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