Published April 28, 2022. Updated July 10, 2023.
There are many things to juggle when running an investment property, and one of the most taxing is being a landlord, investor, and businessperson at the same time.
Property owners must ensure that their investment properties are rented out while maintaining them properly so they can generate income from them! Things can quickly pile up, but don't worry—in our blog today, we've got some of our best expert tips for making this investing strategy easier for property owners while staying profitable.
What It Means to Be a Successful Landlord
Being a landlord who enjoys success and profitability requires more than just owning property; it calls for a strategic approach to several key areas.
One of the first steps is selecting the right property that will appeal to your target market while also being in a location with promising real estate growth. Understanding local laws and ordinances that pertain to landlord-tenant relations is also crucial. This knowledge helps you operate within the legal framework, thereby minimizing potential conflicts and liabilities.
As a property owner, you must also generate enough rental income from your properties to justify the investment. However, setting the perfect rent amount is a balancing act. Price it too high, and you risk vacancy; too low, and you might not make a profit. Market research can aid in determining a competitive yet profitable rate.
After pricing, it's crucial to focus on generating positive monthly cash flow. This means your rental income should exceed your property expenses, such as mortgage payments, maintenance, and taxes. Effective cash flow management is instrumental in long-term success.
Lastly, maintaining accurate records and efficient tax management can significantly impact your profitability. Well-kept books make it easier to track income, expenses, and potential tax deductions, putting you on a sure path to becoming a successful landlord.
Taking Care of the Numbers: Rental Property Cash Flow and Net Operating Income
In most cases, being a successful rental property owner isn't as easy as simply collecting rent and making sure it's enough to cover your costs. Property owners must have a good handle on their finances.
To do this, property managers recommend tracking your cash flow and Net Operating Income—indicators that play a significant role in your rental property's rent roll report.
What Is Cash Flow for a Real Estate Investment?
Rental property cash flow is simply the amount of money that comes in each month minus the amount that goes out. It's a key metric to track because it determines your ability to pay your bills and significantly influences your investment's success.
In simple terms, you want to ensure that your rental property business has a positive cash flow, which means that your investment properties bring in more money than you spend to keep it well-maintained, pay the mortgage, and cover other ongoing operating costs.
Understanding How Net Operating Income Affects Rental Property Success
Net Operating Income (NOI) is a numeric indicator of whether you're making a profit or losing money on your rental property.
The most common way to calculate it is by subtracting total operating expenses from total gross income. For example, if your property brings in $10,000 in gross income, but you spend $8,000 on operating expenses like vacancy, repairs, management fees, and maintenance, your NOI would be $2,000.
Net Operating Income measures your rental property's financial performance and can help you determine whether a property is cash flow positive or negative. You'll want to keep an eye on your NOI because it can indicate how healthy your investment is overall.
Be Two Steps Ahead: Factors That Can Impact Your Property's Value
A property's value is constantly changing, and it's essential to be aware of the factors that can impact it.
However, being two steps ahead ensures that your property always meets your expectations and maximizes its potential. When each property in your real estate portfolio performs to expectations, you're closer to your long-term investing goals!
Our professional property management company experts recommend considering the following points when evaluating an investment:
The condition of the property
The surrounding neighborhood
Local and national economic conditions
The amount and quality of competition
By being aware of all of the factors that can impact your investment, you can be sure to make sound decisions that will help you manage properties well and build wealth in the long run.
Keep Up With Property Maintenance to Maintain Value
Another way to stay ahead of your cash flow and ROI goals is to focus on excellent property maintenance.
Regular upkeep of your rental property isn't just about addressing immediate repairs; it's a long-term investment that preserves the property's value and attractiveness. When you prioritize routine maintenance and responses to maintenance emergencies, you prevent minor issues from snowballing into costly problems. Regular inspections can help you identify these early on, whether it's a leaking faucet or signs of wear and tear on the flooring.
Moreover, a well-maintained property is more appealing to quality tenants who will treat your property carefully. This not only leads to longer tenant retention but also allows you to command higher rent, contributing to a positive cash flow.
Timely maintenance also minimizes vacancy periods, as repairs can be conducted quickly between tenant turnovers, making the property immediately ready for the next occupant. With consistent monthly rental income from happy tenants, you also maintain consistent monthly cash flow!
Build Wealth by Partnering With a Glen Burnie Property Management Company
Being a landlord can be a great way to build wealth, but taking care of the numbers and staying ahead of any potential problems that can lead to income loss is essential. By understanding cash flow and net operating income, a property owner can protect their investments and ensure that their properties run smoothly.
Additionally, being proactive about future factors that could impact your property value will help you make informed decisions when it comes time to sell.
One of the most reliable ways to make money as a landlord is partnering with a Glen Burnie property management company. Renters Warehouse BW Metro can help you navigate the complexities of the rental market, provide expert advice and support, and help you maintain your property in top condition. Reach out soon to learn more about our residential property management services!
Get a head start on better rental property returns! Download our free "Guide to Finding the Best Property Manager in Maryland."