It may surprise you to learn that optimizing your rental ROI isn’t all about juggling the numbers. Sure, dollar signs are a big piece to the puzzle; what you pay, cost of repairs, comparables, direct expenses like maintenance and indirect expenses like overhead. Obviously numbers matter. But they aren’t everything.
It goes without saying that there are contributing factors to market fluctuation and acts of God, over which you have zero control. And, the liability risks which accompany rental property ownership can be daunting for the best of us.
But, take heart – buy and hold investment real estate can provide you with steady cash flow (and even retirement funds) if you treat it like a real business and not just an asset.
Here are several pointers to keep in mind as you grow your rentals portfolio!
Do’s – Providing Value for Tenants
Do make your property stand out: Not as an obvious rental – with unkempt grounds and frequent vacancies – but as intrinsic to the quality of the neighborhood. Pay a gardener to keep the landscape alive and well trimmed. Consider paying part of the water bill if sprinklers are necessary to keep your lawn and shrubbery alive. The better your curb appeal, the higher you’ll move up the list of area comparables. Your community will appreciate your efforts, and better yet, you’ll avoid the HOA’s in-your-business attitude that’s frequently exhibited toward absentee owners.
Do use a professional Property Manager: Local Property Managers are inherently more knowledgeable about the area, and also held to strict regulations. They act as the middleman so that you aren’t caught up in appeasing an occupant unnecessarily or breaking a law because you’re unaware it exists. Proper handling of rents and deposits is critical, and their fees are a tax deduction as well. You can specify certain things be done; such as quarterly maintenance checkups to change the filters, stop any leaks and clear the rain gutters. If you have this stipulated with a friendly tone in the lease, it will be a welcome benefit for your tenant.
Do offer pest control services: It may seem a small thing, but it’s something that can quickly multiply into an infestation with higher removal costs. Some household pests can cause lasting structural damage, and others may pose a serious health risk (such as black mold). Either way, when you stay ahead of these problems your property maintains its value and reputation as a quality rental. Remember, it’s your legal duty to provide an inhabitable dwelling. So, rather than having a contract that eliminates your obligation to sustain a pest-free environment, opt for a clause that will only charge the tenant if they are contributing to the problem. Again, the pest service will know the cause and alert the manager.
Do provide quiet enjoyment: If there are neighborhood disturbances such as noise, unruly dogs running loose, someone dismantling cars in the front yard, or burglaries on the block – make sure your Property Manager will take action just as you would if you were living in the home yourself. Tenants are frequently ignored in an HOA community, and may incur backlash if they have to report behaviors which are breaking local ordinances.
Don’ts – Controlling What You Can
Don’t put all your eggs in one basket: Real estate investing has more than one niche – wholesaling, fix and flip and private funding to name a few. Explore your options and build a blueprint for real estate success. Rentals can be your ‘bread and butter,’ however, you still need the ‘meat and potatoes’ to stay financially healthy. Whether you use your profit from sales to prepay personal expenses for several months, or to buy a note and make interest income – diversification is the key to not just staying afloat, but creating prosperity.
Don’t insist on annual rent increases: Nothing is more annoying to a tenant than having to pay more for the same thing every year. You’ll find yourself with a vacancy, lost rents and turnover expenses; obviously much more than you expected to gain from a 5% yearly rate hike. Longer term tenants take more ‘ownership’ in the property, making it a real home and caring for it accordingly. Find other ways to boost your ROI than raising rents; such as lowering your administrative costs.
Don’t saddle a tenant with maintenance: There are household warranty services to cover many items in the home; heating and air conditioning units and appliances, etc. Again, you should stipulate that tenants must pay for causing or contributing to the problem – as in clogging the kitchen sink or toilets. In this case, the plumber will know the cause; whether it’s an accidental obstruction or tree roots intruding on a sewer line. It’s your property and your responsibility to keep it sanitary and functional.
Don’t use security deposits as turnover funds: All states have their own regulations, so be careful about wording your lease agreements to reflect this fact. For instance, Georgia has a law that restricts landlords from security deposit deductions for ‘using the home for the purpose it was intended.’ In other words, if they hung a few pictures, you can’t charge them for patching and touch up paint. You may have possession of their deposit money, but that doesn’t give you the right to use it arbitrarily. Be fair, and realize it is your responsibility to put the home back in move-in condition – only charge for negligent damages, unpaid rent and fees spelled out in the contract.