Maximizing Your Investment Property: Strategies for Increased Income and Reduced Expenses
In today's competitive real estate market, maximizing your investment property's profitability is essential. This involves two key strategies: increasing your property's income and reducing its expenses. By implementing these strategies effectively, you can ensure your investment yields higher returns.
Increasing Income
The primary goal of boosting income is to generate more revenue from your investment property. This can be achieved through several means:
Raising Rent
One of the most straightforward methods is to increase the rent. To determine if this is feasible, conduct market research on similar properties in your area. For example, if you have a 3-bed/2-bath property on a quarter-acre lot, find out what comparable properties are renting for nearby. If you are currently renting it for $1,000 and discover that similar properties are renting for $1,200, there is a clear opportunity to raise your rent.
Improving Property Features
Beyond raising rent, adding value to your property can also lead to higher rents. For instance, upgrading older appliances can increase rental income. Calculate the potential return on investment to ensure the upgrade is worthwhile. In the example provided, if upgrading the appliances would cost $4,800 and enable you to rent the property for an additional $200 per month, the payback period is two years, resulting in a 50% annual return on investment. Conversely, if the upgrade costs $6,000 for an additional $100 per month in rent, the payback period would be five years, making the investment less attractive.
Additional Income Streams
Increase your property's income by exploring additional revenue opportunities. For example, a backyard workshop can be rented out. Similarly, if you have space for off-street parking, you can rent it to others. Assume you comply with local regulations and can generate $50 per month in additional income, which amounts to $600 per year. Such additional income can be significant, especially when sold to another investor, potentially adding tens of thousands of dollars to the property's value.
Reducing Expenses
To maximize your investment, it's crucial to minimize expenses. Here are several strategies:
Transfering Utilities To Tenants
At lease renewal, consider transferring the responsibility of paying utilities to your tenants. This can save you money while also passing on some of the overhead costs associated with maintenance and repairs.
Reviewing Tax Assessments and Real Estate Taxes
Examine your property’s tax assessment. If the assessment is higher than what it should be, appeal it. This can not only reduce your tax burden but also lower real estate taxes based on the reduced assessment. Ensure compliance with all local regulations to avoid penalties.
Shopping for Competitive Services
When contracted to have maintenance services like pest control, gutter cleaning, and lawn mowing, get multiple bids from competing companies. For instance, in my area, gutter cleaning can range from $95 to over $200 for the same house, and lawn mowing can cost between $46 and over $90. While it’s not necessary to choose the cheapest service, often the more costly service may not be the best, so it’s essential to evaluate quality and performance.
Reducing Tenant Turnover
A significant expense in property management is tenant turnover. If your tenant moves out after a year, you might face at least a month’s vacancy. Repainting, carpet cleaning, and touch-ups can add up to approximately $3,000. By keeping your tenants happy, you can save $3,000 annually. If tenants stay for three years, you can save $6,000. This is the equivalent of six months' rent and a substantial savings.
Considering Property Management
While there is a cost to employing a property management company, it can save time and increase efficiency in handling repairs and maintenance. Remember, there isn’t an absolute "right" or "wrong" answer, but it's something to carefully consider. A good property management company can, in the long run, add value to your investment property.
Bottom line: To maximize your investment, focus on increasing income and reducing expenses. By implementing these strategies, you can ensure a higher return on your investment property.