5 Ways Landlords Can Maximize Their ROI
Updated April 8, 2020
By Brandon Jarman
Whether you’re a first-time homebuyer or seasoned landlord, you likely want to maximize the return on investment (ROI)—a.k.a. Profit—on your rental property as much as you can.
Now more than ever, landlords have instant access to market research and rental estimate tools online like Rentometer. As a result, landlords can set more accurate (and profitable) rental rates and keep their renters happy.
So, where do you start? Begin by educating yourself to get familiar with the housing market and rental laws in your state.
Here are five ways to get the most of your rental property:
1. Conduct Market Research
Every city and neighborhood’s rental rates fluctuate over time and across different housing types. Before you put your rental property on the market, you need to know its value so you can appropriately charge your future tenants.
• First and foremost: research your city’s rent control laws. Know what you’re responsible for covering as a landlord, and learn your state’s cap on annual rent increases for multifamily properties.
• From there, analyze the rates of housing units in surrounding areas that have similar square footage.
• Then, use a rent estimate tool to fact-check your research.
It’s also wise to consider any recent changes or upgrades in your home that could increase its value. If you recently renovated your property, evaluate how much your renovation efforts can improve the overall rent.
As you establish a monthly rate, determine how much of the utility costs your tenants will cover. Does it make more sense to increase the monthly rate and assume more utility costs? Or vice versa? Do the work upfront to know the answers to these questions, that way you don’t run the risk of undercharging your rental.
2. Don’t Overpay on Mortgage Rates and Loans
Research shows that first-time homebuyers typically pay thousands more than experienced buyers on the same home.
Much of this is because first-time buyers often set their sights on one home and may overlook negative aspects of the property that devalue it as a result. In addition to researching housing costs, it may be worthwhile to team up with a HUD-certified agency for professional advice.
Another option is to work with a buyer’s agent, who can vouch for you and be honest with you if a house’s price is unreasonable or out of your budget.
Here are some additional tips to avoid overpaying on a mortgage loan:
• Shop for the best-priced loan (see if you qualify for a VA loan, specifically).
• Compare annual percentage rates (APRs) with lenders’ truth-in-lending disclosure statements.
• Keep tabs on your credit score—the lower the score, the higher your monthly mortgage fees.
• Put more money down upfront to avoid higher monthly fees.
3. List Your Property Online
To occupy your rental property more quickly and efficiently, list your rental property online. In doing so, your property listing will syndicate itself across the web and advertise itself faster than you could on your own. By partnering with sites like Rentometer, Zillow or PadMapper, you’ll save time and money in the long-run by investing more money upfront on advertising.
Just as you want your rental leads to find you online, set up online rental applications to incentivize prospective renters to apply. It’s more convenient than collecting documents, and it’ll streamline applications and manage your lead flow for you.
4. Take Advantage of Tax Deductions
Being a landlord requires an investment of both time and money. To mitigate the financial burdens landlords face, the IRS allows most landlords to shave a good amount off their taxes—as long as you routinely log your expenses for home repairs and general maintenance.
There are several tax deductions available to landlords. These deductions include interest on mortgage payments, run-of-the-mill home maintenance and repair costs, property management fees, and travel fees (if you need to visit your property for maintenance purposes).
Take advantage of the tax benefits available to you as a landlord, and make a habit of keeping a good record of your home’s expenses so you can reap the benefits come tax season.
5. Install Energy-Saving Home Products
Smart home tech is all the rage, and renters are becoming increasingly less content with the homes that don’t offer smart tech. If it makes sense monetarily, outfit your rental property with smart bulbs and smart thermostats to save on utility costs, or consider installing a security system.
Smart home tech justifies higher rent, and most of this tech saves money in the long run. Installing smart home automation will save you money on utility costs, but it will also suck up your internet bandwidth. To solve this, install high speed or fiber internet in your rental property, so your devices function properly. That way, you won’t have to sacrifice upgrading one aspect of your home for another.
Above All, Do Your Research
In a perfect world, renting out your home should earn you passive income—not cost you an arm and a leg. With the internet at your fingertips, use all the research tools you have available to make the smartest and most cost-effective decisions for your rental home.
Keep a pulse on housing market trends, and charge accordingly. The more you become an expert in the housing market, rent control laws, and the benefits available to you as a landlord, the more lucrative your side-hustle can be. Tools like Rentometer can keep you ahead of the curve in your local area.
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