Rental properties remain one of the most common and most lucrative investments you can make. Throughout your ownership of the property, you’ll be able to collect monthly rent from tenants, exceeding your monthly expenses in most cases. On top of that, you’ll benefit from the long-term appreciation of the property – rising prices in a good neighborhood can turn into a major windfall when it’s time to sell.
But if you want to get the most out of your Houston rental property, you’ll need to consider its profitability very carefully. In this guide, we’ll talk about renal property profitability and the steps you can take to boost yours.
Rental Property Profitability
Let’s start by talking about what rental property profitability means. Owning and maintaining a property is going to cost money. This includes your loan payment (if applicable) as well as property taxes, liability and property insurance, and the cost of ongoing maintenance and repairs. You’ll also be collecting rental income from your tenants, hopefully in amounts greater than what you’re paying to maintain the property. The difference is going to be your monthly profit. Ideally, you’ll also generate profit thanks to increasing property values in your area – though this isn’t guaranteed.
There are several variables to consider when discussing rental property profitability. For example, certain properties are going to be more likely to appreciate than others – even though all of Houston is a great area for property investment. You’ll also need to think about things that could jeopardize your monthly profitability, such as vacancies that leave you without revenue and unanticipated, expensive repairs.
How to Increase Rental Property Profitability in Houston
So what steps can you take to improve the profitability of your Houston rental property?
- Choose the right neighborhood. Much of your property’s profitability will stem from its potential to appreciate in value. Its potential to appreciate in value will depend on the neighborhood in which it resides. It’s therefore crucial that you choose the right neighborhood for the property. You’ll want something that’s popular and up-and-coming, with plenty of amenities, great schools, and a low crime rate – but also something that’s reasonably affordable. You’ll also need to consider factors like access to transportation and proximity to local workplaces.
- Look for a great deal. You may find a great house with tremendous renting potential – but it won’t be profitable if you pay too much money for it. To increase your long-term gains and monthly cash flow, you need to look for a great deal. That means working with an agent, looking in many different neighborhoods, and possibly making offers on unlisted homes.
- Don’t be afraid to do some work. In an ideal world, you’d be able to buy a rental property that’s in great shape – one that can immediately be rented to a tenant. However, you’ll often find better deals if you’re open to properties that are in less-than-perfect condition. Keep an open mind and don’t be afraid to make some repairs and upgrades. It often works out in the long run.
- Learn to DIY. You can save a lot of money if you do some of the work yourself, both to make the property initially ready to rent and to handle ongoing maintenance and repair needs. You don’t need to be a master carpenter, plumber, or electrician, but some basic handyman skills can serve you well. Read, watch videos, and connect with skilled people to develop these abilities – then put them to good use.
- Screen your tenants thoroughly. It’s important to screen your tenants as thoroughly as possible. The tenant screening process will help you understand each tenant’s credit history, income level, and personal history, so you can avoid tenants who are at higher likelihood of missing payments or causing problems in your Houston property. This step can also help you increase tenant retention, reducing vacancies and ultimately making your property more profitable.
- Hire a property management company. It may seem like a move in the opposite direction, since you’ll be paying a portion of your gross rental income for the service, but consider hiring a property management company. Property managers will take care of almost everything associated with your property, including tenant screening, rent collection, and the handling of maintenance and repairs. This will make your property management much smoother and give you more time that you can spend on other endeavors (such as finding new properties to invest in).
- Invest in renovations – but be frugal. Most property owners will tell you the value of investing in renovations. With even a small budget, you can transform key rooms of the property (or the exterior of the property) and make it much more appealing, allowing you to charge more in rent. However, it’s important to remain frugal and judicious in your spending; tenants may break or compromise your additions, so avoid spending too much and exhausting your budget.
- Prioritize tenant retention. The biggest source of profitability loss in Houston rental properties is a vacancy; a period during which your property is unoccupied. Limit and shorten your vacancies by improving tenant retention. You can increase tenant retention by communicating openly with tenants, choosing good tenants, handling repairs quickly, and investing in making the property better.
- Steadily increase rent. If you want to keep up with inflation and stay in line with market rates in your area, you’ll need to increase rent prices periodically. When you do this, make sure you’re increasing rent in small increments on an occasional basis – if you increase too much, too fast, your tenants will leave, defeating the purpose.
- Add secondary forms of revenue generation. If you want to increase profitability even further, consider adding secondary forms of revenue generation. For example, you could add coin-operated washing machines and dryers, or offer additional storage space for your tenants for an additional fee. This typically works best with multi-family rental properties, where many tenants can take advantage of these services.