If you own and manage rental properties, you always think about the bottom line. You want to be able to provide safe and attractive housing to renters while also charging enough to cover your expenses and make a decent amount of profit. One way to increase your profit margin and gain the attention of qualified residents is by making upgrades to your rental properties. Keep in mind that upgrades don’t necessarily have to be expensive. Even minor changes and improvements can increase the value of your property and allow you to charge a competitive rent rate. Learn more about upgrades, both small and large, that are worth the investment.
Rental Value of Property
To gain a general idea of the value of your rental property and how much you can charge for rent per month, is to look at similar properties that have been rented in the past 30 days. Look for properties with the same number of bedrooms and bathrooms and comparable square footage. You should be able to calculate the price per square foot and get a sense of what your property is worth.
For a more detailed approach to understanding rental property value, you can calculate the gross rent multiplier (GRM). To find the GRM, you will want to divide the purchase price of the property by the gross annual rental income:
GRM = Property Value / Gross Rental Income
For example, if you purchased a property for $200,000 and your expected gross rental income is $18,000, the calculation would look like this:
$200,000 Property Value / $18,000 Gross Rental Income = 11.11
That means that it would take 11 years to pay off the property using the rental income. Keep in mind that other expenses such as maintenance and repair, property taxes, and insurance will occur over the years. It may be tempting to look for properties that have a lower GRM, but you may end up paying more in the long run in the form of repairs. That is why another useful strategy for increasing your rental income is making upgrades that will increase the overall property value.
Factors Affecting Rental Value of Residential Properties
Here are some of the most common factors that can affect the value of your rental properties:
- Location. The location of your property is perhaps the most important factor when it comes to determining value. It will also directly affect your appreciation and depreciation numbers and how many days it stays vacant while on the market. For example, if you are renting a home in an urban area, renters may be looking for a walkable neighborhood that is close to public transportation. A house in close proximity to amenities will have a higher value.
- Number of bedrooms. If you have two homes with similar square footage, and one property has two bedrooms and the other has three bedrooms, the home with the additional bedroom will rent for more. Having an extra bathroom in the same square footage will also increase the property value and the amount you can charge for rent.
- Pet friendly. Some landlords are hesitant to allow pets because they don’t want to deal with any potential damage or other pet-related issues. However, a significant portion of renters are also pet owners. Providing pet-friendly properties will expand your pool of applicants and allow you to increase the monthly rent.
- Appliances. Installing appliances like a dishwasher and washer and dryer will also increase the value of your rental property. In fact, if these appliances are common in other rental properties in your area, not including them in the home will be detrimental to your ability to find residents. Even providing coin-operated machines is more convenient and desirable to residents than having to take their clothes to a laundromat.
- Curb appeal. First impressions matter and you want your property to look well maintained and cared for. Even if the house is in excellent shape, it won’t rent as quickly as a similar property with better curb appeal.
Improvements to Increase Rental Value
When you think about making improvements to your rental property, keep in mind that you don’t have to make major renovations. Simply adding a fresh coat of paint to all the walls, cleaning the carpets, and refinishing the floors can breathe new life into the home and make it more attractive to applicants. You can also update light fixtures, faucets, cabinet handles, and other details throughout the home to make it look more modern and well cared for. These types of improvements come with a relatively low cost and won’t require you to hire a professional.
As mentioned above, curb appeal can also have an impact on property value. Take a look at the outside of the home and think about different improvements you can make. Adding fresh mulch to flower beds, planting flowers and shrubs, getting rid of yard debris, repairing broken screens, adding new shutters, and placing planted pots near the entrance are all simple things you can do to improve the curb appeal without spending a lot of money. Learn more about curb appeal here.
How to Add Value to Your Rental Properly
In addition to rent, residents also have to worry about the expense of utilities. You can help them save money by making your home more energy-efficient, which will also help you in both the short and long term. As a landlord, you can install low-flow showerheads, replace incandescent bulbs in light fixtures with longer-lasting LED bulbs, make sure that all windows and door are properly sealed, install a smart thermostat that can be programmed, and make sure that there are ceiling fans in all of the main rooms.
When it is time to make updates to more major components of the home, including the HVAC system, windows, and hot water tank, be sure to invest in energy-efficient options. Chances are you wouldn’t cut corners and install inferior products in your own home. The same approach should apply to your rental properties. Making your rental property energy-efficient will provide you with a valuable return on your investment.
Increase Rental Income
If you want to make more money off your rental properties, the answer isn’t as simple as raising rent prices. Remember that you are competing in a market with other rental properties that are also looking to limit vacancies and find the most qualified residents who will pay rent on time, take care of the property, and hopefully renew their lease. The only way to be able to fairly raise the rent is by increasing the value of your property.
Renovations can feel like a big undertaking, but even on a budget, you can do a lot to raise the appeal for future tenants and add value to your property. Deca can help you determine what changes to make to increase your rent, reduce maintenance costs, and better position you to compete with other rentals in the area. Want to see the numbers? Check out this case study to see how Deca helped Kevin increased his property value and receive a 400% ROI.
Remember, even small changes can provide valuable returns.