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Posted by: Charles P Myrick CPA Posted on: Jul 31 2016 Posted in: small business

3 Rules for Maximizing Your Rental Property Profit

Being a good landlord takes practice, and no matter how much you read, there really isn’t a substitute for experience. But if you are thinking about investing in rental property or you are a new rental property owner, there are a few basic rules that will help you hit the ground running.

1. Have a Real Estate Investment Business Plan

The first thing you have to realize as a landlord is that your properties are a business. Too many new landlords think that their property will be a hands-off, passive revenue stream. But that just isn’t the case. An investment property will take work, often lots of it, and time.

And it’s important that the property you purchase makes sense from a business standpoint, and you’re not just buying it because you’d like to live in it someday. That means it should be a marketable home that appeals to the type of tenants you would like to rent to.

You should have clear, actionable goals meant to move the property forward and increase it’s value. These can be broken up into monthly or yearly benchmarks—preferably you’ll have a mix of both. Whatever you choose, the most important thing is that you have a plan.

2. Keep it Small At First

If you’re learning guitar, you don’t start by tackling a Jimi Hendrix song. Instead, you learn the string names, then you learn some chords, and then you learn some simple songs. As you improve, the difficulty of the songs you learn improve as well.

The same principle is true for investment properties. By starting with single-family or small-unit properties, you’ll give yourself the ability to learn in a less hectic atmosphere. Smaller properties are easier to manage than larger units, and the consequences of making a mistake are less severe. In large units, making a bookkeeping or maintenance error can cost you significantly. 

So start small. If you do it right, you’ll set yourself up for success later on.

3. Stick With What You Know

There are a lot of uncertainties when you’re just starting out with rental properties. So, help yourself as much as you can and only buy in neighborhoods you know well. Factors such as schools, crime rate, or accessibility all matter when it comes to your property’s profit potential. Not knowing the neighborhood you’re buying in can quickly lead you into a bad investment. So, do your research, and make sure you’re buying a property that will be a positive income source.

There’s a lot of information out there about investing in rental property. But, if you follow these three golden rules, you’ll be ahead of most landlords.

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