No matter if you are purchasing properties with the intention of renovating and then selling them or investing in rental property as a means of making money, knowing how to maximize returns from rental investments is vitally important.
To achieve positive cash flow, a balance must be struck between rental revenue and operating expenses – this means having enough rent coming in each month to cover expenses plus an excess margin. For everything to go smoothly, read the following article to learn more.
1. Rent Increases
Rent increases may be necessary to cover inflationary costs, property maintenance or repairs costs, higher taxes and financing fees or simply to boost profits. These increases also serve to create a sense of value among tenants who feel that they’re getting more for their money when renting homes and apartments.
Landlords should charge enough rent to cover all their operating costs, yet keep in mind that rent prices in your market can change frequently. Staying competitive means staying current with other rental properties nearby while charging enough rent that covers operating costs as well as creating a profit for yourself and the tenant(s).
Rents tend to reflect current market rates for similar units in your neighborhood. To make sure that your rent is fair and reasonable, conducting research into what comparable properties in your neighborhood are commanding in terms of market values is the key step in making sure it’s fair.
As soon as your monthly rent increases, it’s important to inform your tenants (www.nolo.com/renters-rights). A template or custom document could help make this task easier – simply include an explanation as to why and give them an opportunity to voice any objections they might have.
An alternative strategy would be to allow tenants a chance to renew their leases before any rental rate increase takes effect, in order to reduce tenant turnover rates and the associated costs associated with finding a replacement occupant.
Repairs are the easiest thing under your control that can impact how much money you receive in profit. You can even make money with your Brisbane property management company by preemptively performing repairs before they become an issue. Simple tasks like installing seasonal services for HVAC units or clearing gutters ahead of the rainy season could save thousands over time.
Prior to your tenant taking possession of your rental property, completing a comprehensive move-in/move-out checklist will enable you to distinguish normal wear and tear from more extensive renovations that might be required in order for their continued occupancy.
Management and repair tasks can be time-consuming, which is why hiring professionals makes more sense. Professionals have access to a vast network of contractors that will give them better rates than working solo.
Your handyman will also take care of smaller jobs like fixing leaky toilets and changing light bulbs quickly and efficiently, saving you from dealing with these tasks yourself.
A simple internet search will show that property managers typically maintain a maintenance reserve fund of at least $500 to $1,000 to pay for unexpected repairs and maintenance needs as they arise, or fund more complex projects, like renovations.
3. Taking Advantage of Tax Benefits
Real estate investment can be a lucrative means to both create income and build owner equity, but many investors don’t realize it also comes with multiple tax advantages, making the process more manageable than they anticipate.
As an example, many operating expenses related to your rental business are tax deductible – such as property management fees, maintenance costs and mortgage interest payments. It is important to remember that deductions must be both usual and necessary in nature.
As a landlord, if you hire employees or independent contractors to manage your property management business – including property managers, painters, and repairmen. Any insurance premiums incurred can also be deducted as expenses.
Assuming you hire an attorney to represent you in legal matters such as evictions or lawsuits, any expenses related to their services can be deducted as tax deductible expenses. This applies to fees you pay accountants, real estate investment advisors and others providing related services related to property management businesses.
To take full advantage of these tax benefits, a good system for tracking rental expenses and receipts must be established – this can best be accomplished using software.
As is true for any business venture, working with an experienced real estate investing and tax professional is always wise to ensure you take full advantage of any available tax breaks while paying at the lowest possible tax rate.
4. Management Fees
Working for or being your own property management company can make you money, overall, if you can reduce vacancy periods and collect rent on time – however, if that’s not the case, fees may be something you can apply to gain some extra money.
According to this blog, property managers generally charge between 8-13% of gross monthly rent as their management fee; this may differ depending on the type of property and how many units are managed by the management firm.
It is crucial that you understand all of the management fees and how they are structured. There are two common approaches: “rent due” or “rent collected.” When fees are calculated based on “rent due”, payment should still be expected even if your property is vacant; this could potentially waste your money by covering fees that don’t belong to you.
Management fees may also be structured based on “rent collected.” This option is more beneficial to clients as they only pay fees when you collect rent themselves. Since vacant properties require additional care from management companies (i.e. weekly inspections for break-ins or the presence of squatters), this payment structure should be carefully considered before accepting management fees based on “rent collected.”