However, like any other business investment, rental properties aren’t devoid of devastating challenges that can threaten your financial stability. Common issues in this space include high vacancy rates, tenants who don’t pay rent, and even theft or fire damage.
But there’s no need to worry about these things if you’re prepared. This guide will cover five steps you should take when renting property to maximize your returns.
Step 1: Find Out Where You Stand
You’re planning to bring a total stranger to your rental property, so it makes sense to know what kind of tenant you want. Do you prefer responsible people with steady jobs or partying college students? The first step is determining what you want from a prospective tenant. This will help you narrow your search for the right person.
You also want to assess your potential rental situation, given the type of property you own or intend to buy. For instance, if you have a single-family house, you may be better off focusing on finding someone with roommates. On the other hand, if you plan to invest in an apartment building, you might consider targeting renters who live alone.
Last but not least, decide whether you want it to be a short-term or long-term rental. A short-term rental is perfect if you only need to make a few bucks off your extra room or vacation home. However, if you want to turn your home into a full-time residence, then a long-term rental could provide more benefits.
Step 2: Ensure Your Home Passes Inspection
Inspections are necessary because they ensure your rental property is safe and free of major problems. They also give you peace of mind when it comes time to sell.
Before listing your property, check with local authorities to see if your area requires inspections. Most states require annual inspections, while others mandate them every three months or yearly. Check with your state’s Department of Housing and Urban Development (HUD) website to learn more about inspection requirements.
If you’re buying a new home, you can expect to spend anywhere between $500 and $2,000 on an inspection, depending on how extensive you want it to be. However, you can save money when selling your current home by skipping the initial assessment.
When it comes to inspecting your property, here are some tips to keep in mind:
- Make sure that all appliances work properly.
- Check the roof and exterior walls for leaks.
- Look at the furnace, air conditioner, water heater, and other heating systems.
- Look for signs of termites, mold, pests, and other damages.
- Take pictures of any structural issues, such as cracks in the foundation or broken windows.
Step 3: Determine and Optimize the Cost of Renting Your Property
From mortgage payments, maintenance needs, utilities, taxes, insurance, HOA fees, and repairs, renting a property can cost hundreds of dollars that you should be prepared for. The best landlord in the business knows how to minimize these costs and maximize their profits. Here are a few proven strategies to keep these expenses in check and enjoy optimal returns on your investment:
- Mortgage payments. Financing your rental property is 100% fine, provided you pay the mortgage faster so you can remain debt-free as soon as possible. But how? You should ensure that your rental income covers a better part of these expenses. And that’s a feat you can only realize when you invest in a property that’s rentable, has a low vacancy rate, is strategically located, and whose rent is likely to grow.
- Maintenance. This entails keeping up with regular cleaning, fixing minor damages, and making sure everything works properly. You may even have to perform routine repairs yourself, which will add to your monthly expenses. To avoid this hassle, consider hiring a professional service provider specializing in residential maintenance. You can find one through online resources like Angie’s List, Yelp, and Google.
- Property Taxes. Landlords usually cover property taxes, but you still need to know how much you’ll be charged. In addition to the basic tax, there are additional charges for things like snow removal, trash collection, and pest control. Fortunately, many cities offer homeowners a rebate program that reduces this cost. Contact your city hallto get details.
The key takeaway is that your rental property expenses should not exceed 25 percent of its gross monthly revenue. If they do, you might want to reconsider whether it’s worth investing in real estate.
Step 4: Negotiate Better Deals With Your Insurer
Insurance companies typically require tenants to carry renter’s insurance policies that protect them against losses caused by fire, theft, vandalism, and more. However, most renters don’t know what they’re getting themselves into because they aren’t familiar with the ins and outs of this type of policy. That’s why shopping around and comparing rates from different providers is essential.
To negotiate better deals with your insurer, here are some tips to help you save money:
- Shop around. Most insurers offer discounts if you buy multiple policies. For example, if you purchase two policies at once, you could potentially save a few hundred bucks per year.
- Compare prices. Don’t just take the first quote you receive. Instead, shop around until you find the best deal.
- Get coverage for all risks. Insurance companies often charge higher premiums if you only insure certain risks. For instance, if you own a home and an apartment, you may want to ensure that both are covered under your homeowner’s policy.
- Get the right amount of coverage. It’s vital to understand what each policy does before purchasing it. Some policies provide limited protection while others go above and beyond. Make sure you choose a plan that adequately protects your assets.
Step 5: Work with a Property Manager
The importance of working with a property manager to get your real estate investment off the right foot cannot be overstated. A good property manager will handle all the day-to-day tasks associated with owning a house or apartment building. They will also help you negotiate better deals with your insurer, manage any problems, and keep track of your financial obligations.
If you decide to work with a property management company, here are some questions to ask them:
- How long have they been managing properties?
- What kind of experience do they have?
- Do they specialize in commercial or residential properties?
- Are they licensed?
- How much will I pay in fees?
- What services will they provide me?
- Will they oversee my property 24/7?
- Do they offer free inspections?
- Can they give me recommendations on contractors?
- Is their staff friendly and helpful?
- Will they handle repairs?
- What happens if something goes wrong?
- Will they respond quickly when I call?
4 Degrees is Your No.1 Rated Realty Management Company in the Pacific Northwest!
No doubt, rental property is an excellent investment to strike a fortune or earn extra income. But if you don’t prepare properly, you could end up losing thousands of dollars. So, remember these five steps, and you’ll be well on making smart decisions about renting your property.
4 Degrees is a service-oriented property management company committed to helping our clients succeed. We strive to exceed expectations through exceptional customer service, innovative marketing strategies, and superior technology solutions. Our team of professionals has decades of combined experience, and we pride ourselves on being able to deliver results.
So if you’re looking to rent your property and make the most out of your investment, contact us today, and we’ll be happy to help you succeed.