How to Make More Money From Rental Properties
- Apr 17, 2023
- 7 min read
Are you wondering how to make money from rental properties? Knowing how to choose the right property, set competitive rates, and manage a property effectively is essential for a successful rental property investment.
This blog post will explore how you can start making money from rental properties today.
Research the Market
When it comes to owning rental properties, doing your research is key. Investigating the regional environment can aid in forming wise choices and maximizing your profitability.
Rent Pricing Strategy
First off, you need to understand average rent prices in the area. This will give you an idea of what tenants are willing to pay for different types of units. Examining vacancy levels can reveal the degree of competition among renters in the area. Low vacancy rates mean that there’s less availability in the market—which could be good news if you own a rental property.
You should also look into any regulations or restrictions that may affect your property. These might include zoning laws or building codes related to occupancy limits or landlord-tenant rights. Be sure to familiarize yourself with these rules so that you don’t stray from them when managing your rental property.
Local perks can impact whether people want to live in the area—and, therefore, whether they’re likely to rent from you. It’s important to consider factors like transportation access and nearby amenities when researching a potential rental property location. Is public transit easily accessible? Are there schools, parks, restaurants, and other attractions nearby?
Being in a highly desirable location also drives your rent pricing up. More on this in a minute!
Researching the market is essential to ensure you make an informed decision when investing in rental properties. To make money from rental properties, you need to know the local market inside and out—understand average rent prices, vacancy rates, regulations, restrictions, and amenities in the area.
Keep tabs on the latest real estate movements nationwide and in your area to guarantee that your rental rates are reasonable while still allowing for a healthy return. This will help ensure your rental prices remain competitive while allowing for a healthy profit margin over time.
Additionally, stay on top of current trends in real estate so that your rental prices remain competitive while still allowing for a healthy ROI.
Choose the Right Property
Having done your research, you can now proceed with confidence in selecting the ideal property for your objectives. As we mentioned, “location, location, location” is a critical factor for high demand and low vacancy rates, but there are a couple of other considerations.
Location, Location, Location
When selecting a rental property, you should take into consideration the geographic area. Location is perhaps the most critical factor; after all, no one wants to rent a place far from their workplace or other amenities. Look for properties in areas with high demand and low vacancy rates – these are usually more profitable investments.
Size As a Consideration
If your budget allows, bigger units tend to be more attractive to tenants because they offer more space for the same price as smaller ones.
Potential Appreciation Over Time
This could make a big difference when it comes time to sell the property down the line. Investigating the current market can assist in discovering spots where prices could possibly rise eventually, granting maximum return on your investment.
Overall, when selecting a rental property, location should be the primary factor to consider. Afterward, take size and amenities into account before researching potential appreciation to get the maximum return on your investment.
Set Competitive Rental Rates
Now that you’ve chosen your property wisely, it’s time to determine your rental rates so you can make more money on your rental property. Setting competitive rental rates is essential for any property owner looking to make a profit. To determine the right rate, do your research and consider comparable properties in the area. Here are some tips to help you set competitive rental rates.
Analyze the Local Rental Market
Research local market conditions by looking at what similar properties in the area rent for. Consider location, amenities, and property condition when comparing prices. By investigating what other landlords are demanding, you can get a sense of the appropriate rate for your own property.
Factor In Expenses
When setting a rental rate, factor in all expenses associated with managing the property, including taxes, insurance premiums, maintenance costs, etc., so you can still profit after covering these costs.
Consider Seasonal Variations
Depending on your rental property’s location and its availability during certain times of year (i.e., summer vs winter), it may be beneficial to adjust rents seasonally or annually based on demand trends or occupancy levels during different times of year or school semesters if applicable.
Handling Rent Increases
If feasible, try to do incremental rent increases rather than jacking up the rate all at once. This could potentially drive away tenants due to an inability to keep up with payments, resulting in more vacancy periods and lower profits.
This will depend somewhat on whether your area is considered rent-controlled, but a general rule of thumb is to stick to 5% or less. Consider raising it 2.5% one year and then again 2.5% the following year.
When pricing out rentals, remember to offer amenities like parking spots, laundry services, storage spaces, and pet-friendly accommodations. These added perks allow you to increase rents slightly while still keeping renters happy who enjoy those additional benefits that come along with their lease agreement.
Setting competitive rental rates is essential for maximizing your return on investment from rental properties.
Manage Your Property Effectively
The next step? Properly managing the property to sustain those returns over time. Without top-notch management, you may find yourself with a lot of tenant turnover, unwanted vacancies, or worse–constant emergencies you get stuck dealing with. All of these things cut into your profitability with added costs.
A professional property management company will establish approaches for receiving rent, attend to tenant needs, and keep up the building to make sure both renters are happy and you receive a return on your investment. This saves you from the headaches of things like:
- Collecting rent
- Dealing with late payments
- Day-to-day maintenance requests and tenant disputes
- Property upkeep, such as painting, lawn care, and gutter cleaning
- Safety audits and inspections
- Lease renewals and paperwork
- Marketing your property and tenant prospecting
- Plumbing emergencies
Overall, having your rental property managed professionally pays off in the long run. This will give you peace of mind knowing everything is running smoothly as well as ensure maximum returns when tax season comes around from compliant, proper management.
FAQs For How to Make Money From Rental Properties
Are rental properties a good way to make money?
Depending on the specific circumstances, rental properties can be an excellent way to make money. Generally speaking, rental properties provide a steady stream of income from tenants who pay rent and may also help increase property value over time through appreciation or renovations.
Additionally, rental properties are relatively low-maintenance investments compared to other real estate ventures, such as flipping houses or developing land for commercial use.
There is still risk involved in owning a rental property since market conditions can change quickly, and vacancies could lead to losses if not managed properly. Consequently, before investing in rental properties, it is essential to analyze the local market and be aware of all associated costs.
What is the 1% rule in real estate investment?
Real estate investors often use the 1% rule as a benchmark for assessing whether an investment property will be profitable, which requires that its monthly rent should equal at least 1% of its purchase price. The rule states that the monthly rent of a property should equal at least 1% of its purchase price.
For example, if you buy a $200,000 house and it rents for $2,000 per month (1%), then this would meet the criteria set out by the 1% rule. This helps investors evaluate potential investments quickly and easily without having to do extensive calculations on cash flow and return on investment.
It’s important to note however that while this can provide useful guidance in evaluating rental properties, there are many other factors that must also be taken into account when making any major financial decision, such as investing in real estate. Check out our blog post on calculating ROI here.
How much is a good profit on a rental?
The exact gain from a rental property can be different, depending on the site, the condition of the house, and other elements. Generally, a sound yield from investing in residential real estate is estimated at around 8-10% per annum once all costs are considered.
Borrowing to fund the investment and how much energy is put into managing it may influence potential profits. Ultimately, it’s important to do your research before investing so that you understand what kind of return you can expect from any given rental opportunity.
Contact All County Property Today
By doing the right research, setting competitive rental rates, and managing your property well, you can make money from rental properties.
Partner with us at All County Property today. With over three decades in this business, we are the experts in long-term residential property management. We can handle all aspects of your property, ensuring you peace of mind and getting you more money on your rental properties.
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