When you consider what makes an investment property profitable, the first thing that comes to mind is rent. While rent is a vital component for making money from a rental property, you can’t generate rent without the following in place:
1. Appropriate insurance
Without appropriate insurance, being under-insured, or being over-insured, one incident could tank your entire stream of income. You can’t collect rent when your rental unit is uninhabitable or when renters move out because you can’t afford to fix the damage.
Having the right insurance protects you against damage you can’t otherwise afford to fix. However, the type of insurance you get matters. Even though some forms of insurance are required by law, it’s easy to accidentally buy the wrong insurance. For example, say you buy a property with a composting toilet. You might absent-mindedly purchase sewer backup insurance simply because that’s what you’ve always done.
Another situation you might encounter is not buying insurance when it’s needed, like flood insurance. This can happen if you don’t realize you’ve bought property in a flood zone, or if flooding is a slight possibility but unlikely and you’ve chosen to take your chances.
Too many investors discover the limits of a homeowners insurance policy the hard way after their home floods. It’s not cheap to recover after a flood; water damage is significant.
If you’re not sure about what insurance you need, check out this helpful insurance guide from The Balance and remember to consult a professional before buying any policies.
2. A tenant’s trust
Tenants who trust their landlords are more agreeable and are more likely to pay rent on time and in full. They’re also more likely to become long-term renters. When a tenant has no reason to trust you, it opens the door for late rent, unreported damage, and potential eviction.
Earning a tenant’s trust contributes to their decision to remain a long-term tenant. People would rather stay where they’re being treated well, knowing the landlord will fix issues as they arise. Long-term, reliable tenants are crucial for making your investment profitable.
According to property management experts from Green Residential, there are several things you can do to earn a tenant’s trust, including:
- Cover utilities in the rent. Tenants have enough bills to pay and are happy to pay higher rent when it makes their bills predictable.
- Don’t overcharge tenants for screening and application fees. Tenants want to know you’re not trying to make a profit at every turn.
- Charge a reasonable security deposit. If the law allows you to charge 5x the rent, don’t do it unless you have a good reason.
- Cover yard maintenance in the rent. Yard maintenance is another bill tenants don’t want to deal with. They’ll know you have their best interest in mind if you cover this expense.
- Provide tenants with your references and background check. It’s only fair for background checks to go both ways considering you’re technically entering into a business relationship.
Another reason to go out of your way to earn a tenant’s trust is that potential tenants might talk to current tenants to find out how you are as a landlord. Give them every reason to say wonderful things about you. You’ll get better tenants that way.
3. A property management company
Hiring a property management company to handle your landlord duties is a great way to maintain a profitable investment property. Yes, it costs money, but you’ll be freed up to search for more property to buy. By not handling the day-to-day details, your entire investment portfolio becomes more profitable.
A property management company will handle all the details you probably don’t enjoy doing like marketing vacancies, screening tenants, running background checks, scheduling maintenance calls, collecting rent, and handling tough situations.
When your rental property is in the hands of professionals, your income will be worry-free.
4. A home in good shape
It goes without saying that in order to generate rent, your property needs to be in good shape. If you want to find a long-term tenant, your property needs to be free from major defects like a leaky roof, clogged toilet, or chipped shower tiles.
Your ability to generate income from rent depends on the condition of the property when it’s rented out. You don’t need to go overboard, but make improvements that matter. If you’re fixing up a home from scratch, the folks at Bigger Pockets recommend sticking with basics like vinyl plank flooring rather than hardwood floors.
Stay on top of your properties
Although the above are necessary to generate rent and keep a property profitable, it’s your duty to follow through with the planning and execution of each task.