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There are a lot of factors that determine how much rental income you'll earn from your investment property and most of them can be navigated by landlords with the right expertise. Knowing what you can and should do goes a long way, but you also need to know how to adapt to things you cannot control.
Increasing the Rental Income of Your Investment Property
Marketing Your Property Right
The way you market your real estate investment directly influences your vacancy rates, and your vacancy rates will also affect your overall rental property income level. You can improve the visibility of your listing by utilizing platforms like social media or listing services, as well as using professionally taken photos to make your property more presentable.
Researching Market Conditions
Knowing the current state of the rental market allows you to adapt to the changes accordingly, which can help your business. For instance, comparing rental prices with similar properties in the area allows you to stay competitive and reach your investment goals. You can adjust your monthly rent according to market rates to attract more prospective tenants.
Making Property Upgrades
By making improvements to your rental property, its value will slowly increase from its purchase price. That means you will also be able to increase cash flow by matching the value of your property with higher rental rates. The more money you make, the more improvements you can apply, creating incremental growth for your net operating income over time.
Reducing Vacancy Rates
Marketing your property is only one aspect of reducing vacancy rates. There are other ways in which you can effectively attract more applicants such as adding amenities like an in-unit laundry or pet-friendly facilities. With a wider market for applicants, you'll have a better chance of finding the right tenants for your units faster.
Making Energy Efficient Upgrades
If you switch to energy-efficient shower heads, toilets, and appliances, you notice a decrease in monthly operating expenses and an increase in net operating income. Even upgrades like proper insulation can reduce utility costs since they allow tenants to keep their preferred temperature longer without raising energy costs as much.
Adding Convenient Rent Collection Methods
Your property's cash flow largely depends on your rental income. If you offer various payment methods through different channels like a tenant portal or through ACH transfers, your tenants will find it convenient to pay on time or earlier.
Considering Your Property Type
You'll find that matching your business plan with your property’s unique characteristics can significantly affect your rental property cash flow. If your real estate investment is located in a tourist destination, for instance, you might generate more cash flow by turning it into a vacation rental rather than a residential rental property.
Diversifying Your Portfolio
This is more about minimizing risks than maximizing rental income, but it does ultimately affect your average cash flow. By diversifying your portfolio, your monthly or annual cash flow won't easily be affected by economic downturns or other changes in the market. Even if you're losing money on one property, you could still rely on a positive cash flow from another.
Reliable Property Management
How you manage your rental property is one of the main factors that determine monthly cash flow, especially with multi-family properties. General maintenance costs can be reduced if the property and its tenants are cared for, and the potential expenses can be allotted to something better like additional storage space, a fresh coat of paint, or other improvements.
Preparing for Unexpected Costs
When you calculate cash flow, it's best to account for unexpected expenditures as well. Property expenses can change based on increases in interest rates, insurance costs, property taxes, and more. Without anticipating such expenses, you might be surprised to find your income stream is no longer enough to cover your total expenses.
How to Calculate Net Operating Income?
Cash flow analysis involves a lot of math, but it's not as complicated as you think. Your net operating income (NOI) is the profitability metric that measures how much cash flow your rental property generates. Simply deduct your operating expenses from your gross operating income, which is the income streams from rent, application fees, and other sources of income from the business.
Maximize or Add Property Areas
Every space in your property has potential. If you have an unused basement, for instance, you can use it as an extra storage space for your tenants or build amenities that would benefit all the residents of the rental property. This allows you to increase your rental rates based on what you can offer, therefore earning more money to cover property expenses.
How to Determine if My Rental Business is Profitable?
You can use a form of cash flow analysis called cash-on-cash return, which is used to calculate returns from a real estate investment. The formula for it is as follows:
Monthly Net Cash Flow x 12 months ÷ Property's Purchase Price
Real estate investors usually use the cash-on-cash return metric to measure the property's performance, as well as the annual distributions paid by income trust as a percentage of their current price.
How to Increase My Property's Income?
Good cash flow is crucial in real estate investing, especially in the rental business since you have monthly expenses to pay for. To increase income for your rental property, you can consider options like increasing rent. You may also charge pet fees or security deposits to potential renters to cover unexpected damages.
Should I Hire a Property Manager?
Your rental property can benefit from professional property management, especially from companies like CRM Properties can help your Indianapolis rental business increase its gross cash flow to maximize your investment's value.
We can market your listings, respond to tenant concerns, screen applicants, collect rent, conduct maintenance and inspections, handle accounting for complicated matters like property taxes, and oversee tedious processes like evictions. Earning passive income is possible for you, schedule a free consultation with us to get started!