One of the best things about real estate as an investment is that it is an investment strategy that can be repeated and optimized. This means that not only does it earn you a passive income, but by employing some of the strategies outlined in this article you can optimize your cash flow and improve property management to increase your returns. Some of the tactics you can use to up your return on investment include: updating your current properties, investing in new real estate, and improving your operations.
1. Apply Renovations and Upgrades
When your current tenants move out, you’ll have the opportunity to renovate your properties to make them more appealing to renters. This should both shorten the amount of time your rental property is on the market and allow you to charge a higher rent.
The best upgrades are inexpensive and have a big impact on the desirability of the property. This often means improving aesthetics, but it can also mean enhancing the livability of your property. For example, some low budget renovation ideas include:
- New cabinet doors. An economical alternative to replacing entire cabinets is to just change the doors. Make sure you choose quality wood and paint the cabinets in a trending color. It may also be worth switching the hinges and knobs – the cabinets will then look like new.
- Paint. You should paint more than just kitchen cabinets when your tenants move out. Painting the walls will fix any worn or dirty areas, which has a huge impact on aesthetics. Again, you could use a trending color, but another option is to ask new tenants what colors they prefer.
- Pressure washing. Purchasing a pressure washer is a great long-term investment. Use it on a regular basis to wash porches, balconies, and entranceways.
- A washer/dryer. After just a few months, you can recover the amount you invested in installing a washer/dryer in a unit. You can even purchase second-hand appliances – just be aware that they will need replacing sooner.
2. Reassess Your Investment Strategy
If you have been renting your investment properties for some time, it may be time to reassess your strategy to see where you could be missing out on potential returns.
For one thing, you should be reviewing how much you charge in rent on a regular basis. It’s important to strike a balance between charging the maximum tenants are willing to pay and minimizing vacancy times. You can figure out how much to charge in a number of ways, including by receiving a Zillow rent estimate, running a rental market analysis with the help of Mashvisor, and researching the demand for properties like yours. Make sure you’re familiar with any rent control laws that mean you can only increase rent by a certain amount a year.
If you’re in the position to increase your number of doors, this is the best option of all for taking your investment strategy to the next level. Whereas there are many criteria to consider when choosing your next investment property, it’s most crucial to invest in the right location. To do this, you need to understand key metrics related to real estate ROI.
Finally, it’s worth considering alternative property types. If you currently own just single-family homes for long-term rental purposes, you may like to expand into commercial properties or short-term rentals.
There are numerous benefits to owning commercial properties. For example, they tend to be far less expensive to purchase than residential buildings, but they still appreciate over time. Also, your immediate return on investment will likely be between 6% and 12%, compared to 1% to 4% on a home.
Short-term rentals allow you to enter the vacation property market or rent to people who want something more than a hotel room when on a business trip. Depending on the type of property, you may be renting for a couple of nights at a time or up to a whole month. Rates per night are far higher than what you receive with a long-term rental, although upfront costs are also higher, since you need to furnish and maintain the property to a high standard.
3. Improve Your Finance Management to Lower Overheads
Returns are based on the amount going out and the amount coming in. Poor financial management could lead to higher overheads than necessary.
Start by considering where you could cut costs. For instance, if for many years you’ve been with the same insurance provider, mortgage lender, or energy company (in the case that you pay for utilities rather than your tenants), it’s more than possible that you’re no longer receiving the best rates. Do some comparisons between services or contact your current providers to find out if they offer better deals.
You should also think about whether having a property manager is cost-effective for your situation. Expanding into new markets – whether new locations or different types of properties – could make managing your real estate business on your own more challenging. For instance, there’s more potential for problems when you have a commercial property (including longer vacancies than what you’re likely used to and liabilities) and short-term rentals require you to be more involved. You’ll need to deal with constant turnover and make sure you consistently provide a great service to guests.
However, hiring a property manager is just one option: using rental management software can be a great alternative. A top choice is Landlord Studio. It allows you to handle all your rental accounting needs, including income and expense tracking, digitizing receipts, and running end-of-year reports. Plus, streamline other aspects of rental property management like finding and screening tenants, managing tenant communications, collecting rent online, and more. Plus, for more advanced users, you can even integrate it with your accounting software such as Xero.
There are numerous ways to increase the returns on your investment property business. You never need to feel like you’re stuck without options to keep your business growing. Many solutions, though, will increase the workload for you – particularly those that lead to the greatest returns. For this reason, expanding your business is the ideal time to think about using rental management software. You can try Landlord Studio for free before you decide to take out a plan. Start your 14-day free trial now.
This guest post has been contributed by our friends at Landlord Studio.