Improve Your Rental Property’s Bottom Line
By Paul Esajian on October 12, 2016
For most rental property owners the key to the property is the bottom line. Sure, there are tax benefits and equity appreciation possibilities but the main carrot for rental properties is the monthly cash flow. The best buy and hold investors are the ones that constantly focus on the bottom line. A few small tweaks in monthly expenses or rents received can have a huge impact at the end of the year. It is not enough to simply wait for the market to turn to generate value. You need to take a proactive approach with every new lease. Here are five things you can do that will help improve your rental property bottom line.
- Utilize All Space. Regardless of how much space your rental property has it is important that you take advantage of every square foot. There is nothing worse in a rental property than wasted space. If you have a two car garage you should take the time to clear everything out before any new showings. The same is the case with your attic or basement. You need to make full use of any space in the property that is available to your tenants. Look at your property and see if you can tweak something to best take advantage of an area you may not have previously considered. A man cave in a finished basement may work great for college students but may not be best idea for a family with two small children. If you have a small back yard consider a deck rather than a pool. The goal of any rental property is to appeal to the greatest number of people. With increased demand you can increase your rental price and improve your bottom line.
- Improve Exterior. The common thought for increasing the bottom line has to do with solely improving the interior of the property. Interior upgrades are great but can’t be your sole focus. If the exterior is a mess a tenants mind may be made up before they even enter the property. With every change of season you should work on the landscaping, trim any bushes, take care of the grass, remove weeds from the driveway and manicure the yard. Curb appeal directly impacts the price you can generate for your property. Every time you drive up you should write down the first thing you notice about the property. This is the exact same thing that others notice as well. If the shutters are falling off the siding you can’t reasonably expect tenants to pay top dollar for your property. First impressions are just as important to tenants are they are to buyers. Work on the exterior can help give your property a leg up on the competition in your market.
- Evaluate Expenses. Prior to spending money on improvements you should first look at your balance sheet. Examine exactly where your money is going and if there is anything you can do to lower the costs. Some of your property expenses are fixed costs that are difficult to avoid. Other expenses such as lawn maintenance or snow removal may be negotiated for a much lower amount. Start by asking your tenant how much they would cut the grass or shovel the driveway for. This is often a win-win where they would be open to reducing the rent or earning some extra money and you can lower this cost typically by half. You can also examine which monthly utilities you are paying that can be passed on to your tenant. It is common for a landlord to only cover the water/sewer bill. Paying for utilities can end up costing you more than what you receive for rent. Every few months you should examine your spread sheet and see where your money is going and if you can reduce the costs.
- Bedrooms/Baths. One of the ways to add value to your home is by adding an extra bedroom or bath. Instead of knocking down walls and changing the layout of the property take a look at the existing structure first. Is there an extra room you have been using as an office or a toy room that can be turned into a bedroom? By adding a closet and stamping it a bedroom you may be able to increase your rent. The same is the case if you can add an extra half or full bathroom. The more realistic option for this is typically in a basement area where plumbing may already be in place. If you view these upgrades as a long term investment you may be able to make your money back in just a few years’ time.
- Simple Maintenance. There are always a handful of seemingly minor updates you can make to the property that directly impact appeal. Items such as a new welcome mat, different fixtures, new switch plates and a new shower curtain change the way prospective tenants look at the property. Instead of having a dated feel these items give the rental life. About ninety days prior to the end of the lease you should walk the property and make a list of everything that catches your eye. Leave no stone unturned and focus on the little things. Make it a priority to have these done before you are sixty days and start showing your property. These items should not break the bank but will help justify your rental price.
Squeezing out an extra hundred dollars every month may not seem like much but at the end of the year can help with a large improvement. Improving your rental property bottom line is something that should be of constant focus.