Whether a property is producing mediocre returns or already exceeding expectations, investors have the power to improve profits through several efficiency measures. Read on for potential ways to maximize real estate profit.
Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More
Set You and Your Tenants Up for Success
Income-producing properties rely first and foremost on tenant rent, so start by evaluating ways to increase on-time payments, attract new residents, and retain old ones:
Consider Tenants’ Credit
The internet makes it easier than ever to obtain the payment history of prospective tenants through online credit reports. Beyond payment history, credit reports offer a wealth of information regarding the applicant—but be sure to avoid using the contents to draw inferences that may be discriminatory under the Fair Housing Act or any other federal or state laws.
Credit reports also record legal monetary judgments, which will notify prospective landlords regarding evictions or other financial responsibilities that went to collections and remained unpaid. Reviewing the report also indicates the level of debt they hold. Someone with a more modest income but no other monthly obligations may be just as appealing as a high earner with mounds of debt.
Those who have good credit usually work hard to maintain it, so those tenants will do everything in their power to make payments on time. As a result, such tenants contribute to reliable cash flow for the property and reduce time and money spent to collect rent, proceed with an eviction, or collect upon a judgment.
Of course, people may go through periods of financial hardships that show up on the reports. However, increased income and better employment mitigate past challenges. Some properties are most effectively marketed to lower-income earners with lower credit scores, but if the goal is to maximize profit, look for tenants with a proven record of consistent payments.
Make It Easy for Tenants to Pay Rent
The easier it is for a tenant to handle payment logistics, the more likely it is you will receive timely payment. Remember that paying rent is one of many chores that a tenant has, and anything that acts as a hurdle creates a weak point in the payment process.
Dropping a check off at the office sounds simple, but it becomes a point of procrastination during inclement weather. Mailing it in also becomes a burden when the tenant runs out of stamps. Providing the above options may make sense for some populations, but offering online and automatic payment options will significantly streamline the process for both landlord and tenant.
Remember That the Tenant Is Not the Handyman
Keeping up with routine maintenance and spotting problems before they become crises is one of the most challenging parts of managing income-producing property. A unit’s condition can deteriorate surprisingly quickly during a one-year lease, and the long-term deferral of routine maintenance damages expensive components of the property.
To mitigate this, do not rely on the tenant for routine maintenance. Instead, give the tenant notice that you or your representative will be doing it and try to bundle any needed tasks into one visit. For properties with in-unit filters, provide reminders and replacement filters to ensure that they are indeed changes.
Finally, make it easy for the tenant to notify the appropriate person when issues do crop up. Landlords can implement an online system for reporting and managing maintenance requests. Reports from the system have the added benefit of providing data regarding system efficiency and cost.
Create Additional Sources of Income
Tenant rent may be the primary source of income, but it does not have to be the only source of income. To maximize a property’s profit potential, create additional avenues for generating revenue.
Additional amenities are a great way to add new sources of revenue. Of course, many options like fitness classes or paid parking require capital expenditures to establish or may not be physically possible.
For an exceptionally low-cost income stream, consider allowing pets. Implementing a pet-friendly policy requires little more than a few waste bins and bag dispensers around the property. In exchange for welcoming furry friends, charge a one-time pet fee and a monthly pet rent based on the number and even size of the animal. While clean-up cost is a common concern, a Pet Savers Foundation survey found that units with pets, on average, did not incur damage any more costly than units with children. Requiring an additional, refundable pet deposit should alleviate any remaining concerns.
You might also consider adding fee-based services, like premium parking or storage, vending machines, valet trash and recycling, TV and internet services, laundry, and more.
Prioritize Efficient Property Management
Maximizing profit is always a balance between expenditures and income, but one area that can have deleterious effects if not sufficiently funded is property management. For owners not using professional property management, invest time and resources in learning the elements of good management.
A management company handles the administrative and customer service burdens of operating an income-producing property. Quality property management increases profits through high occupancy and retention. But, just as importantly, they can keep the property on the right side of the law and avoid costly infractions.
The framework of state and federal laws can be challenging for new owners to tackle, and the consequences are expensive if an inexperienced owner or management company violates them. For example, some states allow the tenant to collect treble damages if the landlord fails to return the security deposit quickly and sufficiently. However, that penalty is minor compared to others.
Final Thoughts
Finding and executing ways to maximize real estate profit can be one of the most satisfying elements of owning income-producing properties. Efficiency for both the landlord and tenant is often the key to success.
Life Bridge Capital is a leading real estate syndication company. We offer our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn More
