Rental properties are some of the most common real estate investment properties. They are relatively easy to get into, and they offer some of the most attractive returns in the investment market.
However, not all rental investments are successful ones. The reason is that most amateur real estate investors adopt one-sided strategies when it comes to renting out a house: either they focus solely on acquiring a higher rent potential for their property, or they focus entirely on having a higher occupancy rate.
This article is going to try to guide you on how to rent out for more. Whether it is through Airbnb or through traditional rental strategy, there are several metrics that should be taken into account while making your investment strategy decisions in order to determine the highest value that you can get from your rental property.
Before getting started, you should note that the following images are extracted from Mashvisor, and they will be used to clarify certain points throughout this blog:
Traditional vs. Airbnb
When first asking yourself the question of “How to rent out for more?”, you will need to decide which rental strategy best suits your real estate investment strategy. The main factor which should be taken into consideration is whether you want to rent out your house to short-term or long-term tenants.
If you’re looking to rent out your house to short-term tenants, Airbnb is generally a great option for that as it will save you a lot of the time and effort needed during tenant turnovers and property management, while traditional leasing is a better option for long-term tenants due to the longer periods with no vacancy time which does not need Airbnb services to be on top of things to market your property.
However, and as indicated in the images above, the amount of rental income varies greatly in some cases between the Airbnb and traditional method of investment, so which one can help you rent out for more?
Related: Real Estate Investing: Traditional vs. Airbnb Investments
How do I use Mashvisor’s data?
As you can see in the first image, when it comes to this specific investment property, you can rent it out for more using the traditional rental strategy despite it requiring higher monthly expenses. Moreover, when compared to other data from our website and from Airbnb, the cash flow, the cash on cash return, and the cap rate of traditional renting in the area all seem to be higher than that of the Airbnb.
This result can help you determine that this specific property in this specific location will have a greater value being rented out traditionally rather than on Airbnb.
Related: 6 Reasons to Switch from Traditional to Short-Term Investment Properties
This data can be used to determine whether or not and how you can rent out for more when it comes to the rental strategy used. So, how do you acquire such data?
You can acquire the data by doing some extensive research and calculation and by comparing your rental property with other similar income properties in the same location. This means that you will need to engage in real estate market analysis and investment property analysis. Alternatively, you can use the real estate investing tools that Mashvisor provides to receive this information and much more with a simple click of the mouse.
Occupancy rate
So, you’ve already decided on renting out your house traditionally for long-term tenants, what’s next?
After gaining a head start on your real estate investment by making the right decisions for the early stages of the investment process, it is time to rent out for more. One of the major factors that can help you rent out for more is the occupancy rate. In order to have a successful investment, ideally you will want your rental property to have an occupancy rate of 100%, meaning that you will want your income property to never be vacant.
Every month that your investment property is vacant will cost you 8.3% of your potential annual rental income. You need to keep this in mind when deciding on your investment property’s rent rate. If lowering your rent by 5% increases your chances of finding a tenant for a month, this would generate you more rental income than keeping the rent high and suffering from a month of vacancy. If lowering your rent by 10% will get you a tenant for 2 months, the same applies, and so on.
Increasing rent strategically
While maintaining a high occupancy rate for your rental property is important for gaining a higher rental income, it should always be balanced out with the amount of rent on your property. As a real estate investor, you’re looking to rent out for more. The most direct method used to rent out for more is to increase your rent. It is straightforward and simple: higher rent = more monthly rental income.
However, renting out for more relies on a delicate balance between the rent on the investment property and the value that it provides in exchange for that rent.
Related: 5 Creative Ways to Increase Rental Income
When increasing your rent, you want to do it strategically as to not lose more value than you gain. For example, you have to keep in mind that moving from one property to another costs the tenants some money as well. This means that tenants will prefer to stick to the same rental property unless they find something with a higher value for the same cost.
How can you use that to your advantage when trying to rent out for more?
Find the missing value that tenants are looking for in a rental property and add that value to your income property to justify the increase in rent. It is only natural that any new amenities or renovations of the investment property will add to its value. If you’re renting out your property for long term to loyal tenants, then adding the specific value that they desire will make them more willing to accept the increase in rent.
For example, adding a dog house to an income property can add to its value, and therefore will justify your increase in rent. However, if your data shows that most tenants who rent your place do not usually have pets, or have cats instead of dogs, then the value you’ve added to your house does not justify the increase in rent for the tenants that you’re trying to appeal to, and it will not help you rent out for more.
Conclusion
In order to rent out for more, you will need to take a number of factors into consideration to base your strategies around.
In order to rent out for more on Airbnb, you will need a different strategy from when renting out traditionally, as each rental strategy is generally more optimal for short- or long-term tenants.
Your occupancy rate is a major factor to take into consideration when trying to rent out for more as it gets directly affected by increasing your rent or decreasing it. Increasing and decreasing your rent rate can both be used to rent out for more depending on the specific situation and your tenants. If decreasing your rent means that you have a higher occupancy rate, the amount decreased could could be overcompensated in terms of rental income via the higher occupancy rate. Meanwhile, increasing your rent should be done strategically in order to not lose tenants, but to rather justify the increase by providing more value to your property.
Using Mashvisor could provide you with the data needed to make your investment decisions in order to rent out for more by comparing your rental property with other competing similar properties in the same location, and by showing you the optimal rental strategy, the potential value of your investment property, and how much you should be renting it out for.