There are thousands of landlords in any moderately sized city. Of these landlords, only a few dozen are highly profitable. Most landlords break even, while a healthy percentage lose money or make a few dollars here and there. But have you ever paused to consider what sets the highly profitable apart from the average? In almost every case, they don’t cut corners.
7 Habits You Should Practice
If you’re tired of losing money, breaking even, or only cash flowing a couple thousand dollars per year from your rental properties, it’s time to switch things up. Study what the successful landlords in your area are doing and you’ll notice the following:
- Carefully Crunch Numbers
Highly profitable landlords are number crunchers. They never invest in a property without thoroughly gathering information, analyzing data, and plugging numbers into various formulas. Furthermore, they’re conservative number crunchers.
There’s no room for optimism when running the numbers. If you’re inflating your numbers and making unrealistic assumptions when calculating if a property will be profitable, you’re going to end up with thin margins.
When running the numbers for a specific property, always account for 8-10 percent vacancy, realistic rent computations, and monthly maintenance. As Murphy’s Law says, anything that can go wrong will go wrong. If you account for all of these potential issues when crunching numbers, you’ll come out ahead most of the time.
- Thoroughly Screen Tenants
When you’re trying to fill a vacant property, it’s tempting to get someone as quickly as possible. And since tenant screening can be time-consuming, it’s easy to gloss over some of the details and send a lease agreement to the first person who calls. Highly profitable landlords know that careful screening is an important part of the process, though.
Background checks are a must – as are thorough applications – but keep going. “Even though a rental application looks great, don’t stop your tenant screening process there,” landlord Amie Fisher advises. “Dishonest people can still slip through the cracks during the application and prescreening process. Checking references will give you a more complete picture of your tenant’s ﬁnancial and rental history.”
- Keep Rental Rates Current
Successful landlords understand that they’re running a business. As much as it may be awkward to raise rent on existing tenants, there’s no room for being shy in the business world. If the market demands higher rent, you have to keep up.
As long as you aren’t raising the rent a substantial amount, most tenants are going to stick around. It’s actually pretty rare for a tenant to move after rates go up, unless they were already dissatisfied with something else.
- Be Vigilant and Organized
Highly profitable landlords do all of the little things right. This includes staying vigilant. It’s smart to drive by your rental properties at least once a week. You’d be amazed by what you’d find. A tenant might be keeping a dog in their backyard when you’ve explicitly stated that no pets are allowed in the lease agreement.
It’s also important to be organized. Keeping an accurate and thorough paper trail will protect you legally and financially. A filing cabinet with coded files for each property is a good idea, but you’ll also want to maintain digital copies and store them in the cloud. This protects you from lost or damaged documents.
- Don’t Make Rookie Mistakes
There’s a lot of information about landlording on the internet. The impression is that it’s easy to make money and that it’s largely a passive investment. As a result, everyone thinks they can be successful. But in order to be highly profitable, you have to avoid making the rookie mistakes that so plague so many people.
One of the more common mistakes is renting to people without renters insurance. You may assume this isn’t your problem, but it’ll quickly become an issue if something ever happens. Successful landlords always require insurance from tenants.
As expert Amanda Gengler says, “This may shrink your pool of potential tenants, but is likely to increase the odds that you end up with someone responsible. If that’s not an option, be sure to explain to your tenant that you are not covering his things, and suggest he buy his own insurance.”
- Take Advantage of Tax Breaks
Taxes can make or break your profitability as a landlord. If you don’t pay attention to deductions, depreciation, expenses, state laws, and other important factors, you’ll not only lose money – but you could end up in hot water with the IRS.
Make sure you’re aware of all of the various tax breaks you qualify for. There are dozens of allowable expenses, each of which can save you, come April. You can also deduct mortgage interest and the costs you incurred when buying the property. Even having a home office can qualify you for a deduction, so long as you use it exclusively for business. Keep track of these things and you’ll keep more of your money.
- Hire a Property Manager
Cheap landlords often scoff at the thought of hiring a landlord. They can’t fathom why anyone would want to fork over a percentage of their revenue just for the purpose of maintaining the property. But if you talk to any highly profitable landlord, you’ll realize that property managers are a must. They keep things going and solve many of the pain points that frustrate landlords on a regular basis.
Hire Green Residential
Hiring a property manager isn’t signing your property away to someone else. Instead, you’re hiring someone to handle the time consuming details so that you can keep your eyes focused on the big picture.
At Green Residential, we’re proud to serve many of Houston’s most successful landlords and real estate investors. We offer a comprehensive collection of services, including tenant screening, property maintenance, rent collection, and even evictions.
To find out how Green Residential can help you become more efficient and profitable, please reach out and contact us today!