How To Maximize Rental Yield
Friday Jan 06th, 2017Share
As real estate investors, everyone’s focus often remains on their bottom line. How much net income will I see this month? What is my return on investment? What is the cap rate (Capitalization Rate) on this new property? The trap some investors fall into however is being happy with how things are and not willing to put in work, to further increase their returns.
Well what if I told you there are some ways you can make sure you are always extracting the most out of your assets. Just stay on top of these few tips and you can expect high cash flows for years to come.
Strong Leasing Techniques
A strong leasing team is very important, if you don’t have the knowledge, skills, or time to handle this then it is often money well spent to have a professional lease your units. You want someone who knows their area, the units available, and the rents expected. Someone who is personable, has great negotiation skills, and above all is flexible. If your leasing agent is only able to show your unit Mon-Fri, 9am-5pm, what good does this do you, or the majority of your potential tenants who are at work? A great leasing agent will help you keep applicants happy and help you acquire great quality tenants.
If you keep your units in rough shape, with inefficient layouts, or in poor neighbourhoods, you can expect to see relatively low unit rents and less desirable tenants. Now I’m not saying your units need to look like The Ritz, however they do need to be in good repair. Clean units, with decent finishes and a functional layout in good areas of a city like Toronto, will rent for top dollar every day of the week if you have the right team on your side.
Turnover Isn’t Always Bad
In a market that is as hot as Toronto, you shouldn’t be scared of unit turnover every so often. It is common for many landlords to get comfortable with having a tenant in their property for 5-10+ years, they know each other well, the landlord being friendly doesn’t raise the rent ever, and he has lost the opportunity for a significant amount of cash he will never regain. The average rent increase amount in Ontario is 2% per year, however the market rents typically increase significantly quicker then that in hot markets. It’s not uncommon to see 5-8% higher rent from a new tenant, as opposed to the 2% increase you would have seen had the previous tenant not moved out. Now compound this over the many years your long term tenants hang around, there will be a lot of cash left on the table.
I mentioned above how some landlords try the friendly tactic with many of their tenants. While this is fine to a point, there needs to be some strict rules you do not bend on. Late payments and late fees are two of them. Your tenant’s need to know you aren’t playing around when it comes to receiving your rent in full and on time. If it isn’t, they should be receiving their Notice N4 the next day. Be polite but firm, as once these rules are broken some people have a tendency to keep breaking them.
Increase Other Revenue Streams
Rental income doesn’t need to be the only income collected from your assets. Since we’re trying to maximize cash flow, we need to get creative and think of all the possible ways to extract cash out of a property. What if your property has a garage, but your tenants don’t have any cars? In some markets like ours, it’s very feasible to rent the garage out for an extra $100-$200/mth to someone else. What about laundry machines? Everyone wants laundry on site, but no one said it had to be free. When installing common laundry for your units, make them coin operated. This not only increases income, but also decreases utility expenses as tenants are more aware of their usage when it costs for them as well. Common costs are $2.50 for washer and $2.50 for dryer cycles.
While this isn’t necessarily maximizing income, it does increase your returns as with less expenses, you get to keep more of that rent income for yourself! We just spoke about the positive benefits coin laundry had on your utility bills, so let’s review some other options to reduce your properties carrying costs. LED lightbulbs and other more energy efficient fixtures are a good start, while more expensive to purchase they use significantly less electricity and will pay dividends in the long run. When it comes to water usage there are many ways to decrease usage under normal conditions, low volume toilets, different shower heads etc. all of which reduce wasted water and keep your utilities low.
Utility companies aren’t the only bill you pay out for your properties, what about your insurance? Every so often it’s not a bad idea to price check your current property insurer to make sure you are getting the most competitive rates, this could save you hundreds as well.
Do you have any other ideas to increase revenue and decrease expenses? Don’t hesitate to share them in the comments below.
Director, Property Management
My Capital Corner Team