Whether you have only one rental property or own multiple properties, getting the most out of your investment is important. What can you do to help your business to succeed? Here are some other tricks to ensure high ROI on your rental property.
Do not include utilities in the rent
Utility costs can vary, and if they go up, you will be liable for the extra charges. You can always raise the rent, but you may sit with the extra costs for several months. Including utilities with rent may be convenient for renters, but it means you have to make the rent higher.
Including utilities in the rent can be an incentive for tenants. However, when your rental price is higher, it can be a disadvantage when prices are very competitive. For example, If you want to know how to set the right rental price for your property in Boulder, you should consult with a reliable Boulder rental property management service provider. It is possible to get local advice from property managers about rentals in the Colorado area or the area of your choice.
Pick the right tenants for your rental property
You want to make sure your tenants pay their rent in full and on time, take care of your property and follow the terms of the lease. To pick the right tenants, you must thoroughly screen them. You don’t want to take a chance on tenants who have a history of late payments etc. Finding new tenants all the time can be a costly exercise, and you don’t want a property standing empty. The higher the occupation rate is on your rentals, the better your income will be.
Once you have an application from a tenant, you have contact details, income and employment details, credit information, and references from previous landlords. This gives you the opportunity to do background and credit checks. You can ensure that tenants are financially responsible individuals who are likely to pay rent on time. This means you can earn a stable monthly income from your rental properties.
Take advantage of tax benefits
Rental properties provide a number of tax benefits compared with other income-producing assets. For example, you can depreciate a rental property over a period of 27.5 years to account for wear and tear.
Other deductible expenses
- Owners may be able to deduct various expenses, such as the use of a home office or travel expenses.
- Operating expenses are deductible, including repairs and maintenance, supplies, landscaping, property taxes, property management fees, landlord liability insurance etc.
- The mortgage interest you pay for a rental property is fully tax deductible.
- If you qualify for pass-through income deduction, you may deduct up to 20% of your net business income from your income taxes. This is subject to certain restrictions.
FICA taxes: Income from a rental property is not classified as earned income, which means it isn’t subject to FICA taxes.
Conduct an investment property analysis
Rental property investment analysis is not that easy for a novice. It requires using a structured approach and the right tools. Fortunately, there are various online property analysis calculators you can use today.
The analysis will include estimated rental income and expected expenses, which are both central to cash flow. Other metrics like cap rate and cash-on-cash return can also inform you about the investment potential of a property.
The cap rate is the possible rate of return on an investment property if it is bought in cash. You compute the cap rate by dividing the net operating income of the property by the acquisition price or market value. Net operating income is the income generated by the property after deducting operating expenses. A high-cap rate asset is typically between 7 and 12%.
Cash-on-cash return essentially divides the net cash flow from the property by the total cash you invested in it.
Put money in positively geared properties
A positively geared property is one that generates more rental income than rental expenses. It is different from positive cash flow in that it refers to properties before and after accounting for taxes. Positive cash flow usually applies after taxation. A positively geared property is a lucrative investment that pays itself off. Even if the rental income on a property is high, the expenses may come to more which results in a negative cash flow. Choosing properties that will generate profit every month means you don’t have to cover costs personally.
Research local rental trends
Understanding local rental trends is essential in order to maximize the return on investment (ROI) of your rental property. Researching the local market can be daunting, but with the right guidance, you can make confident decisions to ensure that your property will reach its full potential.
Consider asking these questions:
What are the most desirable locations within your market? How do they compare to similar destinations?
What amenities are in demand within your area?
What types of tenants are being attracted to these specific amenities? Do they prefer single-family or multi-family properties?
How much should rental rates be for different types of properties within each amenity hub?
Can you use existing data from the local market to determine what price range will yield you optimal ROI?
What qualities does a high-value rental unit possess that others do not in order to maximize rents and occupancy rate?
By researching local rental trends and understanding your target demographic, you can make informed decisions that will benefit both you and your tenants. With careful research into market trends and analysis of data from competing properties, you’ll be able to effectively price your rental units and get a better return on investments.
There are various ways in which you can make sure you get the most financial benefit from your rental properties. Find the right rental property by looking for ones that are positively geared properties and conducting an investment property analysis. Screen tenants to make sure you will get paid in full and on time. You want tenants you can retain and who will take care of your property.