Deciding on numbers for a rental property?
Try comparing it to somewhat similar types of properties in another area where you may find ample opportunities which are not only about the rental revenue only.
Thinking of the areas with higher opportunities will enhance the profit margins by reducing the ongoing maintenance costs or by charging higher rents only.
One of the best solutions is to purchase the properties at a reduced price. The lower costs mean lesser requirements for insurance, down payments, and even modifications in the tax base.
The central idea is getting success with a lower offer for the property requiring little TLC, then investing into a few enhancements and augmenting the overall rent for the same property as now this property is much more attractive to the prospects.
What’s the catch?
Talking about wise investors, they work with the real numbers, not the what if and case scenarios.
They follow a 50% thumb rule!
This 50-50 includes the 50 percent of funds kept aside for the non-mortgage expenditures and the capital reserves, adding no more than 50 percent of the gross rent.
The best-case scenario is to locate the property where the investors can invest in the right improvements while reducing operational costs. And since the improvements lead to enhanced visual appearance and functionalities, allowing being in a position to charge higher rents.
Laying a stronger groundwork for better ROI
While deciding on the renting factors, it is essential to consider whether the property space is capable of getting higher rents!
Yes! Getting better ROI is only possible when the property solves the purpose while justifying the rental rates.
So before raising the rental amounts, ensure that the property justifies the number. Try applying the below-mentioned strategies to boost the rental numbers.
- Making repairs and capital investments
Capital investments and repairs are two terms that somehow work to give value to the bottom line but have substantial differences.
Both the terms follow a different step plan to reach the bottom line but ultimately have a similar motive. Talking about the repairs, it includes the more minor or inexpensive fixing within the property for the purpose of maintenance. Some of the repair examples include:
- Fixing the plumbing leakage
- Replacing a kitchen cabinet door
- Patching the holes
- Repairing some foundation cracks
- Repairing the doors or windows
Tenants expect well-maintained properties as it ensures the rental spaces have the same functional state as they were during the first move-in. However, getting these repairs done yourself enables you to claim these repairs investments for the tax year in which you sustain them.
On the contrary, capital investments include the expenses spent on the property, which enhances the property’s value. However, such improvements are more expensive than the usual repairs and more labor-intensive.
Examples of such improvement investments include new roofing solutions, HVAC systems, garage addition, or anything that adds value to the property.
However, while considering such capital improvements, it is essential to give an in-depth thought to value addition and how many enhancements can lead to a rent increase transformation. Tenants often appreciate such capital improvements to the property, making it all a more lively and luxurious place to live in. Especially if the enhancements make the tenant’s energy bills expenditures lower, they cherish this fact well.
2. Adding amenities to the property
Adding amenities to the existing properties can also be an add-on to the property. Each one qualifies as some of the capital enhancements for a new bathroom, bedroom, or garage.
Such improvements also bring the investors in a position to charge higher rents. Even the recent report of rentometer has indicated the increase in the rents for various spaces.
The investors or owners can charge more rent for the spaces due to the enhanced square feet of the property’s living space, making the area more desirable and convenient for the tenants. The property goals, the location where it is situated, and the neighborhood make sense in identifying the amenities to be invested in.
Nobody will invest in capital investments if they are unsure whether it adds value to the space. And if even the tenants do not consider the new conveniences worth the extra rental, the owner may be throwing the money in the trash.
For the amenities to be worth it the way, you always thought of, ensure to do the proper research and go through the nearby rental amenities offered in the nearby locality to make a wise decision of what can be a thoughtful investment.
Offering a standardized thoughtful amenity can be the real form of investment that may give you the desired Return on investment. And one attention-seeking fact about investing in amenities is that investors do not need to finance a lot to charge higher rents from the tenants; only some little modifications can add up more value to the rental spaces.
3. Reviewing comprehensives for neighborhood
Imagine the property space with one of the best amenities in the neighborhood. The investment in capital improvements like updated lighting fixtures, hardwood floorings, new cabinets, or any other can reasonably justify the higher rental amounts.
Determining the appropriate range of rental fares can be easily done with the help of property due diligence. Do not just think of targeting the rent amounts just like that! Instead, verify the accurate data regarding the rents in the specific area and identify the appropriate charges for the rent.
And ultimately, this enhancement in the rental thing can help further manage the capital improvements or conduct more expensive repairs concerning them. So this is like giving an opportunity to the owners to gather enough funds to cover such repair and maintenance expenses.
Having a confident eye on the market research regarding properties and applying any of the options mentioned above to the rental property can boost the chances of increasing the rents. When the improvements are made ahead of the curve, it ultimately benefits the owner with reduced cost investments due to the general wear and tear. And the best part is that investing in capital improvements may bear some sort of major failure in 5 or 15 years.
Therefore, the next capital investment that the property might require will be around 15 years later, providing the present improvement investment benefit with lesser operational costs and higher savings on rental amounts.
A Capital Property Improvement Study!
Understanding the case more comprehensively with this simple study.
