The smartest and most successful real estate investors we work with understand the importance of maximizing return on investment (ROI). This essentially means earning more money than you spend on your property over the life of your investment. The longer you hold your property, the more ROI you’re likely to earn because your tenants are paying down your mortgage. The more you invest in improvements, the more ROI you’ll earn because you’re able to increase your rental value and
attract well-qualified tenants. The better your tenant retention, the less you’ll lose on vacancy and turnover costs. That maximizes ROI as well.
A lot of investors will come to us with this common question: how can I increase the ROI on my rental property?
Fortunately, there are several ways to do this, and we’re sharing some of our real estate and
property management expertise by giving you some tips on how to earn more and spend less when you own rental property.
Prioritize Renovations and Updates: Be Willing to Invest in Your Investment
Well-qualified tenants are often drawn to properties that are aesthetically pleasing and in good condition. You don’t have to be an expert to understand that well-maintained homes are always going to earn more than those that are deteriorating or not in great shape.
It’s more than maintenance that’s required, however. You need to be willing to improve your property and make cost-effective renovations that will increase its value. You want to renovate and upgrade the property to make it more appealing. This process may include:
- Replacing old appliances with modern, energy-efficient models.
- Improving the lighting inside and outside of the home.
- Installing hard surface flooring instead of carpet. It’s more durable, less allergenic, and appealing to residents.
- Creating better curb appeal with good landscaping.
If you can attract high-quality tenants, they’re more likely to be willing to pay higher rent and stay for a longer period of time, which will increase your ROI.
While we’re on the topic of earning more through property renovations, you need to understand what tenants want. Today, tenants are looking for smart home technology. Consider smart thermostats and video doorbells. Environmentally sustainable rental homes are also growing in popularity and value. By switching out your fluorescent bulbs for LED lights and installing better plumbing fixtures to save water, for example, you’ll have a modern and environmentally friendly home to offer tenants for top dollar.
Making Smart Rental Increases
It’s pretty obvious - to maximize ROI, you need to bring in more rent.
Raising rent is one of the most effective ways to increase the ROI on your
rental property. However, it’s important not to overcharge tenants, or they may look for a more affordable option. To avoid this, it’s recommended to research the local rental market and assess the market value of your property. If you find that the market rent is higher than what you’re currently charging, you can gradually increase rent.
You’ll have to pay attention to any rent control laws that pertain to your property. You’ll also have to access good market data. We have that; our insights and analytics are constantly coming in, and it helps us to price properties accurately, recommend renewal increases, and get an idea of what good tenants are willing to pay.
Be smart with your rental rates and increases. You do want to maximize what you earn, but not at the risk of a longer vacancy or an expensive tenant turnover.
Lower Your Rental Property Expenses
To earn more, you have to spend less. So, increase ROI is by lowering expenses associated with your rental property. You might find ways to cut down on maintenance costs without sacrificing the condition and value of your investment. Maybe you can look for new vendors or invest more heavily in preventative maintenance in order to avoid those costly emergency repairs. You can reduce utility bills by upgrading your systems, paying attention to HVAC servicing, and
investing in technology.
Look for ways to offset expenses with extra income. Are you
allowing pets? You should be. That way, you can collect a pet fee and even charge pet rent. If you’re providing landscaping services or pest control for your property, roll those monthly expenses into the rental amount so your tenant is ultimately responsible for covering them.
Diversify Your Investment Portfolio
Another great way to increase your ROI and maximize what you earn is to reduce your risk. That requires some diversification. Consider looking for new property types, investing in new locations, or renting out a few short-term vacation rentals in addition to your long-term leases.
You can diversify in the way you finance your next acquisition or you can consider a 1031 exchange. Talk to your Merced property manager about the opportunities that exist in this and in nearby markets.
Partner with a Property Management Professional
Maximizing ROI is an ongoing process that requires constant attention and effort. By renovating and upgrading the property, raising rent gradually, lowering expenses, considering portfolio diversification, and hiring a property management company, you can significantly increase the ROI on your rental property.
Let’s talk about some strategies that will work for you, specifically. Please contact us at Wisdom Property Management & Realty, Inc. We lease, manage, and maintain investment properties in Merced, Atwater, Livingston, Winton, and Delhi.
