The goal of owning a rental property is to make money. We’ve learned from our 26,000+ landlords on what to do and what not to do to make your rental business successful. In this article, we’ll reveal nine things you can do to help maximize your profits.
#1 Keep the Property in Good Condition
Initially, taking good care of your property might cost you money, but it pays off in the long run. Landlords should be doing preventative maintenance to keep the property in good condition. Here are three ways to maintain your property:
- Change the air filter frequently to extend the life of the HVAC unit, lower energy bills, and have fewer repairs.
- Replace old flooring and appliances with new ones to make the property more valuable and increase rent price.
- Fix repairs right away (especially leaks) because waiting makes the problem spread and increases the cost of repair.
Keeping the unit and building in good shape also encourages your tenants to do the same, which reduces expensive tenant-turnover costs for cleaning and damage. In a recent survey of our landlords, we determined that the number one reason why landlords keep part of a tenant’s security deposit is due to property damage. If you encourage your tenant to avoid damage, then you can return your tenant’s security deposit in full. After all, happy tenants write positive reviews that help your rental business prosper.
The last reason to keep your property in good condition is to minimize risk. Making sure your building is up to code and that there are no dangers in the property will reduce the risk of injury and lawsuits, which cost you money.
#2 Research Rent Price and Update As Needed
Updating your rent price is your opportunity to make the most of your rental income. Your rent price should make sense in your rental market. We recommend researching what similar units in your neighborhood are listed for.
We also recommend renting your unit in the summer months during peak rental season. Peak rental season is when demand for rentals skyrocket and as a result, rent prices increase.
You should also update your rent price whenever you increase the value of your property. If you renovated, added new appliances, replaced flooring, improved lighting, put in new counters, then you should increase your rent price.
#3 Use a Written Rental Agreement
A good rental agreement helps you avoid expensive legal battles by setting terms in writing. It’s the best way to communicate guidelines and legally establish each party’s rights and obligations. Some landlords believe oral agreements are sufficient (especially for tenancies of less than 12 months), but oral agreements carry additional risk. It becomes one person’s word against another. Effective rental agreements are written and customized with the correct rental terms: tenant information, rent price, agreement dates, and specific rules. Customizing the rental agreement ensures that it’s accurate to your situation.
Rental agreements also set financial expectations for what costs are covered by the tenant. For example, the rental agreement usually sets the expectation that the tenant is required to pay for gas and electric. Without a rental agreement, you could end up covering costs that you expected the tenant to cover.
Creating a solid rental agreement that’s written, customized, and signed by both parties helps you make more money by mitigating legal risk and setting financial expectations.
#4 Enforce Rules (Especially Late Fees)
Late fees are designed to motivate tenants to pay rent on time. You need tenants to pay rent on time because you are probably using those payments to cover your mortgage, repair costs, etc.
By implementing a late fee, you help ensure that you will receive your money by a certain date. The most important aspect of late fees is to enforce them. Tenants might take advantage of a landlord who doesn’t enforce rules. In order to maximize profits, you need to ensure you receive rent on time and that your tenant respects your rules.
#5 Screen Your Tenants
To make sure you find a tenant who pays rent on time and takes care of your property, you should follow a thorough tenant screening process. We recommend doing the following things:
- Host individual property showings so you can get to know tenants
- Require a rental application
- Require tenants authorize tenant credit reports and background checks
- Contact a tenant’s employer to verify income
- Contact prior landlords to learn about prior behavior
#6 Make Paying Rent Easy for Your Tenants
Landlords who want to receive rent on time need to make it convenient for tenants. The most convenient option for you and your tenants is to collect rent online.
#7 Treat Your Rental Property Like a Business
Your rental property is a business, so it’s important to keep in mind your bottom line at all times and protect your business. Keep digital copies of everything, know your state laws, and deal with tenants in a professional manner. Best practice is to answer calls, emails, and maintenance requests in a timely manner.
When you treat your rental property like a business, you maximize your profits because you’re making tenants happier by handling things in a timely manner, avoiding legal battles, and keeping your finances in mind at all times.
#8 Have Landlord Insurance
In the case of injury or lawsuits, you will need landlord insurance to protect your property. Some DIY landlords believe their homeowner’s insurance is sufficient, but if you’re consistently renting your property to tenants, then you are a landlord and need proper coverage. Your insurance company could deny your claim if your insurance not classified as landlord insurance.
When you don’t have landlord insurance you risk expensive legal bills and having to cover the cost of damages. The cost of landlord insurance is small compared to the financial risk of not having it. Despite best efforts to keep your property in safe conditions, liability is still a possibility and having landlord insurance is the best way to protect your rental business.
#9 Keep Good Tenants
A smart way to maximize profits is to hold onto good tenants. Good tenants pay rent on time and take care of your property. On the other hand, bad tenants make your rental investment more costly and risky. There’s the risk of legal trouble, eviction, damage to your property, and the risk of not receiving rent payments.
Renewing your lease with good tenants is a smart way to save time and money. After all, finding new tenants is time consuming: the time it takes to create a listing, screen your tenants, sign a new lease, and complete tenant turnover tasks. Plus, tenant turnover is expensive if you add up the costs of completing repairs, cleaning, and repainting.
To avoid these costs and the time it takes to find new tenants, we strongly recommend asking your tenants to renew the lease.
Small, everyday landlord actions add up and can make the rental business more profitable.
From taking time to meet tenants individually at a property showing to changing air filters, every action counts. If you follow these nine steps, you’ll be on your way to maximizing your rental property profits.