Achieving the Highest ROI in Real Estate: What You Need to Know
Last Modified on 8/25/2020
Whether you’re a real estate investor with a strong portfolio or a first-time investor renting out a single-family home, your goal is to earn as much as possible on your rental property or properties.
Today, we’re sharing some of the things we know about how to achieve the highest return on investment (ROI) with a rental investment property.
There are a lot of things that go into earning high returns, but a few factors in particular have an excellent chance at making you successful with your rental investments.
Acquiring Rental Properties: Do It Right
How you acquire your investments is a large part of how much you’ll earn on those investments. Identify the right properties and take the right steps when you’re buying them. Look for especially profitable opportunities. If you get an investment property at a 20 percent discount, you can count on that rental home being successful. If you’re buying at normal rates and paying full asking price, you’ll have to look for other ways to increase your ROI.
If a rental property isn’t producing the returns that an investor expects, we can usually identify the problem; it was purchased for too high of a price or it was bought as a home and not as an investment.
You’re not looking for a home that you’d want to move into yourself – remember this. Instead, you’re looking for a property that you’re going to rent out to tenants. You want to make sure you’re acquiring a good property that can bring in a great rental price and not drag down your ROI with a lot of maintenance needs.
Avoid buying wrong. When you’re looking at homes with your Realtor, make sure you’re working with someone who understands investments. Property managers can help you choose the right property. Unfortunately, 95 percent of Realtors will help you buy a home, not an investment rental property. Identify what you’re buying correctly and make good choices.
Provide a Good Experience for Your Resident
A lot of landlords and investors we talk to don’t realize what a great tenant relationship can do for your ROI. We believe in providing outstanding rental experiences for residents at MyndManagement, and we’ve actually tested our process and analyzed the results. We have learned through executing more than 10,000 leases that providing a good experience for the resident will dramatically increase the return owners earn on their rental properties.
Providing a great rental experience is just the right thing to do. It means you care about providing high-quality housing to people in your community. Not only does this make you a good landlord; it also makes you a successful investor by increasing your ROI.
When you set proper expectations with your tenants ahead of time, you’re establishing the groundwork for a successful rental experience. Your tenant will end up staying in your property longer, and that tenant also submits fewer maintenance requests. They take pride in living at your property, and they treat it like their own home. They’re willing to invest in basic maintenance, and they’ll take care of little things themselves instead of bothering you for help.
That’s the kind of tenant you want; one who will treat the home like they own it. Obviously, they’ll submit repair requests when they don’t know how to do something, but we have noticed that when tenants are having an exceptional rental experience, the number of maintenance requests they submit is cut in half.
Better tenants lead to higher, and better rental experiences create better tenants. How can you offer a good experience?
First, by being responsive. When your tenants first get the property or even before they rent it, you can demonstrate the sort of landlord you’ll be. Call them back right away, answer all their questions about the house, and be reliable.
Demonstrate the commitment you have to them and to your property.
Screen for Better Tenants and Welcome Them
Your screening process should be thorough and consistent, and it should deliver solid tenants who are looking for an excellent rental experience. When you’re conducting criminal and background checks, don’t be afraid to look over state lines and get a national report. Once you’ve found a qualified tenant who meets your criteria, you can offer them a lease and immediately begin to show them that you’re a responsive and empathetic landlord who is committed to providing a great experience.
Set up a process where you should tell them everything they need to know about the property. Meet them there and show them where the water and gas shut-off valves are. Talk about the neighborhood. Maybe there’s a gym that’s affordable on the corner or a restaurant on the next street over that you know is really good. Bring them into the community. When tenants feel like they’re part of the community, they’re going to want to stay in place and rent your home for longer.
When I was buying my first property with my wife and my kids, we walked into the home and found a huge packet waiting for us on the counter. It included information on the neighborhood and the people who lived close. It detailed all the best parks and described the restaurants the former owners loved. There were pictures of plants and tips on how to take care of them. It was clear the former owners took pride in their home.
You could do something similar. Leave a brief maintenance history or some instructions on how to care for the yard. Let the tenants feel like they’ve found the perfect home, and they’ll take ownership for how it looks and functions. They’ll be more inclined to take care of things themselves. Show them what they’re required to do, whether it’s trimming trees that are less than six feet tall or taking care of the pool. When you set expectations and meet your own responsibilities as a landlord, the tenants are going to take care of themselves and take care of your property. It sets up a great experience.
We really have seen better with tenants who report having a good experience. They stay in place an average of three years, and they call with three maintenance requests per year instead of six.
These are the averages, and they save you money.
Another great way to increase your is by charging more, and you’ll have an easier time charging more when your tenants are enjoying their rental experience. If you’re providing a good home and a good experience, they will be willing to pay what you ask, and they will tell their friends. This will lead to perhaps attracting your next tenant. Instead of advertising on Zillow, your current tenant can do some marketing for you. Word of mouth can rent out your home just as fast as online advertising. It leads to smoother transitions and lower vacancy rates.
Add more income, but don’t feel like you can do it only through raising your rental price. You can also add administrative fees. Many states allow you to do this, but some restrict it, so be sure to check what’s legal in your area. Apartment buildings are especially good at charging a one-time set up fee or a monthly administration fee to cover the services being provided to tenants.
When you have a platform where you allow tenants to pay rent or make maintenance requests online, that’s a service and a convenience that you’re providing, so don’t be afraid to charge for it. You’re still giving them a good experience, and you’re adding value to that experience. We have a one-time administration fee and an online fee for tenants. To be sure you’re complying with local laws in what you charge, talk to a property manager or consult with a local attorney. This is a good way to add $20 or $30 per month to your rental income. It can lead to $400 a year, which may cover your vacancy.
There are plenty of other factors for helping you achieve a higher with your rental property. These are the best ways to do it and it makes up what we call our secret sauce. When you buy the right rental property and you provide a great tenant experience, you can charge more, have a home that’s in better condition, and keep your really great tenants in place longer. The average period for a tenant to stay in place is 1.8 years. Tenants don’t want to move every year; if they have a reason to stay, they’ll stay. Finding a new home is fun, and they want to have a good experience and stay in place as long as possible. Vacancy and buying the wrong property will kill your ROI. Buying right and creating exceptional tenant experiences will increase.
We love to talk about this stuff. If you are trying to identify a property or you already have a property and you want to create that great rental experience, please contact us at Mynd Property Management.
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