You may have heard that real estate is a great investment vehicle that can be incredibly lucrative for you, and this is entirely true. While some investors will simply buy, hold and sell property for a profit through a gain in appreciated value, others are choosing to be a landlord in order to generate additional rental income. When you are a landlord, your tenants will essentially pay your mortgage for you. This means that you can benefit from regular rental income from the property as well as principal reduction and equity accumulation through the tenants’ payments rather than through your own expense. Before you move forward with plans to become a landlord, take note of a few helpful tips to boost your profitability as a landlord.
Choose the Right Investment
One of the most significant factors that will make or break your profitability as a landlord is the property. Choose a property in an ideal location that will be appealing for renters, such as close to major employers, major thoroughfares for an easy commute, shopping areas, great schools and more. Ensure that the property is in good condition, and look for easy maintenance features that are ideal for a rental property. This may include laminate counter tops, a sprinkler system and more.
Get Affordable Financing
After you have found the right property to purchase, the next step to take is to line up affordable financing. Your profit comes from the gross rental income minus the expenses, and your mortgage payment will be one of the largest expenses associated with the property. Consider shopping around for a great rate and making a larger down payment on the property in order to make the mortgage payments affordable.
Select Your Tenants Carefully
You may not realize it, but some tenants can be much more costly to have in the rental than others. For example, some will cause tremendous damage to the property and will leave it in poor condition. This increases your make-ready and repairs expenses and eats away at your profits. Tenant screening is critical, and this is because part of the tenant screening process involves checking tenant rental history to ensure they left properties in good shape before vacating.
Track Your Expenses
In addition to taking these steps, you also will need to track all of your expenses for tax purposes. This includes large expenses like property taxes, insurance and the mortgage payment. It also includes make-ready costs, landscaping fees, repairs and more. These are all deductible on your taxes, and they can greatly reduce the overall tax liability that you are responsible for because of the rental property. In fact, many savvy investors are able to turn a real profit on their property while showing a loss on their tax returns because of their property expenses.
Complete a Make-Ready Quickly
As a landlord, you will have to deal with tenant turnover, and this can be a costly time in the life of a landlord. This is because the property will be vacant and not producing income at this time, yet you will still need to make the mortgage payment and pay for other expense, such as utilities, until you find a tenant. It is smart to jump on a make-ready as soon as the property is vacant. Complete the work diligently so that you can quickly start marketing the property to find a new tenant.
Being a landlord can take a lot of effort, but it also can be tremendously financially rewarding. When you follow these tips, you will be taking all steps necessary to ensure profitability from the property.
