Is rental income worth the investment? Do you want to make a profitable business from renting the apartment/apartments you own? What is the return on investment in this type of business? What is your monthly profit? How can you maximize it?
Let’s start with the beginning:
Option A: You have an apartment and you want to rent it out. In this case you are in a happy stage, because we assume that you do not have debts to the bank (payment of a monthly loan) or other such expenses.
Option B: You want to buy an apartment and then rent it. Here there are several possibilities that depend on the financial situation of each person (you get a loan from the bank, you have saved enough to make such an investment, you borrow from your parents, etc.).
Depending on the stage you are in, you must take into account the following aspects: in the case of variant B, if you want to recover the money invested, you will have to take into account the amortization of the investment. This depreciation is usually done in years if you rely only on rental income. After you have obtained enough money to cover your initially invested amount, only then we can talk about profit. Of course, all this time you are left with an asset (your apartment) that will most likely increase in price over time, and, at some point, you will be able to sell it more expensive.
If you are in the case of variant A, you are already at the point where you can think of profit. Basically, every month you get rent income is a month of passive income. But are these revenues entirely passive?
In the following, we will define the essential steps to maximize your rental income regardless of the situation you are in.
Step 1. Determine the total monthly expenses
Before thinking on how much to ask for rent, it is important to determine the total expenses that may include: paying the installment for the real estate loan, paying the amortization, paying the maintenance expenses (water, gas, electricity, internet, repairs). It may be difficult to set a fixed amount, so it’s a good idea to think about at least an average of spendings. Once you have a clearer picture of these expenses, you will know the minimum amount you need to charge for rent.
Step 2. Do a market research
To maximize your rental income, you need to know the market. What is the average market in your area? How much do people rent apartments similar to yours in the area where you are? Consider the conditions offered, the area, the audience you are addressing and other similar issues.
Once you find out what the prices are in your area, you will be able to increase the minimum amount set in step 1, with a slightly more realistic amount.
Step 3. Do the calculations well
Ok, we talked about certain types of spending, but have you thought about all the possible variables? What happens if the tenant leaves? What happens if you can’t find a tenant and your apartment is empty for several weeks in a row? Revenues are reduced in this case. Also, how much do you spend to get a suitable tenant? Think about:
• real estate agency commission (if you want the future tenant to come through an agency): this means that 50% of the income from the first month’s rent will be offered to the estate agency;
• occupancy rate: the general calculation standard for apartment rentals tells us that also at 12 months, there is a month in which the apartment remains unoccupied
• repair expenses (in the happy case, once every 1-2 years you will have to do a sanitation, to paint the walls, to make repairs for the new tenants)
Step 4. Increase the rental price
We know that this step is very logical, but not everyone is willing to do it. The main reason is: the fear of not being left without tenants. To increase the price of the rent, you have to make that rent worth the money from the point of view of the renters. How do you do this?
First, we are talking here about marketing and promotion techniques. Make sure your rental ad has quality pictures or even a presentation video. Highlight the strengths that people don’t think about when looking at a picture (for example, if your apartment is close to a mall, an amusement park, a tourist attraction, of different points of interest), present these things. People are interested in having close to bus station, grocery store, barber shop, hairdresser, fitness room, park, cafes, clubs, etc.). These benefits must also be included in the promotion notice. Then, you can also highlight the fact that you have “nice” neighbors who are quiet at night, or tolerate the small parties you give at midnight without calling the police). If important events or festivals take place in your city every year, highlight this, especially if your future tenants come from another city. You can also address strangers. Your ad can be adapted and published on various international websites. There are people who want to live long-term in Romania, in the interest of business, and those people are willing to pay more.
Step 5. Choose the right tenant
This is often the hardest part. How do you know that the person you are talking to will be a good tenant, who does not have problems, who does not violate payment terms, who does not damage, and who (especially) will stay in your apartment for a long time? These tenants are the most welcome, but unfortunately, it is quite difficult to find them. However, we have an effective solution for you in this case. You can call RentGuard, the online tenant verification service.
Why check tenants? You can find out all the details about our service in our blog article. We also recommend signing a lease to increase security.