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"Optimizing Rental Property Income is a Key Part of Your Strategy"


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Maximizing your multifamily rental property income generally entails accomplishing one or both of the following things:

  • Adding additional revenue streams
  • Raising rents


HOW TO ADD ADDITIONAL REVENUE STREAMS


Adding revenue streams is only limited by your imagination. Here are some examples of alternative sources of passive income:

  • Renting out any unused garages or storage spaces on the property
  • Renting out parking space if available
  • Installing a coin-operated washer & dryer
  • Putting a vending machine somewhere on the property

So take a hard look at your property and brainstorm ways to squeeze more income out of it. In doing so, you will almost certainly come up with some ideas to boost your rental property income stream.


HOW TO RAISE RENTS


As we've already touched on, it is important to regularly raise rents in order to optimize your rental property income stream, so that some day you might actually be able to enjoy some passive income. But first, you have to understand the rental amounts that your target area will support.

Initially, your property agent should be able to provide guidance regarding market rents in your area. Eventually you will have a good idea of the average rental amount in your market for 1, 2, 3, and 4-bedroom units, and this can be factored in to your rent escalation strategy.

A good rule of thumb is to strive to have your rents at least 25% higher in 10 years, so use this to flesh out your rent escalation strategy.

For example, let's say your time horizon is 10 years. If the current rent for apartment A is $800 per month, in 10 years you'll want to be collecting $1,000 per month ($800 x 1.25). Divide the $200 difference ($1,000-$800) by 10 years, and on average you'll want to increase the monthly rent by $20 each year.

Again, your major expense (mortgage financing) will remain fixed but ultimately your rental property investment income will be 25% higher...so you can see how this tactic gradually improves your cash flow position over time.

Plus, a higher rent roll will support a higher price when you sell. So you can maximize your sell price when you maximize the rent roll. Either way, this policy is a true win / win...for you!

Importantly, you don't necessarily have to raise rents for every tenant every year – particularly for your very best tenants. That said, you should not wait 5 years to do it, because this will make it unlikely that you'll ever be able to maximize your passive income.

You can always justify it to your tenants by claiming that it's necessary to keep up with inflation / the cost of living. As long as you always take care of your landlord responsibilities, your tenants will understand.




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4 Responses to Optimizing Rental Property Income is a Key Part of Your Strategy

  1. PayMe says:

    This is great advice. Obviously the property income will make or break your investment, so the tips on this page regarding raising rental income and finding other income streams is spot on!

  2. jody R says:

    I agree with this. The bottom line is that the more income a property brings in, the more valuable it is. Especially if we’re talking about passive income!

  3. Sammy says:

    I have to disagree with the author that any aspect of rental property can be considered passive income. It is definitely not a “set it and forget it” type of investment even with a property manager.

  4. tony says:

    what would your recomendation be to me if i was to tell you i have access to 150,000 what would be my best buy/refi plan on a 4plex?

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