Whether you own a small rental home or a shopping center, the fundamentals of driving real estate investment profits are the same: You can either cut your expenses, or you can increase your rental and other income. While there's almost always room to improve the efficiency of your operation, and most markets will gradually reward you with rent growth, the best way to quickly influence what you make or what you spend is to invest in your property.
Review your building's operating expenses to look for areas of easy savings. For instance, if you've been using the same lawn service for years, talk to a few different companies to see if you can change to a different vendor with more competitive pricing.
Identify small energy-efficient upgrades you can make to your building. If you own a four-plex and hallway or stairwell lights are on all night, replace the switches with motion sensors and put florescent or LED bulb in the sockets to lower your energy costs. This strategy also works well for exterior lighting. Also, install low-flow shower heads, aerators or toilets. The idea is to spend very little money but get a meaningful reduction in your expenses.
Survey the rents in your area by reviewing ads placed by other landlords or calling property management companies. If the rents you are charging are below what other landlords are achieving in market, increase them when the current tenant's lease expires. If the tenant moves, you should be able to replace him with another tenant at the higher rent, but she also may not move if she'll just have to pay the same rent elsewhere.
Refinance your property's mortgage to a lower interest rate, if it is available. Not only will you save money on the interest rate, but you will also re-amortize your loan with a lower starting balance, potentially giving you an even lower payment. This approach may not yield cost savings, though, if you have a prepayment penalty.
Make targeted capital investments in your building that will either lower your operating expenses or increase your rents. For instance, installing a high-efficiency furnace to replace an old one can lower your energy costs if you pay for heat. Renovating the kitchen or bathroom may allow you to charge more rent for the unit. You can calculate the payback period by multiplying your monthly rent increase or savings by 12, and then dividing it into the cost of the project. For instance, if you can charge an extra $100 per month for a renovated kitchen, and you can do the remodeling for $10,000, it'll pay back in 8 years and four months ($10,000 divided by the $1,200 of additional income).
- Green Home Guide: Would Hallway Lighting that Uses Motion Sensors Reduce Costs in a 288 Unit Coop
- Center for ReSource Conservation: Slow the Flow Indoors
- The Bill McMannis Blog: When an HOA Replaces a Longtime Vendor
- ApartmentVestors: Determining Rental Rates -- Why and How to Do Market Rental Surveys
- Bankrate: When to Refinance Your Mortgage
- AppFolio Property Manager: Top Renovations: How to Improve the Value of Your Rental Property
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.