I am a big fan of holding property with a long horizon. Whether you like rentals or not, it is one investment, that given enough time, will always produce for you. There are limited amounts of it, and people need a place to live. All real assets will do well over time, which is why I believe it is much safer than stocks, bonds, or other paper assets. With that said, it is good to diversify, and I am not saying pour all of your money into rentals; but I am saying if you are not in the game you are making it tougher on your future.
If you are going to hold rentals, or you already are, it is important to do the best you can to get the most benefit you can. Here are 5 tips I have learned over the years to improve your profits.
1. Negotiate with the deposit
2. Make the tenant pay the water
3. Use rent to own to reduce maintenance costs
4. Use an off-white semi-gloss paint
5. De-carpet your units
Negotiate with the deposit
When a qualified tenant prospect needs to negotiate to move into your rental, always negotiate the deposit and never the rent. The deposit is their money, so if you end up taking a little less it won’t affect your profit. Most tenants worry about how much money they need, not how the money is applied, so if you take the deposit in payments or take less, they are normally thrilled and grateful. This is also a great way to increase cash flow on a rent to own. Always ask for more option money than the tenant has so you can take some of it in payments. This should increase your monthly cash flow on each rent to own by $100 or more.
Make the tenant pay the water
This has been a tough one for me because I was taught, and always believed, that tenants expect the landlord to pay the water. I think I was taught this because the water company is the only utility provider that can place a lien for non-payment. The truth is most tenants will pay their own water, even if it is not a rent to own. It is becoming more common and will be a huge difference to your bottom line. The fact that the water company can lien your property should not scare you. Think about it… what is the worst that can happen? You need to pay the water bill?
Use rent to own to reduce maintenance costs
I love rent to own. One of the reasons I love rent to own is because it can almost eliminate maintenance costs and headaches. The gurus will tell you that it doesn’t eliminate maintenance issues, but that is just not true. There is always a chance the tenant will ask for your help to pay for something, but it does eliminate a lot of the problems and the tenant will take better care of the property so there will be less damage.
Use an off-white semi-gloss paint
When I was going through the process of building my home, I did not even think about what kind of paint the builder would be using. I picked out the color I wanted and that was that. Well, once I moved in I realized the entire house is painted with a flat paint. It makes sense because it is the cheapest to buy, but with two little girls running around it was the wrong paint to use. My youngest, Lexi, loves to draw on the walls. I cannot figure out how to stop her from doing this, or how she is finding the markers she uses. Maybe her older sister is in on the game? The point is, even washable markers do not come off of a flat paint. When you try to clean it you rub the paint right off. Had it been semi-gloss or even an eggshell, the markings would wipe right off and we would not be forced to touch up the paint. Think about how nice it would be to go into your rental once a tenant moves out and just clean the walls and not worry about repainting each time. Semi-gloss is the easiest to clean.
De-carpet your units
I have heard this over and over. The idea is to make your rentals as hard to damage as possible. Carpet is easy to damage and it is not uncommon to get one or two years out of a seven year carpet with heavy tenant use. Wood will last forever. Even when wood is scratched, it still looks nice and does not normally need to be repaired. If it is solid wood, even if there is damage, it is cheaper to sand and stain it than to re-carpet. It is a higher cost going in, but is well worth it in the long run.