When one invests in stocks, they can only make money when and if the stock is sold at the right time when the stock value appreciates. But, in the real estate business, one can make money from investments in more than one way. Given a chance, owning assets that help churn a regular profitable income is a better financial strategy as compared to owning assets that generate expenses. Yes, owning a house does mean shelling out money for the purpose of maintenance, repairs, taxes, mortgage interest, utilities etc. Thus, owning a property that can be made available for rent can generate income and even result in positive cash flow, once all the other expenses are settled. Gaining success in the business of rental properties requires a certain skill set and a large amount of dedication. In short, renting out properties is not a cakewalk. It takes work, constant overseeing and effort. Hiring a company to manage property rentals might just cut into the owner’s profits, especially if the property is not located in a favorable location.
Guide To Profiting from Real Estate Investments
Well located properties can be an asset that lead to huge profits in the future. As a landlord it is the owner’s responsibility to establish a good relationship with the tenant so they abide by the set rules in the lease and make it a point to oversee the apartment in the absence of the landlord. Maintaining a good relationship with the tenant also ensures lease renewals. Rental prices differ with location. In many areas, the rental property prices are very competitive. In such a situation there might be a reduction in rental prices, thus reducing the profits. So, the rent should be high enough to cover all the expenses but low enough to match the other rentals in that particular location. Choosing to invest in properties that can be put out on rent is a great way to generate additional income, add to the profits and build equity in a safe and easy manner. There are a number of ways real estate investors can receive exceptional returns on investments. Monitoring the property and making the required changes with time, is the best way to maintain profitability of the property.
Here are a few ways to increase profits while renting out a property:
• Increase in Rent
It’s no secret that a well located and reasonably priced property will successfully generate more revenue and profit than the cost of investment. Raising the property rent will lead to an increase in profits and will help in managing expenses. The key to increasing the rent without the tenants questioning it is to increase the rent keeping in mind their budget, so they do not decide to vacate the apartment. It’s hard enough, as it is, to find a tenant who abides by the rules of the lease. As a owner and landlord, you do not want to let go of them. An easier way of informing the tenant about the increase in rent is to mention it in the lease agreement so the they are well aware and prepared for the same.
• A Pet-friendly Apartment
These days, there are a number of people who own pets. Pets are equivalent to a family member to those who have one, so turning them away because they own a pet would mean turning away half the families who are in search of rentals. This will lead to a reduction in potential tenants. A solution to this problem is, to make the apartment pet-friendly so the tenant and their pet can both feel welcome and at home. An advantage is that not many apartments are pet-friendly so making their apartment one will give the landlord an edge over the other rentals that do not provide a pet-friendly environment. This feature will automatically raise the demand for the property. In addition to making the apartment pet-friendly, the owner of the property can also charge a specific fee as part of the rent for the pet, and state the same in the lease along with mentioning that the pet owner is liable for any damages caused by their pet to the apartment.
• Keep up with the House Maintenance
Home maintenance tasks include fixing what’s broken, changing appliances and regular overseeing of the apartment, to avoid excess damages which will cost way more than the maintenance costs. Staying on top of the maintenance routine will ensure avoiding higher expenses in the future. It also gives the tenants the feeling of being welcome so they feel at home and do not wish to vacate soon. As a landlord, the owner must also convey to the tenants the importance of maintenance. The lease agreement should always entail the dos and don’ts for the property and make sure the tenants abide by the same, thus abstaining from damaging property.
• Improve the appearance of the property
Simple aesthetic improvements such as clean windows, freshly painted bedroom doors and the main door, spick and span washrooms and bedrooms, and kitchen hygiene might require some investment but can lead to huge profits on rent, in the long run. If the apartment offers a welcoming vibe, a tenant would not let go of it and they might even agree to slightly higher rental costs.
• Renting out to Businesses
As an investor renting out a property, one has to consider raking in the cash and increasing the profits. One way to do so, is to rent out the property to established businesses. Corporates often require apartments to put their out-of-station employees who have been transferred by their companies. In such cases, corporates look at renting spaces for their employees or partners to put up at. Well established businesses are willing to pay slightly over original rental prices if the apartment is easily accessible.
Leverage is an investment strategy of using borrowed money to increase the potential return on an investment. In other words, it is the use of borrowed capital to fund an investment. The aim is to multiply the potential returns from an investment. The concept of leverage is used by investors to significantly increase the return on investment. Leverage is a financial trick used to multiply profits on investments.
• Purchasing at a lower cost
Purchasing a property at a cost way below market value will automatically provide the buyer with an instant profit. In order to do so, the buyer/investor should look at purchasing a foreclosed property or a quick and desperate sale. The buyer must also make certain to hire a well-informed real estate agent who is a skilled negotiator.
• Increase in Equity
Every mortgage taken to finance a rental increases the equity with every mortgage payment. Equity is the difference in market value of a property and the amount of cash owed to the mortgage holder. The equity is the money received after the mortgage has been paid off, in case of a sale.
We know that a rental property can help generate revenue based on the cash flow, appreciation of the property value, and the tax benefits. So, lets look at the other factors that determine the higher profits in the world of rental properties.
The neighborhood in which the apartment is located plays an important role in determining the kind of tenants the property will attract. A centrally located apartment will ensure a higher demand for a rental which means the property can be rented out at a higher price as compared to the same size properties in less preferred areas.
• Property Taxes
Property taxes vary across locations and a buyer must take into consideration the property taxes, so they can be aware of how much money they will have to shell out for tax purposes. The graph of property taxes in the past should also be taken into consideration to determine the change in taxes, if any. If the property taxes are very high, the rentals will have to priced accordingly to ensure future profits.
• Easy Access to Schools and Hospitals
In case the owner is planning to rent out a family-sized home or a duplex apartment, they should be aware of the schools and hospitals in the surrounding areas since these are one of the first things families consider when moving to a new neighborhood or city.
Locations with growing employment opportunities successfully attract more tenants. The reason being that employees are so busy working long hours, the least they can do is make an effort to try and cut down on travel time. Thus, owning an apartment or an office space in an area that is a commercial hub will lead to an increase in profits since properties in those areas are much sought after. Apartments in areas surrounded by workplaces are high in demand.
Investing in real estate is a long-term process and it is imperative one masters the tricks of the trade when considering putting the apartment out on rent. Motivation and dedication is required on part of the owners to make the property a profitable one.