Sunday, February 17, 2019

How To Run Profitable Rental Properties

by Editor (editor), , June 29, 2018

Below are tips on how to have a profitable rental property from

When it comes to investing in commercial property, there’s a lot of work to be done, from the first decision to invest in real estate to actually purchasing the first rental property. While owning rental property can be quite lucrative, it’s still a tough business, as it’s rifle with land mines that can obliterate your returns in no time.

As such, instead of acquiring as many properties as you can, it’s important to first take a step back and consider the best ways to have a profitable rental property business. Below are tips on how to have a profitable rental property from

1. Decrease the Vacancy Rate

Finding a long-term tenant is one of the best ways to decrease the vacancy of your property, so that you won’t have to deal with turnover. If one of your tenants must move, you can minimize vacancy by minimizing the turnaround time. You can ideally do this by posting an ad the moment you learn about a tenant who’s planning to move. If the demand for housing in the area is high enough, the ad will probably have an immediate interest, and you’ll have a new tenant lined up to move in immediately.

Even for areas with low demand, almost every property regardless of the neighborhood has a solid demand at a certain price level. In case you are facing consistently high vacancies, you might have to consider lowering the price a bit. Keep in mind that every month of vacancy will cost you an average of 8.3% on the potential annual revenue, and you will be better off renting the property a month faster for 5% less rent or 2 months faster with about 10% less rent.

If this doesn’t sound like something you’d do, there’s another way to think about vacancy. Does your property have certain unique characteristics that set it apart from other rental properties in the area, such as a to-die-for kitchen or a prime location? Consider giving your property such characteristics to provide the best value in the neighborhood.

2. Increase your Rent Strategically

Although lowering your rent can lead to higher revenue, there’s a way you can increase your rent for the longer-term tenants. And no, this is certainly not a contradiction. Think of it as a way to strike a delicate balance. But to do this effectively, you need a good knowledge and perspective of your property in relation to that of your competition.

As mentioned previously, tenants tend to be more loyal if they can’t find lower rents elsewhere. Nonetheless, this doesn’t mean that you shouldn’t raise the rent, especially if there’s a good reason to do so. Keep in mind that moving is often costly to the tenants. If the value they are getting currently is considerably better than what a new rental offers plus the moving costs, you still have the upper hand.

Ensure that you are fully aware of the prevailing rents in the location. With in-depth research, you may find that there’s actually some room to increase your revenue by increasing the rent by a small amount every year while still staying competitive.

3. Minimize the Turnover Costs

Turnover will cost your rental business in a number of ways, including vacancy, advertising costs, and the cost of repairing and painting walls or even replacing flooring that a tenant might have damaged. Although it sounds a bit counterintuitive, it’s another key area in which lowering the rent may increase your revenue.

In the rental property business, one of your primary goals should be finding high quality tenants that will cause minimal damage to your property and pay in time consistently. Once you’ve found such people, do everything you can to keep them.

Of course, some people will have to leave probably because they bought a home or got a job across the country. Nonetheless, the last thing you want is losing a quality tenant to the landlord down the street and having to deal with lost time and revenue in vacancy as well as the hassle of acquiring another quality tenant.

Tenant retention is not all about the price of the rent; customer service is critical. Whether you intent to manage the property personally or hire a property manager, you have to make sure that your tenants’ concerns are valued, they are being treated with utmost professionalism and respect, and that their matters are dealt with promptly to their satisfaction. A good landlord/tenant relationship is what keeps the tenants from thinking about moving.

4. Add More Streams of Revenue

If you are operating multi-family rental properties, look for opportunities such as adding services like coin-operated vending and laundry machines. Such opportunities will provide you with extra income and add onto the resale value of your property by improving its capitalization rate or return on asset value.

With single-family homes, you can provide services such as landscaping and housecleaning to your tenants when they sign their lease. These services might be greatly welcome to avoid the hassles of getting them on their own. You can even negotiate the rate of independent cleaning and landscaping services, have them on contract, and collect the charges as the contractor.

5. Be More Diligent with Late Fees

When it comes to rent collection, showing kindness to the tenants doesn’t mean being a pushover. Rent collection is not the most enjoyable part of the business, but it’s a critical element of having a profitable rental property. Ensure that your tenants understand you’re running a business, they’ve signed a contract, and you’re responsible for completing the transaction and following all of the applicable laws.

Allowing your tenants to get away with late payments without paying the appropriate fees is ideally leaving money on the table. Plus, you might open a door for them to get away with paying late many more times, which will only cause you more work and stress.

Whenever a tenant makes a late payment and doesn’t include the late fees, politely explain to them why the rent will not be considered paid until all the fees are paid, and that you simply cannot accept the payment. This way, they will quickly learn that it’s difficult to take advantage of you and most likely comply in the future.

About the Writer

Editor is an editor for BrooWaha. For more information, visit the writer's website.
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