Is your property ready to rent?
One of the most important parts of renting out your property is getting it ready. Investing money into your rental property guarantees a higher ROI and happier tenants.
Want to read a quick article on getting your property ready? Go here for six tips on getting your rental property ready.
One of the first questions you should ask yourself when deciding to invest in a rental property is “Why?” Property investment is not hugely complex, but it does require tenacity and persistence. In order to have that passion about property management, you should know your end-goal.
If your goal is to make more money, think about why you want to make more money. Are you saving up for a college or retirement fund? Are you hoping to pay off your mortgage? These are the kinds of goals that push people to continue in this industry. Even if you are only making $300 a month for the first couple of months, if you have that passion and a strong purpose then you really can build “a brighter life through real estate.”
Once you define your why then you can start developing your investment strategy with these questions:
What is my risk tolerance going to be?
What does my time horizon look like?
How much money do I actually need to make?
Does that money need to be in cash flow or built up value?
Developing your investment strategy is key to setting the right expectations and financial goals. Once you have developed your strategy you should define your target market. This doesn’t mean defining who you want to rent to, but rather what your renter might want. For example, if your rental property is in an up-and-coming area you may want to consider purchasing high-tech appliances and cosmetic improvements. This is especially important for investors who may be looking to build their portfolio.
During the initial walk-through with a property management service, a first conversation is always about budget. Of course, you want to attract the best renter at the highest price point possible. That means there will have to be a discussion about what needs to be done to the property and what kind of budget you have to facilitate those improvements. For example, your personal taste in colors and appliances is not always what renters want. While that can be an uncomfortable conversation, it’s one that needs to happen so that your rental property keeps up with the competition.
The market is going to dictate how high you can set your rent. We have a couple different tools to help you set rent.
We have a great tool on our website that can help you figure out what your rental range might be. This tool can provide local statistics and confidence scores.
Get a free rental analysis here!
Zillow is also a great resource that can give you the rental and selling history of the properties in the neighborhood. This lets you size up your property to the rest. As real estate agents we have access to MLS resources that can test these ranges from Zillow and our website. Our analysis can let you know if your rental range is accurate and doable for a tenant.
Most property investors and owners have high and unrealistic expectations about what they can set their rent as. Here are a few things that have a huge impact on rental price:
Remodels and updates
New paint and flooring
Bed and bath count
We always get owners who want to push the limit on rent to maximize their profit and get the best renters. This logic often backfires. Those that are financially savvy with great credit scores will not overpay. When you overprice the rent, you get riskier tenants who may be desperate for a temporary place or have been rejected everywhere else.
If you are looking to get the best quality tenant then you want your property to look showroom quality. Don’t forget that this is no longer your home so make sure you remove personal preferences. You should always look at your property from the eyes of the renter. Many investors and owners give the excuse that renters are not buying the property, therefore they shouldn’t have to spend money on improvements. The truth is that it doesn’t matter that the renter isn’t buying the property. In fact, this makes it even more important to improve appeal because a renter has to live in the home as-is, whereas a buyer can change whatever they want.
Take a look at some low-cost ways to improve your property’s appeal:
Front door: Does it have chipped or faded paint? This is the first thing that most prospective tenants see. It is reflective of the entire house and is an important factor.
Mailbox: Is it old and dingy? Chipped paint? Is it tipping over or dented?
Lawn: Are you cutting your grass? Are there patches or dry spots? Flowerbeds and bushes should be trimmed and pruned. While mulch is slightly more expensive than pine needles, it lasts longer and looks better.
Storm door: Is the door hanging off the hinge? Does it creak when opened?
Doorbell: Is it faded, out of place or have a strange theme? This may seem insignificant, but it makes a big difference in first impressions.
Door handle: Is it working properly? Is it old, loose or discolored?
Carpet cleaning: Most carpets can be properly deep cleaned. Although, you may have to consider replacement if stains or discoloration can be removed.
Painting: You should always use neutral colors. In our properties, we use Promar 200 eggshell ghost pines, flat white ceilings and gloss white trim. Make sure you do everything, including doors and ceilings, all at once so that everything is on the same level.
Hardware: Replace any door knobs, handles and pulls that may look low quality. Plastic chrome hardware should be replaced.
Light fixtures: Old chrome chandeliers and light fixtures, as well as mismatched light bulbs should be replaced.
How Much is Too Much?
We just gave you a ton of ways to spend money on your property. With all of these possible improvements, it’s important to know how much is too much. Let’s talk about opportunity cost. Opportunity cost is the value of the next best thing that you are giving up. If you are going to be investing in Property A instead of Property B, think about what you're gaining from Property A and losing from Property B. Use this formula to find out the next best investment:
How much additional rent you’ll receive divided by the cost of improvement = return on investment
Is that greater than your next best investment?
If you’re still confused, take a look at this example. We had a client with carpets in the dining and family rooms. Although he had these carpets cleaned, they still had major stains. We suggested a carpet replacement. While a $1500 carpet replacement seems expensive at first, look at it in a different way. If he gets the carpet cleaned he will receive an extra $50-$100 a month which comes to $600-$1200 a year. That is a 40-80% return on investment. In a couple years, that will be an extra $50-$100 a month that goes straight to his pocket. Like we did with this client, Sunnon Property Management can help you get a higher return on investment and give you a brighter life through real estate.
Make sure you tune into the next episode of Investment Property Geeks of Charlotte with Chris and Jessie!