The rental property business is a relatively popular one for several reasons. For one, it provides a form of passive income if your property is run properly. In addition to this, deciding to become a landlord can provide long-term security as well as the flexibility of managing an investment. For these reasons amongst others, you may also be considering delving into the property business. If this is the case, you should know that running a rental property business can be expensive if you aren’t well aware of the cost implications of maintaining a property and managing tenants. However, there are ways of minimizing your expenses when running a property business and this article is going to tell you how.
Save as Much of Your Deposit as Possible
To begin, one of the ways that you can save money when starting a rental property business is by savingas much of the deposit as possible before taking out an investment property mortgage. The standard down payment for most mortgages is typically 20%. However, if you can manage to save more than that, it’s possible that you’ll be able to save a lot more money in the long-run. This is because usually, the larger your deposit is, the cheaper your mortgage rate especially if you happen to be a first-time-buyer.The reason for this is usually because less is being borrowed, and lenders feel there is a reduced risk ofthe loan being defaulted. In some cases, however, a smaller deposit could mean getting a smaller monthlymortgage repayment, so it’s best to do your research and check as well as compare investment property mortgage rates beforehand. It is also important that you check for the best rates possible before deciding on one. You should also be on the lookout for added fees such as arrangement, overpayment, and early repayment fees seeing as many mortgages come with them. Although you can always remortgage a property later on, you should still try and get a great deal in the first instance.
Don’t Overcharge or Undercharge on rent
Your first instinct when renting out your first property may be to put the rent as high as possible to make a return on your investment as well as profit. While this may seem like a good idea, it could have many negative implications. One of the implications is that it may be difficult to get people to fill the property if the rent is too expensive. This is especially true if the neighboring properties are charging considerably lower rent. On the other hand, although rent should be affordable, by making it too low, you could also be shooting yourself in the foot as you could be losing out on money and making a smaller return on your investment than you’re capable of making. If you want to make money on your rental property, you should, therefore, think about increasing rent on longer-term tenants as long as the value of your rental is significantly better than the ones within that area. If you do some research on rents in the area, you may also find that there is room for you to increase your revenue annually while remaining competitive. If you’re struggling with how much to set your rent at, on average, it is said that the rents that landlords charge fall between 0.8% and 1.1% of the home’s value. You should use this as a guide for how much rent you charge your tenants.
Get Good Tenants
Another way that you can save money when you become a landlord is by getting good tenants. Renting your property out to the wrong tenants could lead to a nightmare as well as having to pay a variety of unforeseen expenses. If, for instance, you get a tenant who’s careless, they could damage the property and make you pay a lot for repairs. However, if you happen to find good tenants, it’s likely that you’ll end up with less wear and tear which works out in your favor financially. It is,therefore, best to try and find good tenants although they’re often few and far between!An added suggestion is to ensure you take a refundable deposit that you can use to fix the property in the case that they do damage or destroy anything.
Manage the Property Yourself
Once you’ve secured a rental property, one of the first decisions you’ll have to make is who will be in charge of managing the property. You typically have two options which are to hire an estate manager or do it yourself. In the instance that you want to save money and you have the time, the latter may be the better option.If you want to manage an investment property successfully, it is imperative that you keep up with property maintenance, be knowledgeable onas well as follow tenant law, and ensure you pay your taxes. In the case where you find managing it on your own is too overwhelming, you could opt to source specific tasks out to property managers suchas collecting rent or filling vacancies.
Ensuring you minimize turnover to the best of your ability is crucial in saving money in the rental property business. The reason is that every time that somebody moves out, you’re likely to incur expenses. Some of them include having to repaint, advertise, replace damaged furniture, change the flooring, or fix any other internal or external issue. Oneway that youcan minimize turnoveris to properly screen potential tenants. It entails following through on application forms, contacting all references, and ensuring tenant identification is accurate. It is also important that you verify their place of employment as well as how long that they’ve been there to ensure they can pay their rent. Checking with former landlords to see what sort of tenant they were may also be a good idea so that you know whether or not they’re suitable for your property. Lastly, you should pay attention to your gut instinct which should give you an indication regarding the character of the person.