SEVEN THINGS
BUY & HOLD
Meet with an accountant to be sure you’re not missing important deductions. COLLECT LATE FEES Most leases include a clause entitling you to collect a late fee when the tenant does not pay the rent on time. Always collect it. When you don’t, you send a message to the tenant that you’re not so concerned about when the rent is paid so long as it is paid. To make matters worse, the tenant likely will pay late again because there are no ramifications, and if words gets out to your other tenants that you don’t collect late fees, they may get a little lax about when they pay their rent, too. Even one late-paying tenant can have a dire impact since you likely rely on the rent payment, to some extent, to make your mortgage payment and to pay other property expenses. If the tenant is not paying, you may have difficulty paying your obligations on the property, which can lead to late charges and even a black mark on your credit. Avoid this by informing new tenants that there is a late fee and how much it is. Then, if they are late, collect the late fee. No exceptions. If they pay the rent late but exclude the late fee, let them know that you can’t accept payment until they include the late fee. Begin the eviction process if they fail to make the payment in full. It’s better to lose a tenant over one infraction than to let the problem—and the financial loss— compound month after month. UPGRADE YOUR PROPERTY People are willing to pay more to live in a nice rental property than they are to live in one with broken door knobs, stained carpets and past-their-prime appliances. “The more outdated a property is, the lower the rental rate will inevitably have to be,” says Dennis Cisterna of Investability, a website providing free access to exclusive listings, data and services. But, he adds, if you make smart, cost-effective renova- tions either up front or between tenants, you’ll be able to charge at least the current market rate—maybe even more—for rent in the neighborhood. Furnishing the rental is another option if you have a property in a market with
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Profit Points HERE ARE SEVEN WAYS INVESTORS CAN INCREASE THE MONTHLY NET ON THEIR RENTAL PROPERTIES.
REDUCE EXPENSES In addition to raising the rent, audit your monthly expenses to see if you can cut costs. Start by asking for discounts on services, such as landscaping or pool, if used at multiple properties. You’ll also want to compare prices. Are you overpay- ing for landscaping, property management or insurance? With insurance, also consid- er the coverage you have. Are you paying for more insurance than you actually need? Taxes can also cut into the profitabil- ity of your property. Davis recommends appealing your property tax assessment if it’s above market value, which he says it often is. You can write off expenses to re- duce your tax bill, too. Keep track of all maintenance expenses and repair costs on your properties as well as mortgage interest. Other deductible expenses include insurance, business-related travel and the expenses of a home office, if you have one.
2 you use a property management com- pany, you’ll pay a tenant placement fee instead, typically the equivalent of one month’s rent. So, how do you keep your rental occupied in the first place? Make it a property that people won’t want to leave. Keep it well-maintained, respond to tenant calls and provide good cus- tomer service. When it comes time to renew a good tenant’s lease, offer incen- tives for signing a longer-term lease. RAISE YOUR RATES The easiest way to increase your month- ly income is to raise the rent, if you can. Some local jurisdictions have rent control regulations that limit how much you can charge, the percentage of your increase and under what circumstances you can increase rent. Consult an attorney or local housing authority to learn what regulations may affect your property.
If rent control isn’t an issue where your property is located, consider systematically increasing the rent every year (or whenever the lease is up for renewal) based on the local market. Zillow, Craigslist and even real estate agents who know the neigh- borhood can give you an idea of the going rate. For a more comprehensive look, purchase a detailed report from a company like RentRange, which provides comps for nearby rentals, market trend data and area vacancy rates. Assuming rent rates are rising and not declining, you can probably increase your rent rates a modest 1 to 3 percent with- out the risk of losing your tenant. (It will cost the tenant money to move, so unless your increase is out of line, he or she will probably stay.) To make the increase less painful, you can tell the tenant it reflects an adjustment in your mortgage rate or HOA fees. Or time it to coincide with an improvement to the property.
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by Teresa Bitler
YOU DON’T HAVE TO ADD another property to your portfolio to increase your monthly net. Here are seven ways to make your current properties more profitable. MINIMIZE VACANCIES Vacancy is the “biggest profit-killer for rental properties,” according to Brian Da- vis, co-founder of Spark Rental, an online educational resource and rental automa- tion website. Every day you don’t have a tenant is a day you don’t have income to
cover that mortgage, and that loss affects the overall profitability of the property. On top of that, you still have to pay utilities and make repairs, which could cost thou- sands of dollars, depending on the tenant. (Davis points out that many tenants leave the carpets and walls in bad shape.) Even if the property needs only mi- nor work to get it rent-ready, you’ll still have advertising expenses and the cost of your own time to show the property, screen tenants and run credit checks. If
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64 | think realty magazine november :: december 2016
thinkrealty . com / mag | 65
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