Investing in rental properties has proven to be a lucrative endeavor for many people offering a steady stream of income and long-term financial security. However, achieving the maximum profitability from single or multiple rental properties requires more than obtaining property and finding tenants to inhabit them. We will explore the optimization of your cash flow as a real estate investor through proven strategies and valuable insight so that you may unlock the potential of your rental properties and maximize earnings.
1. Add New Amenities
Updating amenities can make the property more attractive to renters and therefore increase the home’s value. Improvements may include:
- Renovate bathrooms
- Renovate kitchen
- Replace flooring
- Build out a laundry room
- Lawn maintenance
As a general rule, bathroom and kitchen improvements generally add the most value to your property and have a better return on investment.
2. Increase Rent
One of the most basic tips for investors is to ensure that they are up to date with the market rates and charging appropriately. Making reasonable increases in rent that reflect the market or as you improve the property is perfectly acceptable and the most common and direct initiative for increasing cash flow. One mistake new investors make is to wait too long to institute a rent increase. Your property management company should be able to advise more specifically, but plan on increasing 3-5% every year, or at minimum, every other year.
3. Proactive Expense Prevention
Another efficient way to increase your property cash flow is by reducing potential long-term expenses. One of the best ways to decrease potential expenses is by screening tenants by running credit and background checks. This can prevent major loss of income in the long run through evictions, property damage, and more. Another way to decrease expenses is through hiring a property manager. While monthly income will be dedicated to your property manager, the long-term financial benefits are worth the expense. A property manager will handle day-to-day responsibilities, legal concerns, tenant retention, maintenance and repairs, and ensure that your property remains inhabited so that you don’t lose out on monthly rent.
4. Furnish the Space
Already furnished properties can bring in a higher monthly rent and accommodate a wider range of renters such as first-time renters, international renters who may be in town for business on an extended stay, divorcees, or month-to-month renters.
5. Expand Your Rental Strategy
Depending on the location of your rental, perhaps it may be more lucrative to rent it on a month-to-month basis rather than the conventional annual basis. You could also consider a short-term rental through services like Air BnB or Vrbo, in which case furnishing your property would be essential.
6. Implement Ratio Utility Billing Systems for Multifamily Housing
Ratio Utility Billing Systems, or RUBS, prevent the property owner from absorbing the utility costs of multifamily homes by allocating most utility bills to residents. This includes water, trash, electricity, sewer, and gas. RUBS allows a landlord to fairly and impartially distribute the utility bill based on factors such as occupants in the unit, square footage, water fixtures, etc. This is also acknowledged by the Environmental Protection Agency as it encourages conservation and incentivizes occupants to bring issues such as leaky faucets to the attention of the landlord in a timely manner.
7. Invest Out of State
If you live in a city like Seattle, San Francisco, or Manhattan, your market may be through the roof making it difficult to obtain more rental properties or find renters who can afford the cost of the homes. Remote real estate investments allow you to purchase less expensive properties in cities like Indianapolis or Baltimore where you are more likely to find renters and make more affordable improvements to the property.
8. Increase Rentable Space
If you have the means to do so, adding an additional bathroom, or converting the garage or carport into additional living space can greatly increase the value of the home.