Rental properties are a great investment for more income now and for your retirement. They do a lot to stabilize and diversify your property, and with the right property management, they can be completely passive investments that require very little of your time or energy over the long run. However, many investors don’t realize that they could get more ROI from rental properties, and that they can do it without putting in a great deal of time or effort. Here are a few tips for getting the most return for your investment.
Never Underestimate the Power of Quality Property Management
When you think of property management, you probably think of a company that handles day-to-day maintenance, repairs, rent and fee collection, and other sundry details of rental properties. Did you know, though, a high quality property management firm will also handle tenant acquisition for you and that they’ll provide services that will make your tenants want to renew their leases, rather than looking for new places to live?
We cannot stress enough how important it is to find a good property management company. You may pay a bit more in monthly fees for their services, but their rates will be more than covered by your tenants’ rent, and you’ll be much less likely to find yourself in search of new tenants every year when their leases expire.
Minimize Turnover as Much as Possible
On that note, the advantages of minimizing vacancy with help from your property management firm are obvious. However, the advantages of minimizing turnover are not quite as apparent to newer investors. Even if you find a new tenant immediately upon finding out that your old tenants are moving out, and there will be no gap in rental fee payments, you will still have costs associated with changing tenants.
Specifically, when old tenants move out and new ones move in, you’re almost always going to have to repaint the interior walls and replace at least some of the flooring. Add any upgrades and/or other repairs (there are always a few), and you have lost income.
The longer you can retain tenants, the less you’ll have to pay in turnover costs, and that’s a serious consideration when it comes time to negotiate new lease terms. Weigh the cost of repairs and renovations against the costs of upkeep and maintenance on the house, along with the current rental rate and the increase you would like to see in rent for the next year. It may pay to increase your rental rates at a smaller increment and give your current tenants a better deal, rather than risk losing them, paying for repairs, and finding new tenants.
Be Strategic with Your Rate Increases
On that note, you are going to have to raise rent every one to three years. This is only fair, as it allows you to keep up with the costs of maintaining the property, taxes, and other fees. However, tenants tend to balk at rate increases, and these increases can motivate them to move out. That’s why you need to be very strategic with your increases.
Typically, unless you offered the property at a drastic discount for the first year’s lease, we do not recommend increasing rent for the second year. This builds trust with your tenants and lets them know that you’re not going to constantly attempt to gauge them. However, after two years, it is absolutely reasonable to expect a 1-3% rent increase. This is little enough that your tenants should be able to pay it, and a year of increased rent will likely cost them less than moving expenses.
At the same time, keep an eye on rental rates in your area. You want to ensure that your rates are competitive with other properties. If you’re charging more, there needs to be a good reason that will be attractive to your tenants. For example, your property could boast the latest appliances and fixtures in your kitchen and bathrooms. An in-demand location and access to a pool and/or hot tub and other luxuries and amenities will also help you justify an increased price.
To get more ROI from rental properties, you need to balance great services and a fair but profitable rental rate to minimize vacancy and retain your tenants over the long term.