by checking the features and amenities that lie just a walk away. If your rental property is situated near green spaces, hospitals, and lifestyle hubs in a generally walkable community, then a higher rent is justified. You should also consider the property’s unique features as you adjust the rate for optimal returns without pricing out too many potential renters.
3. Add Desirable Amenities for Young Professionals
Moving past the property’s exterior appeal and rent offer, you will also need to market your rental property in a way that attracts today’s generation of young professionals. Early Gen Z members look towards renting as a more flexible alternative to buying a home, which is becoming more elusive to millennials. As they hunt for apartments and townhouses, they would prefer living spaces that align with their lifestyle needs and ideals. For your property to tap into this growing renter market, you will have to invest in the right amenities.
For starters, you will have to consider installing pet-friendly facilities, such as small green spaces and play areas. It also matters to include a co-working space where students and freelancers can access as an added perk. In-house fitness centers are also highly popular, but you need to place this area in a secure and accessible location that won’t disrupt tenants.
Other added amenities worth exploring should be based on current renter preferences. These can also open up additional income streams, so take the time to know what young professionals want to live comfortably.
4. Develop an Effective Marketing Strategy
Your property may look great, but if it lacks visibility, it could hardly draw in occupants. An effective marketing campaign is still needed to connect with qualified tenants. When executed properly, your marketing efforts can filter the right tenants and increase the property’s reach. Online promotional campaigns can also enhance your property’s legitimacy and justify a higher rate.
If you don’t have a property manager to help promote vacancies through listing services, you can simply promote your property on your personal social media page or through online groups. Be sure to use high-quality photos and craft complete descriptions of amenities as well as the features of the surrounding neighborhood. Consider highlighting attractions and events that potential renters may be interested in. If you have room in your budget, you might want to consider running an online ad campaign. Larger investors, on the other hand, could opt for high-quality virtual tours and drone shots, which are hallmarks of promoting high-end condominiums and multifamily complexes.
5. Reduce Your Monthly Expenses
Owning a rental property may generate a steady income stream, but keep in mind that your net earnings will be significantly higher if you factor in monthly costs. You’re not only shouldering mortgage repayments, but you also need to secure repair and maintenance expenses, legal fees, taxes, and utility costs.
In this case, it matters to review your property’s financial health every month by calculating your net operating income. As you do so, make sure to deduct and set aside cash reserves that cover vacancies as well as significant decreases in net income.
While you may want to focus more on increasing the property’s occupancy rate and adding income streams, you should look for cost-saving strategies, such as replacing outdated appliances with eco-friendly ones. This should also go with implementing a ratio utility billing system, which does away with expensive submetering and opts for a simpler and easier method of allocating utility costs.
When it comes to taxes, keep in mind that your rental property may qualify for certain deductions and write-offs. Since you’re operating it as a legitimate business, you can deduct expenses on advertising and maintenance. You can also claim exemptions on loan interest and capital gains tax, provided that you hold on to the asset for more than a year.
Endnote
As a rental property investor, you wouldn’t want your asset to generate low earnings when it has enough wealth-building potential. Consider the tips above for boosting your cash flow and fueling additional investments in the future.
