You can approach real estate investments from two angles: buy with the intention of flipping for a profit, or buy to let. Both prove equally popular - though the second option is better when you have long-term gains in mind. A large portion of the population can’t afford to buy a house, so the need for rental properties will always be there. If anything, the demand has increased over the last few years, meaning there’s a big opportunity for real estate investors.
It seems like it’s not possible to buy a rental property and make a loss, yet you’ll be surprised how many people manage this. You have to get to grips with the tips and ideas successful landlords use to maximize rental profits. This guide provides a rich insight into these tips so that any buy-to-let investors can unlock the secrets to bigger profit margins.
Your default thought process is to invest in a property with a relatively low asking price. You want to avoid the most expensive states and cities, turning your attention to property markets with great bargains. That’s a great idea when you’re trying to flip a property - but it won’t help you make more money from a rental.
Rather than focusing on the general sale price of a house or apartment, look at the potential rental yield.
Remember, you’re making money from people paying rent, so you want to invest in properties that command good rental prices. This means you search for properties in areas with high average rental rates, and you also look for any little perks that can increase rent, such as:
All of these features will boost the appeal of a property for renters, which means you can charge more money. The asking price doesn’t matter that much because it’s likely going to increase over time anyway. You’ll sell it eventually to recover that - but in the meantime, you need high-rental yield properties to bring in more money every month.
Do you know how much money a landlord can lose due to poor bookkeeping? It all adds up through a combination of:
This is because most landlords use standard bookkeeping software, as opposed to genuine rental accounting software that’s designed for real estate investors. The advantage of using proper rental bookkeeping apps and software is clear: it’s designed to help you manage your money and reduce expenses. You can see all the tax benefits you’re eligible for and can create tax returns or make claims at the click of a button. You also see all of your expenses so you can manage different vendors and see if you’re overpaying for things like maintenance or property management services.
Most importantly, the right software will be geared towards rental properties, which means it won’t charge excessive fees. You can cut down on what you’re spending to manage your finances and widen your profit margins at the same time.
New landlords always make the same mistake: they don’t think about retaining tenants. In your mind, you don’t care how long someone stays in your property, as long as someone is there. You’re more than happy to cycle through multiple tenants if rental payments still end up in your bank account.
This is a backwards way of thinking.
Tenant turnover is one of the biggest ways you’ll lose money and reduce rental profits. A high tenant turnover rate means you end up with empty periods in your property. There will be times when you have to clean the property, carry out more maintenance work, and prepare it for new tenants. And let’s not forget about the costs of marketing your property as well.
When you prioritize tenant retention, you encourage people to stick around for longer. It means you’re not paying to advertise or prepare your property for the rental market every year. You cut down on general marketing expenses, you spend less money on maintenance, and you don’t go through months with an empty property that brings in no money.
This obviously brings up an even bigger question: how do you reduce tenant turnover? It’s honestly not as hard as it seems, just ensure that you:
If tenants feel happy and well looked after, they are very likely to stick around for longer - especially if they have a bit more flexibility to make the property feel like their own.
Rental increases can be a poisoned chalice at times. If you want to maximize profits, then you should slowly increase the rent year after year. Match your increases with the general market rates - but don’t go overboard. Dramatic rental increases of a hundred or two hundred dollars every year will drive tenants away. This leaves you in the position mentioned above, where you have an empty property and need to find new tenants.
Gradual rental increases help you make more money without upsetting your tenants.
At the same time, implement things that justify a slight rental increase. For example, if you upgraded their washing machine or dishwasher in the last year, then this justifies a rental increase. You could lay down new carpets, give the house a fresh lick of paint, etc. Doing these little things helps you make more money every month, so it’s well worth trying.
The final tip, which we’ll quickly talk about as this post wraps up, is to vet your tenants thoroughly. Rental properties turn into money pits when you choose the wrong tenants. You need reliable people who will pay rent on time and avoid causing disruptions. A good tenant-vetting process, merged with the four tips written above, will help you maximize profits from any rental investment.
