Rental properties are one of the best ways to make money long-term. With the right property, you can make a significant profit every month, sometimes hundreds or even thousands of dollars. And on top of that, you can benefit from the long-term appreciation of the property.
That said, you can also lose money on a rental property if you aren’t careful, or break even, diminishing your profits to nothing. So how can you maximize the value and long-term potential of your property investments?
Important Tips to Maximize Rental Property Profits
These are some of the best ways to maximize profits and long-term growth in your rental properties:
1. Get your real estate license. One of the first things you should do is get your real estate license. It will take some time to go through the right classes, get qualified, and secure your license, but it’s worth the time and monetary investment. With a license in hand, you’ll have access to a wider range of property investment options. Even better, you’ll get to manage your own transactions, so you can save money while buying and selling properties.
2. Make offers. Too many property investors wait for properties to be listed on the open market, then deal with competition. Instead, you can often get a better price by making offers on properties that aren’t yet on the market. Ask the property owners of interesting properties if they’d be willing to sell, and don’t be afraid to make offers. You never know what you might find this way.
3. Focus on high-growth areas. While you may like the idea of optimizing your strategy for monthly cash flow, especially if you’re trying to establish a steady income for retirement, it’s often better in the long-term to focus on areas with a high propensity for growth. Look for neighborhoods that are about to explode in popularity, and those with a lot of strong long-term prospects like improving school districts and more job opportunities.
4. Take some risks. It’s fine to be a risk-averse investor – for the most part. However, you also need to realize that some of the biggest risks also come with some of the biggest potential rewards. When you get more experienced as an investor, don’t be afraid to throw a portion of your capital into higher-risk properties to see if they pan out.
5. Diversify. One of the most popular pieces of advice in the investing world is to diversify your portfolio – and that holds true for real estate investing as well. If you want to see stable, strong returns over the course of your investing career, you’ll need to hold a wide variety of different properties. Consider investing in different neighbourhoods, in different cities, in different types of properties, and in both residential and commercial real estate.
6. Do the work yourself. It’s tempting to hire contractors to handle the upgrades and property managers to do the grunt work of maintaining your property. And if you want to remain hands-off, these are perfectly valid strategies. But if your only focus is profitability, it’s almost always more cost-efficient to do the work yourself. As you get more experienced, you’ll be more comfortable and more competent in doing it as well.
7. Scrutinize your upgrades. Many property investors believe that upgrading a property is always the key to finding better tenants or charging higher rent, but upgrades can be expensive, and they don’t always offer strong returns. Many tenants are much more interested in location and square footage than the interior amenities, so review the costs and benefits of each upgrade carefully.
8. Make income in multiple ways. Rent isn’t the only way to make money from a rental property. You could also set up a coin-operated laundromat, install vending machines, or charge tenants extra for parking spaces. These extra streams of income may not seem like much, but they can add up significantly over time.
9. Keep vacancies to a minimum. Vacancies have the power to kill any rental property investment strategy, so one of your top priorities should be keeping vacancies to a minimum. Aggressively market your property when it becomes vacant and improve your tenant relationships to keep your tenants longer.
10. Snowball. When you make enough money from a rental property, use it to fuel the purchase of a second property. Together, those properties will help you buy a third property even faster. It doesn’t take much to snowball your strategy to success this way.
Perfecting Your Strategy
There’s no single “best” approach to rental property management. Some people are more risk-averse, while others take more risks comfortable. Some prefer multi-family properties, while others prefer to specialize in single-family units. It takes time to find the style that works best for you and polish your strategy to perfection.