Maximizing Your Profits from Rental Property Investments

Are you considering becoming a landlord? Do you already own rental property and are searching for ways to increase your profits? If so, you’re in the right place! We’ve talked before about investing in rental properties, and today’s article is for those who’ve done so AND decided to manage that property themselves. 

Real estate can be a great investment, but it can also be a poor investment. Just like purchasing stock, it’s important to buy the right property.

Consider these factors when choosing rental property:

  1. The location. The neighborhood influences the cost of the property, tenant pool, vacancy rate, rent, and the likelihood of experiencing any appreciation.
  2. Property taxes. It’s difficult to predict what the property taxes will be on any individual piece of property. They can be much higher or much lower than expected. Be sure to verify the property tax information.
  3. Schools. Property in better school districts appeals to tenants with children. Rents will be higher in these areas.
  4. Repairs. Be sure you understand just how much it will cost to make repairs now and in the future. How much longer will the roof, furnace, and a/c unit last? How is the siding? Expect to paint the interior and have the carpets cleaned every time you have a new tenant. Budget for unexpected repairs.
  5. The cost and the rent. At the end of the day, the cost of the property and the amount of rent you can expect to collect are the most important factors. If these numbers don’t work for you, nothing else matters.

Once you find an appealing property, use these tips to help you find tenants that will be a good fit for you:

  1. Job. Check on your prospective tenant’s employment history. Does she change jobs every 6 months? Does he go for extended periods of time without a job? Can his current salary afford the rent?
  2. Credit history. If a prospective tenant has done a poor job of paying her rent in the past, there’s a good chance she will continue to do so in the future. Be sure you know the credit history of everyone you consider allowing to live in your property.
  3. Interview. Most of us have been around long enough to have a good feel for whether someone is a good person or not. Our intuition isn’t foolproof, but it’s far from worthless. When you’re talking to a potential renter, ask yourself if you would trust them. Do they seem to have their life together? This is also a great time to bring up anything you weren’t sure about when you checked their employment history or credit score. Remember that those are just paper records and not always reliable indicators of a person’s actual story.
  • Ask yourself, “Do I believe this person will pay me on time for the next year?”
  • Ask for references. Your instinct is valuable, but those who know and work with this potential tenant may be able to prove your instincts right or wrong.

The Financial Picture

In a nutshell, the principal components of a profitable rental property are:

  1. Rental income. How much money will you collect each month in rent?
  2. Costs. These are all the things that reduce your taxable income. Depreciation, insurance, repair costs, interest, home office, travel to/from the property, and other expenses can all reduce your tax burden.

Remember, these are the highlights to get you started as you consider how to make a wise decision about investing. There are many more factors to consider before making the leap to becoming a landlord. Be sure to educate yourself fully prior to purchasing your first rental property, and if you’d like some help, HGC advises multiple clients on their investment properties. Grab some time with us today, and we’ll chat about your current project.

Recent Posts