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Profit from Real Estate

Ten Ways to Increase Rental Income

By - January, 2013

If you own a few rental houses, an apartment building, or other residential income properties, you would probably like to increase your net income. Who wouldn't? And the obvious way to boost your profit is to just raise the rents. It is fortunate for tenants that this isn't so easy. You can't really get too far above market rates or else for every dollar you gain in rent you'll lose two in vacancies. On the other hand, not everyone is looking for the cheapest place to rent, and even tenants who are already in place might be happy to pay more for a better place to live. So finding ways to justifiably raise the rent is one approach, and there are some great ideas for that here.

Another way to have a higher net return on your investment is to lower your expenses. Every dollar you don't spend is an extra dollar in profit. You'll find some ideas for this approach as well.

1. Add a Bedroom

Building out a house to add a bedroom can easily cost $20,000 to $30,000. Will you be able to raise the rent enough to get a decent return on that? It isn't likely in most areas. On the other hand, you might be able to add a functional bedroom to a basement for $6,000. If that allows you to get $125 more per month from the next tenant you have a 25% annual return on your rental home improvement. Look for ways to add a bedroom without major alterations to the exterior of the existing structure.

2. Meet the Market

Arbitrary increases in rent are not going to work, but check to see if maybe you are charging a little less than what similar properties bring in. If there are not cheaper alternatives that are comparable, higher rent probably won't chase off your tenants.

3. Improve the Bathrooms

We all like nice bright and clean bathrooms, and there is a lot you can do in them for not much money. This is especially true if you are handy enough to do the work yourself. Clean thoroughly for starters. Replace fixtures that are old and corroded. A new toilet seat can cost less than $20, medicine cabinets start at $20, and there are paints that can be applied over discolored tiles. A few hundred dollars can really improve the appearance of a bathroom, and might make the next tenant willing to pay $25 more per month.

4. Add Parking Space

People need space for their cars. If you have a duplex and have parking for only two or three cars you might be scaring away prospective tenants and getting lower rent than you could get. Check with local authorities to see if you need a permit, but it doesn't have to cost much to carve out a bit more space from the yard and throw down some gravel. Having at least two parking spaces per unit allows you to get the most rent.

5. Add Storage Space

One of the most common problems tenants have is a shortage of space for their things. That's why there are more than ten million self-storage units in the United States. But why make your renters drive across town to pay their monthly storage fees? You can put a storage shed on your property for them and either charge higher rent or rent the storage separately. A $3,000 shed that you rent for $60 per month represents a 24% return on this investment.

6. Improve the Kitchen

Kitchens are important to most people, and tenants will pay higher rent for a place that has a nice one, but they also can be the most expensive room to renovate. If a kitchen remodel is only going to allow you to raise the monthly rent by $50, you can't justify spending more than about $5,000 or $6,000 on it. That means looking for a good package deal on new appliances, replacing inexpensive items like faucets, switch covers, and blinds, and perhaps painting cabinets rather than getting new ones. Tile floors can be cleaned and re-grouted instead of being replaced.

7. Add a Coin Laundry Facility

Tenants always appreciate having laundry facilities onsite, but use of the machines don't have to part of the rent. You can have coin-operated washing machines, and if you don't have the money to do this yourself there are companies that will install and maintain them for you for a share of the income. This is usually only worthwhile in a building that has four units or more.

8. Sell the Property

If you want higher rental income for a few years you might sell a house by way of a lease-option agreement. The buyer pays a non-refundable option fee of 1% to 5%, rents for two or three years, usually paying higher-than-market rent (part of it may be credited toward the down payment when the home is purchased), and then buys the home at the price agreed to, which usually takes into account rising values during the time the home is being rented. Typically the tenant, who is the future buyer, pays for all minor repairs (negotiable, but everything under $200 or $300 is common), reducing your expenses. You keep the higher rent and option fee if the buyer's plans change, or buy another rental home if the purchase is made. Either way you get more net income during those two or three years.

9. Get Property Taxes Lowered

You might be paying more than you should for property taxes, and at least once per year you can petition for a change. See what other similar properties are assessed at to determine if you have a case for a reduction. Challenge your assessment before you make any rent increases, since your income might be considered in making a determination. Remember that every dollar saved is a dollar of additional profit.

10. Reduce Other Expenses

Look over every regular expense that you have and find ways to reduce some of them. If it takes money to do so divide the annual savings into the cost to see if the return is justified. For example, if your property is in the desert southwest and you pay the water for a tenant, you might save $500 per year by redoing the landscaping so watering is not necessary. If doing so will cost you $5,000 you'll essentially have a 10% return on your investment. Some expenses can be reduced without any cost but a little time on the internet and phone. Review your insurance options from time to time, for example. A savings of $150 annually might be a decent return on an investment of an hour.


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Houses Under Fifty Thousand | Increase Rental Income