The main goal of real estate investing is to make money. Making money inreal estate can happen in many different ways, but rental properties remain one of the best ways to make money as a real estate investor. In order to maximize your profitability in the world of real estate investments, you have to know how to assure the best return on rental properties at all times. Your return on investment with investment properties is the difference between the rental income and the rental expenses, which equals the cash flow. Real estate investors should not simply aim for positive cash flow but for the highest possible positive cash flow. Here is our guide to help you in the process of achieving and maintaining the best return on rental properties.
Related: Real Estate Investing Guide: How to Find an Investment Property with Positive Cash Flow
1. Set your rent right
One of the first questions you will encounter when you buy a rental property is how much rent you should charge for your income property. This is a very important real estate question as it will determine your rental income, one of the key factors affecting a landlord’s profitability and one of the major determinants of the best return on rental properties. The general rule is to set your rent price at 0.8%-1.1% of the property price, depending on the type of property, the property price, the services you offer, etc. You should be very careful when setting your rent: if you set your rent too low, you are missing on an opportunity to make more money from your real estate investment; if you set your rent too high, you might push away tenants and run high vacancy rates.
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2. Minimize your vacancy rates
The previous point leads us directly to the second tip on how to assure the best return on rental properties: minimize or even try to eliminate vacancy rates. Every time your income property is left without tenants, you lose money from it – rather than making money – because you still have to cover the mortgage payments and all other operating expenses without making any rental income. High vacancy rates are a particularly major risk with single family properties for rent because if you have a vacancy, you receive zero rental income. With multi family properties and, apartment buildings, or condo complexes, even if you have no tenants in a couple of housing units, you still make money from the rental units being occupied at the moment.
To minimize the vacancy rates, make sure to set the rent price right, to build a strong working relationship with your tenants, and to keep your tenants happy. Happy tenants are less likely to move out of your rental property as long as they remain in the same location and cannot afford buying their own home.
3. Minimize your maintenance costs
Maintenance costs are one of the operating costs of a rental property. Maintenance costs are hard to predict and vary widely from one month (or year) to another. To make sure your maintenance costs are as low as possible (within a reasonable limit), make sure you perform any required maintenance work as soon as the need arises (to avoid a more major problem) and make sure to buy an investment property which is simple and easy to keep up with. Although you will be able to charge higher rent for a more luxury rental, the upkeep will be so expensive and requiring that it will most probably not be worth it. To have the best return on rental properties, don’t overspend on maintenance.
4. Choose the right property type
If you are now about to buy an investment property, you should make sure to choose the best property type for your particular location. The real estate markets across the US are very different, each one with its own demand for and supply of income properties. Before buying a rental property, you should know your local housing market and the tenants pool to assure that you buy the most appropriate type of investment property. For example, if you invest in a college town, it makes sense to buy an apartment for rent. If you invest in the suburbs of a major city, you should buy a single family home for young families. And so on and so forth. Having the right type of rental property will assure that you are able to rent it out and charge the maximum rent price. This will in turn lead you to the best return on rental properties as a real estate investor.
To buy an investment property of the right type for your location, click here.
5. Choose the best rental strategy
Another thing you should absolutely do as a real estate investor in order to achieve the best return on rental properties is to set the right rental strategy. Some places are best for long-term rentals (traditional rentals), while others are best for short-term rentals (Airbnb rentals). Once again, you should know your local housing market, rental market, and tenants pool to choose the optimal rental strategy to assure maximum occupancy rates and the highest possible rent to charge. This will drive your rental income up, which in turn will push your return on investment up as well.
You must have noticed that several times we mentioned that you should know your local housing market well in order to apply the tips and hints on how to achieve the best return on rental properties in the real estate investing business. But how do you do that? How do you become familiar enough with the local real estate market to make the best investment and property management decisions as a real estate investor and a landlord? Well, you have to perform real estate market analysis. This will help you incredibly understand the local housing market, the demand for rental properties, the tenants pool, the available and needed types of income properties, etc. Comparative market analysis (CMA) will help you set the right rent price by comparing your own rental property to other rental properties in the area. Moreover, you will need to conduct investment property analysis for your own rental property to know how to maximize your return on investment in terms of cap rate, cash on cash return, etc.
Related: How To Perform A Real Estate Market Analysis
If all these types of analyses sound daunting, don’t worry – you can replace them all with an investment property calculator, also known as a rental property calculator. This is the most important real estate investing tool which eliminates the need to conduct real estate market analysis as well as investment property analysis manually. The investment property calculator saves lots of time and energy for real estate investors and landlords. If you are looking for the best rental property calculator, sign up for Mashvisor to use the available investment property calculator. It will provide you with all major return on investment metrics for any investment property across the US housing market and allow you to buy the best real estate investment properties with the best return on rental properties. With Mashvisor’s investment property calculator, you will always have the best return on rental properties.
Related: How Can You Use a Rental Property Calculator to Buy the Best Investment Properties?
To keep educating yourself on everything related to the exciting world of real estate investing (such as how to achieve the best return on rental properties), keep reading our blogs on Mashvisor. To start buying the best investment properties, sign up for Mashvisor.