Suppose a property is listed for $100,000, but after discounts and every consideration, you can get the same property at $97,000.
Now, once you can purchase the same property at $97,000 so this comes under a 50% thumb rule estimate. Installing something or investing in a capital improvement that estimates to be around $3,000 and making some inexpensive updates can permit the owners to charge more rent, but this rent increase must be reasonable.
All in all, when your complete investment number is $100,000 for a property with capital improvements, the bottom line is that you can charge the tenants higher for the advancements made and amenities provided.
How to guesstimate market rents?
Comprehensive market research and several analysis tools can help determine the realistic number for a rental property. However, reviewing and analyzing the various properties will help you learn about the neighborhood and what capital improvements you can do to your property to make it unique.
This will also help in learning where you can charge more and how you can get higher rents for a property where you have made capital improvements.
And the best part is this will help you analyze whether the capital improvement in the specific property is worth it or not.
However, several factors may impact the rental value drastically, which is essentially required to be considered. While analyzing the rental charges for the property, along with the market research, ensure to consider the following:
- What is the property size in sq ft?
- Number of rooms and bathrooms
- How old is your property?
- Does the property have all the amenities, including air conditioning, terrace space, lawn, and others?
- What type of property is it? Is it a home, duplex, or apartment?
- Is the property located in an easy-to-access location or in the top attraction places? Are there any easy transport options to reach the property?
- Is the property in a desirable condition? Or does it require some repair or maintenance?
- Does the property is located in a location where the daily essentials are easily available?
- What other facilities are there within the property that make living more convenient?
The ultimate golden thumb rule is that before renting, the property people seek is where the rental property is located. If it is located at one of the most prominent locations, owners can also ask for the rent based on the location.
And the rental estimate is made with all such considerations.
Once you are done with the rental estimate of the rental space and you are done with the market rent research, it is the correct time to adopt several marketing strategies that will help in renting the property.
If the property is already rented, it is a fair deal that you are just making some capital improvements and getting the higher rental amounts.
But what if the property is new?
Or are you about to rent the property to a new tenant?
Well, in that case, the marketing strategies will help!
Let us check out some of the marketing strategies that will help you rent your property.
Marketing strategies to rent the property!
- Put together the rental listing.
The initial step associated with marketing the property is to put the rental listing together. Ensure that this listing highlights the rental property’s best features by sharing the details the audience seeks to search for.
You can do it by including some informative yet eye catchy title, a short description of the property with some graceful photos of the space.
- Set the right rent pricing expectations
Costing contributes a lot to marketing the rental property to the tenants. However, being an investor or owner, one must set an effective rent price that sounds attractive to the market and, down the line, is budget friendly for the prospects.
Therefore working on some thorough research can play a crucial step in advertising the property and setting a competitive cost. Check out what similar rental areas are costing and what facilities they offer in the decided pricing.
- Time the rental market
This is one of the essential steps that the owners often miss. This step depicts the accurate timings to place the property in the rental market. Well, during the spring or summer months, more tenants look for new rental properties. So chances are high that you may get more tenants’ interest during this time.
And during the peak rental season, you can also list your property at a higher rental price. This may help you get better ROI for the amenities introduced.
- Target the audience
Refine the focus by targeting a specific audience. Getting social as online media plays a prominent role in convincing prospects. You can also use social media platforms that focus on visual content and provide a better reach through photos of the prospects.
- Using word of mouth
People believe that word of mouth that often counts as an advantage. As your existing or previous tenants, write reviews and recommendations and create a positive buzz within the market. This will help new renters to find the property with ease and trust.
- Offer an excellent tenant experience
Offering an excellent tenant experience is a long-lasting and one of the most reliable ways of marketing property. Existing or previous tenants can write some positive reviews for the rental place before moving out.
Apart from this, the owners can facilitate the tenants with easy-to-use and maintenance opportunities. This may include letting tenants pay their monthly rent online, an easy-to-understand maintenance request system, swift response, consistent repairs, and many more contributing to enhancing the tenant’s experience.
- Hire a professional
As you can see, there are a ton of things to do to get the property ready for rent, rent it out and maintain its condition. Hiring a professional property management company can handle all these aspects, reduce costs though their extensive approved vendor lists, increase rents by not guessing but placing strategic and specific rental prices on the property, reduce time between tenants and so much more. People often think they don’t need to pay someone to manage their property but wind up getting frustrated with the late rent payments, repair calls at all hours of the nights and all the drama tenants through at them. We at Innovation Property Management, Inc. are here to help with all of this and still make you more money!
One of the essential roles property owners play in an investment property is to set up fair market rent for tenants. Apart from all the amenities and capital improvements made, setting up a fair pricing solution for the tenants is to set up budget-friendly competitive rentals for the space giving a home-like feel.
However, spending on capital improvements can always give a better opportunity for higher rental prices for investment property. We hope this article brought all the essentials to you and provided a better vision for the considerations associated with the rental property.
Stay tuned to get hold of more such informative articles, and we will bring the most updated information to your fingertips.