How to Maximize the ROI of my San Antonio Investment Property
System - Wednesday, March 15, 2017
I have been asked about maximizing the return on investment property, and you need to know there isn’t any one single thing that will achieve this goal. It’s a culmination of little things that you do. You want to maximize your net income and decrease your expenses. Today, we’re sharing some ideas for how to increase ROI on rental property.
Maximize Net Income
We want to achieve the highest rent possible with the fewest number of vacant days. As a landlord, you might think that once you have a tenant in the property and their lease is coming up for renewal, you might want to leave the rent where it is so your tenant stays. That sounds logical, but if you do that after a couple of years, your entire portfolio will be way behind market rent. Trying to close that gap will result in losing tenants. However, raising the rent two or three percent a year is going to be fine with your tenants, because planning a move is often a headache and an expense for tenants. So, you can raise the rent up to five percent and your tenant probably won’t mind. However, if you have a $1,200 rental after a few years that you’re only charging $1,000 for, it will be hard to close that gap down the road. The first thing is to raise the rent but not to the maximum. Raise it a little at a time.
Next, we need to deal with expenses. There are some things you can do immediately that are easy and make a difference. Shop for your property insurance every year. When it’s renewal time, review your policy and make sure you’re getting good insurance for your dollar. You may have to shop around a bit. Look at your property taxes as well. When your valuation comes out every year, if it doesn’t make sense, talk to your property manager about whether the value makes sense. If it doesn’t, you need to protest your tax valuation.
Taxes and insurance are big parts of your expenses. The interest rate on your mortgage is another place to save money. If you have a small loan amount, like under $100,000, you need to save two percent or more when you refinance in order for the refinance to make sense. If you have a $200,000 loan, that’s different. You might have an interest rate at 5.5 and refinancing at a 4.5 rate may be cost effective. Always compare all the costs for the refinance and determine how long it will take to earn that money back. So, if you’re spending $4,500 on a refinance, it might take several years or more to save that money on interest. You want to recoup your refinance cost within two or three years.
Other Ways to Increase ROI on Rental Property
We have talked a lot in other blogs about the things you can do to maximize the return on your investment. You want to conduct annual inspections, make sure your tenant knows how to care for your property, and follow up on preventative maintenance issues. These things are critical.
Finally, remember that you are an investor, not a homeowner who will be living in the property. There’s no need to put in fancy faucets in the bathroom. Before doing any improvements on your property, determine how much more rent you’ll get and whether there will be future repair expenses by installing that item. Think like an investor, not a homeowner.
Keep your tenant happy so they stay. The longer they stay, the better your return. You can never recoup a day’s lost rent. If you’d