4 Ways You Can Make Money with a Rental Property
Posted on Saturday March 06, 2021 at 11:51AM in General
4 Ways You Can Make Money with a Rental Property
Rental properties can be reliable money-making machines if you know how to leverage them properly. If you want to make a tidy profit by renting your real estate, though, you can do more than wait to collect rent every month. There are a few actionable strategies you should practice from the outset so you can make the most of your investment.
You'll need to balance your expenses, manage your property efficiently, and ensure that you're not spending money anywhere you don't need to. From rental management software to assessing your cash flow, simple practices can help you boost your profits and make the most money possible.
If you're wondering how to increase your profit margins, follow these four simple tips.
- Are you considering cash flow?
- Are you preparing for the future? Your rental property's value is never set in stone. Instead, as soon as you finalize your purchase, you can expect its market value to fluctuate over time. It would help if you planned for the future whenever you purchase a rental property to make sure that you'll make the most out of it in the long run.
- Are you making your property more attractive? Many properties can appreciate naturally over time. However, you can help boost your property's value and charge higher rent by taking a few intentional steps to make your rental more attractive.
- Can you streamline your management process? It should be abundantly clear by now that managing a rental property requires a lot of thought, care, and attention. Since maintaining your rental and keeping it competitive takes so much effort, you can't afford to waste time on tedious management processes like tenant screening and rent collection.
There's no better way to make money off your property than to think about your cash flow. In essence, your cash flow is the difference between your monthly operating expenses and the rent you collect. If your rent exceeds your operating expenses, then you'll start making money.
Let's say that you spend $800 a month on your property to cover its mortgage payments and taxes. If you then rent it out for $1200 a month, then you'll have a $400 difference for your cash flow.
This is the simplest explanation of cash flow in theory. In practice, however, it can be far more complex. Most rental properties come with "hidden fees" that aren't included in your monthly mortgage payment, and you'll have to take these into account.
For example, your property might need occasional maintenance. You may have to pay for plumbing services, roofing repairs, or other general upkeep costs. It's also possible that you'll experience times that your property doesn't have any renters at all, meaning that you lose months of potential income.
If you want to maximize your profits, you'll have to anticipate and calculate all these hidden expenses and subtract them from your rent. If you're going to spend $150 a month on maintenance and upkeep, for example, you should take that out of your $1200 to show that you're only netting $1050 rent each month.
Understanding your actual cash flow is essential so you can understand how much money you're making and budget your expenses accordingly. If you can realistically gauge your total costs ahead of time, you can set your rent appropriately and make sure you're setting yourself up for profit in advance.
Whenever you invest in a property, you should make sure that its value is on track to appreciate over time. By considering factors such as market trends, population growth, and historical metrics, you can determine whether your investment will pay off in growing values.
In large part, real estate properties appreciate due to the simple concepts of supply and demand. Any given area can only contain so much space for homes and businesses, so if the population increases, demand for its property inventory is bound to increase - and prices will rise along with it.
Use this understanding to your advantage by investing in properties in high-growth areas where values are on track to skyrocket. If data shows that most new arrivals in your area are flocking to neighborhoods near downtown, make sure to target those areas. Meanwhile, if history suggests that suburbs are due for growth, don't get left behind and invest in a family home. It's also a good idea to choose more modest properties in high-demand areas. By spending less upfront, you can increase your potential for appreciation.
You can gather the necessary data in a few ways. You can use real estate websites like Zillow to see trends in property values, or if your city or state shares population statistics, those can also serve as a valuable source of information.
If the property needs a few renovations, don't hesitate to make them. Something as simple as a fresh coat of paint or updated facilities can make your property more attractive to your buyers, which will make your rental more competitive and increase your profits.
However, if you plan on renovating your property, you'll need to remember your cash flow and your total monthly expenses. You won't want to spend hundreds or thousands of dollars on updates if it means that you'll lose money without a chance to recoup.
Nonetheless, taking the time to evaluate your property and identify aspects that can be updated to gain potential tenants' interest can help you make even more money on your rental in the short and long terms.
Thankfully, there are a few reliable ways that you can streamline your management process, so you don't spend valuable time on innocuous tasks. Rental management software can automate your rent collection and property management duties, so you can spend more time discovering ways to improve your property.