More Americans than ever are choosing to rent rather than buy a property. This means you can earn big money as a small-time landlord if you know what you're doing. Here's everything you need to know to attract great tenants and increase your overall profits.
Minimize Turnover
You lose money every day a rental unit sits empty. When you only have a few properties, this missing income can add up fast. You need to keep tenants in your property for as long as possible. Respond to complaints promptly, repair appliances when they break, and don't raise the rent too quickly. It might sound counterintuitive to keep rental rates low, but it's better to earn a little less per month than have a unit vacant for three months.
Non-Refundable Fees
In most jurisdictions, a security deposit is refundable, but an application fee is not. You can charge tenants for the cost of checking their criminal record, credit, and finances. Depending on your rental market, you can ask for an application fee of $50-$300. Make it clear this is separate from the security deposit. Look online to see what other landlords are charging and try to match your fees; tenants will be less interested in applying if your fees are triple the competition.
Charge for Pets
Pets can charge substantial damages to a unit. Cat urine can soak into the carpet. Dogs can scratch up wooden floors. Even fish can rack up damages if their aquarium is large enough. You still want to allow pets in your units.
With the right approach, permitting pets can increase your income. You are legally allowed to charge pet fees, pet deposits, and pet rents, so this is a great source of extra revenue. You're also allowed to deduct pet damages from the regular security deposit if the pet deposit doesn't fully cover your costs. When you allow pets, you get happier tenants and more profit from each unit.
Take the Luxury Route
Low- and mid-income tenants can only afford to pay so much in rent. If you target high-income earners, the sky's the limit. Use your limited renovation budget to target the features that luxury renters demand: Spacious kitchens, granite countertops, and in-unit washers and dryers. You can spend $2,000 to upgrade a unit and charge an extra $250 in rent per month. You'll be in the black after less than a year of renting.
Screen Tenants
It doesn't matter how nice your unit is. If your tenants don't pay rent, you won't make money. Sure, you can evict them, take them to court, and garnish their paychecks, but you might never recoup your losses. You need to ensure tenants will pay rent before you ever sign a lease with them. This means doing your research. Check their court records for former evictions. Run background checks for financial crimes like bouncing checks. Don't rent to anyone with a credit score of less than 600. These steps take some extra effort, and you'll have to harden your heart against some very convincing sob stories, but you'll thank yourself in the end. Renting is a business, and you have to protect your bottom line.
Don't rush into the rental business without a plan for maximizing your return. Follow these steps to attract high-quality tenants who will pay their rent and stick around for years.