When it comes to investment vehicles that guarantee high returns, real estate is often known to be one of the best ways to achieve passive income, largely due to high demand for living spaces. The reality is far from ideal, considering that setting up a rental property requires a great amount of time, effort, and money. However, the real challenge revolves around keeping your assets profitable.
A great deal of effort is needed initially, but once you’ve set it up right, your real estate investment could produce a consistent cash flow that keeps growing. Only then can you accomplish what’s closest to a passive income stream. Here are things to keep in mind that will enhance your rental property’s income-generating potential.
1. Look to the Location
From the outset, your property’s profitability is determined by factors you have no control over, and chief among them is location. If you’re intent on acquiring an apartment complex, you might as well look for one that’s situated in an emerging market offering a favorable investment climate.
This means finding a rental property in a locality where demand is high among tenants and the cost of living is more manageable. It’s also important to examine other factors like the cost of doing business and even livability.
Before looking for a rental property to acquire, research neighborhoods and cities where rental growth has been consistent and where many renters flock to on account of how closely these places match their lifestyle needs.
Consider the average cost of buying real estate in these areas. High prices are expected, so you will have to consider them before diving in. To be sure, ask people on the frontlines, such as real estate professionals, tenants, and other investors. Doing so will help you hone in on properties that are already performing well.
2. Analyze Market and Rental Trends
It pays to be strategic when it comes to setting your rates and promoting vacancies to renters. Even if your rental is performing decently in terms of cash flow, your rental property won’t tap into its full income-generating potential if you neglect conducting a thorough market analysis.
Starting with setting a good rental price, you will need to look at similar properties in the same area and draw out averages. This step is crucial as it will help you avoid setting the rate too high that it will scare off tenants, or too low that it will eat into your bottom line.
Coming up with a historical analysis of rent trends goes well with forecasting possible increases as inflation picks up. Along with this, you need to understand the pain points of rental hunters in your area. In some locations, pet-friendly establishments and co-working spaces are ideal, especially among millennial and Gen Z renters. These preferences shift over time, and you will have to pay close attention to them so you can invest in the improvements that work well in attracting more occupants.
3. Explore Value-Adding Features
Preparing a rental property isn’t limited to making aesthetic improvements. While a new coat of paint and sparkling interiors are appealing to the general population of renters, you will need to consider adding more features. The right ones allow the property to compete for a larger share of the local market and establish additional income streams. Adding an in-house laundromat would be a great draw for tenants who prioritize convenience. This feature can also add to your property’s monthly income.
Extra storage spaces are also a great way to attract tenants. Rental lockers are becoming popular as many tenants demand a safe and convenient means to secure parcels. Smart home systems are also sought after among young professionals, so installing one can justify extra fees. More expensive amenities like a fitness center are also worth exploring. As long as there’s a high demand for such features, you could get a good return in the long run.
4. Get a Good Property Manager
Ensuring that your rental property produces consistent cash flow requires constant effort. You will need to monitor its financial health, promote available units to motivated renters, analyze the reasons behind your high vacancy rate, and address tenant concerns and disputes that could otherwise harm your bottom line. You can’t expect to possess enough time to handle all of this, so you must recruit a property manager who can serve as your eyes and ears on the ground.
If you’re wondering about the roles and responsibilities of a property manager before getting one, you will need to understand that self-management isn’t for everyone. You still have a day job and other investments to oversee, so you will need someone whose sole purpose is to ensure your investment runs smoothly and, more importantly, produces consistent cash flow.
A property manager does this by keeping tenants satisfied through timely repairs, maintenance, and support. They will also ensure your property is promoted, alongside onboarding quality tenants with no record of delinquency. It might cost you a fixed amount each month, but getting a property manager allows you to focus on more important matters while your property turns a profit.
5. Pay Attention to Your Operating Costs
Even with a property manager, you still need to come up with a clear picture of what to adjust to maintain profitability. Market conditions change every time, as do the costs of utilities and goods. You will need to make informed decisions in response to these changes, and you can only do so when you look at your property’s monthly operating costs.
From this, you will be able to double down on amenities and other components that are hitting your bottom line. If your fitness center isn’t earning and becomes underutilized, then you might as well convert it into a lounge or cafe.
A large part of analyzing your operating costs is knowing what cost-saving measures you can implement. If electricity costs are increasing, you can have your property manager inspect pipes for leaks and determine whether additional insulation is needed for certain areas.
You can also implement a RUBS system that lets you divide total utilities expenses fairly among tenants, with due consideration to the size of their units as well as the types of appliances they use. These adjustments will help keep your bottom line intact and your tenants happy.
Endnote
If you’re investing in a rental property for the first time, it matters to realize that continuous effort is still needed. In due time, your property will become easier to manage as the bottom line keeps growing.
