Rental Property Profits: What You Need to Know to be Profitable

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Real estate investing is one of the most profitable asset classes you can invest in. One of the best ways to profit from it is by renting it out. But not all investors are making a good income from it. In this article, we’ll show you how to increase your rental property profits.

How Much Profit Should You Make For Rental Property?

The profit you’re going to make actually depends on a lot of factors. You need to consider:

  • The housing market trend – is real estate booming in the city or state you chose?
  • The neighborhood – is the property in a good neighborhood or community? Are there history of crimes, violence, etc. in that neighborhood?
  • Competitor rental pricing – how much rental does your competitor charge? Are you able to give a competitive rental price?
  • The quality of your tenants – more on this below.
  • Accounting the expenses of your rental property – what are your expenses in the property? Can you lower them?
  • Rental Property Cash Flow – is the cash flow you’re getting more than the expenses your property incurs?

To project how much you’re going to make for a year, you need some figures on how much the rent will be, how much is the mortgage, and the expenses of the property incur.

For example, your rental rate is $1,200 per month. The mortgage and the expenses your property accumulate totals $800 per month. With that knowledge:

$1,200 – $800 = $400 profit per month

Knowing that, here are some things you can do to increase your rental property profits.

Pick the Right Tenants

Tenants can either be assets or liabilities for your rental property business. That’s why putting a screening process to find the right ones are really important. Here are some of the things you need to know about your tenants:

  1. Do they have a good credit? You need to check if the tenants looking at your rental property can afford your rental rate. A lot of landlords are asking for proof of income to those who might be interested to rent. You can also do credit checking in the banks to see if the possible tenant is the right fit.
  2. Do they have a good background? What kind of a person are they? Do they have criminal background? Do they have a family member or a friend that you can contact? Having a good background is a great indicator that the right tenant is in front of you. Make sure you do some basic background checks.
  3. What does their previous landlord say about them? Not a lot of landlords do this. That’s why they get surprised when the tenants trashed their property. To make sure this doesn’t happen to you, call their previous landlord. Ask about their relationship and if the tenants were good to them. You’ll get a lot of insights from their previous landlord that will help you decide whether to accept them or not.

Doing the suggestions above will keep you away from bad tenants that will actually lose you money. Remember, not all tenants are created equal.

Don’t Include Utilities In The Rent

This is a highly accepted practice among landlords and tenants. However, not a lot of landlords do this. They offer a rental rate and they include utilities on that.

To make sure you maximize your income, don’t include the utilities in your rental rates. The idea behind is that you want to reduce the number of expenses you’re paying that’s not really adding to your bottom line profits.

Take Note of the Expenses

There are other necessary expenses the property incurs that you need to be aware of. They might be “excessive” but they are necessary to make sure that you have a safety net that protects you from a lot of downsides.

  • Insurance
  • Property management
  • Property maintenance
  • Property taxes
  • Homeowners Association (HOA) Fees
  • Rental income tax

Applying these things, especially accounting the property costs, will increase your rental property profits.

If you want to know how much your property can rent for, click on this link. It will take you to our “Profit Maximizer Evaluation.”

How much can your home rent for?