Investing in real estate is a great way to diversify your portfolio and build wealth for the future. Owning rental property and being a Landlord or Property Owner is not right for everyone, but if you know what you are doing and understand what to look for, you can make a handsome profit down the line and enjoy a steady stream of income for many years to come.
As with any type of investment, it is important to maximize your returns and look for ways to bring in as much cash as you can. Maximizing your rental income and boosting your profits is not always easy, but once you get it right, you can enjoy the extra money month after month and year after year.
Choose the Right Neighborhoods
The nature of the neighborhood will have a huge impact on your ability to maximize your rents and raise your rates as your own expenses go up. If you buy in an economically depressed area, you may find yourself stuck with low levels of rental income and high repair rates, especially if you focus on the low-income segment of the rental market.
That is not to say you cannot make money in these areas - many landlords are doing just that. It just means that the job is that much harder, and the hassle factor can make renting there a bit more difficult. That is why so many property investors choose to focus on up-and- coming neighborhoods instead of economically depressed ones. Buying rental units in places where growth is taking place is always a smart move, since buyers can benefit from market appreciation and higher rents down the line.
Research the Local Rental Markets
No matter how nice your apartments are, you will not be able to charge $1500 rent in a neighborhood where $800 rents are the norm. It is important to research the local rental markets and set your own rates accordingly. If you are unable to make a profit on those $800 monthly rents, you may need to look elsewhere for a better investment opportunity. If you are happy with that level of rent for the time being, you can invest in a solid property, continue to make improvements and succeed with the local market. Keep in mind that public programs may be somewhat limited in the amount of rent they are willing or able to pay.
If you plan to incorporate Section 8 and other programs into your rental income stream, you will need to research those markets as well. Many property owners actually like these programs, since a good portion of the rent is guaranteed by the government. Other property owners find that the hassle factor is more than they like. You will need to make up your own mind and decide which mix of public and self-pay renters works best for you.
Renovate and Decorate
Making consistent and smart property improvements is one of the best ways to maximize your rental income and boost your profits over time. You may start with a block of similarly-appointed apartments, all charging the same amount of rent. As time goes by, however, you can make strategic improvements that would justify higher rents and attract a better class of tenants down the line.
When a long-time tenant moves out the unit will be cleaned and, at a minimum, spot painted, but consider going one step further and doing a bit of renovation. Instead of merely cleaning the same old carpets, you could take them out and replace them, possible with hardwood floors. You could upgrade the kitchen countertops from Formica to granite, or install new stainless steel appliances. Suddenly you have an upscale apartment that will appeal to young professionals in the area. Repeating the upgrade process each time a tenant moves can help you rebrand your apartment building and boost your rental income over time. In the case of an area without young professionals, simple upgrades, new light fixtures and/or painted kitchen cabinets can freshen the place to make it look newer.
Investing in real estate is a great way to build your wealth over the long term, especially if you make strategic investments in the future of your business. Understanding the factors that affect market rents, from the nature of the neighborhood to the amenities on offer, is one of the best ways to maximize your income and your return on investment.