Are you planning on investing in a rental properties for the first time in 2021? If so, you’re making a smart choice!
Rental properties are an excellent way to build wealth and generating monthly cash flow.
In this article we will share with you several tips successful and profitable landlords use to build profitable portfolios of rental properties.
1. Profitable landlords know their numbers
It’s not enough to calculate a mortgage, add on the profit you want, and rent out a property for that amount. There are a ton of other numbers you must consider.
Here are just a few:
- Property taxes
- City tax
- HOA dues
- Maintenance and repairs
- Vacancy rate (approximately 8% of the rent)
You may also want to consider a property manager, particularly if you have to manage many rental units. However, for startups, the cost of a property manager usually makes it an unviable investment.
Profitable landlords are always realistic, even though they always consider the worst-case scenario to ensure they have the cash flow available.
2. Successful landlords know how to find the right rental properties
The best landlords keep their emotions out of business. It’s easy to find a property that you fall in love with. But a bargain price tag doesn’t always mean it’s a good deal. After all, it’s paying tenants that make a rental business successful, not a cheap property.
It is essential to have a good knowledge of real estate, especially in your local neighborhood. You need to know how much people are paying for rent in the area and for different properties. Consider what amenities are close by—for example, schools, public transport, shops, and physicians. Is the property in a safe neighborhood? The most profitable rental units are the ones that attract good tenants, who pay their rent on time.
3. Savvy landlords are aware of tax advantages
Don’t wait for the IRS to knock on your door and tell you how to reduce your tax bill. Profitable landlords will research tax information and determine exactly which expenses are deductible and which aren’t—saving a ton of money.
To be a profitable landlord, get professional real estate tax advice. States have different real estate tax laws, and you need to know what you can deduct. Generally, you can deduct mortgageinterest and expenses from buying the property. If you are working from home, you may be able to deduct some household expenses.
It’s highly recommended that you hire an accountant to guide you through the tax process. They will save you money on your tax returns and make sure you aren’t making any expensive mistakes.
4. Landlords aren’t out to make friends
There is a balance between being a fair and reasonable landlord and trying to make friends. Successful landlords are kind, respectable, and reachable. However, you also don’t want to be dropping in for coffee every other week.
There’s a problem with being too close to tenants—they may feel that it’s OK to overstep boundaries. They might start by paying rent a little late. Or they could think that they can call you day and night for trivial matters.
There's another problem—having a personal relationship with tenants makes it more challenging to increase rent. Even if the rent increase is in line with current rental rates, they may feel hard-done-by.
However, if you are looking at multiple properties, you don’t want the reputation of being the horrible, distant landlord. Being friendly and listening to your tenants’ needs will encourage them to speak well of you and attract more tenants.
5. Always screen tenants
The best landlords know the importance of thoroughly screening every tenant. Don’t be tempted to take on any tenant because your property has been vacant for a while. If you panic, you rush the process and cause yourself costly problems in the future, such as expensive evictions.
Most people’s applications will look perfect, but you can’t rely on everyone being completely honest. Your screening process should include checking with listed references, background checks, and credit reports. Despite being time-consuming, you will get a complete overview of your tenant. Profitable landlords will also check if tenants have renter’s insurance, just in case there are any issues.
6. The best landlords report tenants to credit bureaus
Profitable landlords understand the benefits of rewarding on-time rent payers and punishing those who are late—it’s the fair thing to do. Tenants who know you report to credit bureaus are less likely to fall behind on payments, which means fewer evictions to deal with.
On the plus side, reporting those tenants who pay on time is a massive benefit for them. You help build their credit score, and most tenants prefer when landlords report rent to credit bureaus. Having a healthy credit score will make it easier for them to apply for credit or a mortgage in the future.
7. They are exceptionally well-organized
Being organized from day one is an absolute must. It is good to get into an organized habit even if you’re starting with just one property. Ensure you have a well-organized system that you can scale up when you expand.
You will need to keep a record of:
- Signed agreements
- Rental payments (due dates and late fees)
- The payment of property taxes and insurance
- Copies of insurance policies
- Certificates and necessary inspections
Paperwork is always a bit of a nightmare. But it is critical to be organized in this area and have a thorough paper trail in case of any legal or financial problems. It would help if you also made sure that there is a digital copy of everything in case hard copies are lost or damaged.
Contact Martin Property Management
At Martin Property Management we specialize in full service property management and can save you the time, money and hassle of managing your rental property yourself.
For more information about the services we can offer you, contact us today by calling (617) 957-0166 or connect with us online.