Your rental property's profit comes from two factors -- what you collect in rent and other income and what you spend in expenses. Modifying either will increase your profitability. There usually are opportunities to make more money with your rental property -- and some of them won't cost you anything to take advantage of.
Re-Bid Vendor Contracts
When you own a rental property and everything's going well, it can be easy to leave everything in place. The problem with this is that your vendors know that you're comfortable, happy and unlikely to make a change, even if they raise their prices a little. Over time, these price increases can add up. As such, periodically contacting a few of your vendors' competitors for a price quote may lower your costs as another company decides to compete for your business.
While refinancing an investment property mortgage might not always be as easy or as potentially inexpensive as replacing your home's mortgage, the benefits are potentially the same. Refinancing to a lower interest rate should save you money every month and re-amortizing your payments to a lower loan balance can save you even more.
Review Your Schedule E
The Internal Revenue Service lets you deduct just about all of your rental property expenses from your rental property income. Carefully look over your tax return to make sure that you aren't missing any. For example, you may be able to write off the cost of any mileage that you drive to your property, to meetings with managers, or to hardware stores to buy supplies to repair your property. If you use your cell phone in conducting your property business, some or all of your bill might also be deductible.
Review Your Rents
Many rental markets change frequently. If you haven't done a rent survey recently, you might find out that you're not charging your tenant enough. Look through the places where you would advertise your own rental to see what your competitors are charging. You can even call them to shop around like a tenant. If your rent is lower than the market's, raise it when your tenant's lease expires.
Make Targeted Improvements
Some improvements to a rental property may add to both the home's value and the rent you can charge. Most tenants won't pay more rent for a new roof, but they will for a new kitchen or bathroom or for an additional bedroom. A solar energy system that lowers your tenant's electric bill may also give you an opportunity to charge more rent. You can compare different improvements by dividing the monthly rent improvement into the cost of the project to see which one has the best return -- a $10,000 project that lets you raise rent by $75 takes just over 133 months (about 11 years) to pay back, while a $11,000 project that is good for a $125 rent increase pays off in 88 months (about 7 years).
- REIClub.com: 2013 Mileage Rate – A Good Deduction Or Not For Real Estate Investors?
- IRS: Schedule E (Form 1040)
- ApartmentVestors: Determining Rental Rates -- Why and How to Do Market Rental Surveys
- Diversified Real Estate Investor Group: Benefits When You Refinance for Investment Property
- AOL Real Estate: Smart Upgrades Landlords Should Consider
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.