Real estate investments make a lot of sense for a number of reasons, but the biggest reason is that they produce a passive income. Purchasing a property and renting it to people or businesses allows you to generate money over time. It’s like dividends from stocks and shares – only more consistent, and a lot more generous.
That being said, it’s easy to lose some of your property investment if you’re not careful. Little things can mean money leaks through the cracks and disrupts your ROI. Nobody wants that to happen, so here’s how you maximize income-producing property to earn as much money as possible:
Understand Tax Deductions
Much like when you’re self-employed, owning a rental property opens the way for some nice tax deductions. After all, this investment is technically a business endeavour, meaning you can claim tax refunds on the following:
- Mortgage interest rates
- Property management fees
- Insurance premiums
- Any property repairs
- Legal fees
- Travel expenses (if you have to drive to the property for maintenance)
A clever accountant will help you with all of this, though the biggest deduction is depreciation. Rental property owners are legally allowed to write off some of the ongoing property costs every year as depreciation. But what’s fascinating is that you can utilize a trick called cost segregation to split your property into different elements – such as:
- Appliances and white goods
- Flooring
- Roofing
- Electrics
From there, you’re able to claim tax deductions on these things because they depreciate at a much faster rate. It can seem complicated, but that’s why so many people don’t do it. This rental property depreciation calculator is a great way to kick things off by learning how much tax you can reclaim.
At the end of the day, any type of tax deduction is beneficial because you pay tax based on how much your rental property earns. If you add all of these expenses to the equation, it shortens your gross profit, so you pay less tax on the property. Overall, it means you’re actually making more money from the house because you’re giving less to the taxman.
Look Into Any Government Incentives
There could be some government incentives for rental property owners that help you maximize total profits on your property Investment. Again, most of these involve receiving tax credits, though some could include money that goes towards certain home advancements.
Most of these incentives will revolve around energy efficiency as the government looks to improve properties throughout the country. Making specific upgrades to insulation or installing solar systems can unlock rebates or grants that add up to some nice savings.
The key point with this step is that it lets you do two things:
- Reduce the cost of potential home improvements upfront
- Make utilities cheaper in the long run
Being able to provide cheaper utilities for tenants is an absolute win. It attracts more people or businesses to your rental, and it also lets you raise the rental rate a bit. Tenants could pay just as much as they would if the utilities cost $100 more, only now that additional $100 goes straight into your pocket.
Use Property Management Services Wisely
Property managers will claim you need them to run your rental property, but is that really true? They can handle things like:
- Liaising with tenants
- Scheduling repairs
- Performing inspections
- Finding new tenants
- Handling checkouts
Let’s be honest, you can probably handle most of these things yourself – especially if you only have one income-producing property. It makes more sense when you need to manage multiple abodes, but one property isn’t hard to take care of. You can deal with the usual day-to-day stuff to avoid wasting money on property managers.
Then, you hire them when it makes sense. For instance, it is worth investing in property management services when tenants are moving out. They will help the process go faster while also helping you source new tenants. With their assistance, your house will never be unoccupied as they’ll find a new tenant before the old one moves out, allowing for a seamless transition.
It doesn’t make sense to spend money on property management when you don’t need it, but it is useful to stop your property from being empty. An empty property makes no money but still costs money to maintain.
Slowly Increase The Rent
You shouldn’t keep the same rent for your property across multiple years. It usually makes sense to up your rates every year, in line with things like inflation and the going rate in your area. The tricky thing is finding ways to increase the rent without scaring away tenants. Charging more money is pointless if the tenants don’t agree to the terms and leave – you end up without any income.
Clever investors will do things that justify a rental increase, for example:
- Buying the tenants some new white goods (you can write them off as tax deductibles, but it gives the tenants something new to improve their lives)
- Allowing tenants to have pets
- Providing an additional parking space
- Painting the walls
- Letting tenants paint the walls or decorate the place
This list of examples is a really good starting point that shows the type of things you can do to increase rent. It’s all about giving your tenants something extra without necessarily investing too much additional money. The pets and decorating points are two of the best; both are things a tenant desires more than anything, so they will be very happy to pay more rent. All the while, it costs nothing to be slightly more lenient.
When push comes to shove, you will find lots of small ways to maximize your income-production property investment. Target those areas that leak money from your property investment, like taxes or property management, and think about ways you can increase the rental rates without putting tenants off. It may not seem like these changes make a difference at first, but you will quickly see a better cash flow, more disposable income, and fewer expenses for this particular investment.
Photo by Blake Wheeler; Unsplash
