Income From Rental Property
Every investor wants to realize a return from their property, whether that’s long-term growth in the value of the asset itself, a regular income or – preferably – a mixture of the two! But for the majority of landlords, a regular income is key. Long-term pricing fluctuations are natural with a changing market, but a monthly income is relatively stable and essential for offsetting against any mortgage secured on the property itself. So, what steps can you take to create that all-important income and maximize its reliable inward flow?
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1. Look Long-term
A traditional investment strategy has been to buy an apartment for renting and then to flip it rapidly after a quick remodel. However, this can be a risky strategy. If successful, it can be lucrative, but it also risks tying up your cash if the property takes a while to sell. The sale revenue is also a one-time benefit, whereas ongoing rent gives you the certainty of income and frees up your cash flow for alternative investments.
2. Know the Costs
One primary mistake that new property investors make is to underestimate the cost of buying to-lets – from the fees involved in the purchase, to the costs of property upgrades, repairs and general upkeep. A wise estimation is to allow 7-15pc of your rental income to flow back out on costs, depending on the property’s age.
3. Have Clear Goals
Unless you are an accidental landlord (for example, having inherited a property or having found yourself unable to sell), you will already have specific investment goals in mind at the point of purchase. Continue to review these goals and assess the income you are making against other asset classes. This is essential to realize financial gains. For example, is the rental income after costs still attractive compared to stock market investments? For many investors, the answer is yes – particularly as property is a ‘safe’ asset and interest rates are currently low.
4. Know your Tax Position
Are you looking to build a portfolio of properties that would provide enough income for you to live from? If so, use the services of a tax advisor to manage your business tax as effectively as possible. This will remove unnecessary costs and maximize your returns.
5. Buy Hot Spot Properties
Look for properties in up and coming areas such as those near schools or new transport hubs, in trendy areas or parts that are starting to see restaurants, bars, shops and cultural attractions pop up. Find out where families are moving to and where the employment is. If you can spot a trend and buy early, you will realize an attractive gain.
6. Keep Costs Low
To maximize income, keep costs low. This means investing in efficient measures such as regular maintenance and servicing to catch problems before they occur such as low-flow bathroom facilities, desert landscaping, tankless water heaters and so forth.
7. Use the Services of a Managing Agent
Yes, this is a monthly cost which initially seems to eat away your income, but a cost-benefit analysis may well swing the value of an agent in your favor, especially if you have a portfolio of properties. Remember, your time is money and you may well be able to realize a better income by directing it toward other income-generating activities and hiring an agent to manage the day-to-day administration of your properties for you. Another benefit is that they will carry out all of the tenant screening on your behalf to ensure you have good quality tenants who can be relied on to pay!
8. Look for Improvements that Pay off
Seek out properties that offer attractive upgrade opportunities that can net you better rent. Kitchens and bathrooms are obvious ones. If you can buy an apartment that is tatty and needs decorating upgrades like window treatments and wall coverings, you can add value instantly with a solid new kitchen or new interior/exterior paint that will be attractive to tenants and attract a better rental price. Always work through the financials and weigh up your decisions using figures rather than pure gut feel!
How will you be maximizing your rental property income this year?