8 Landlord Tips to Maximize Your Rental Property Income

With the challenges faced in the past years, landlords today are more determined than ever to optimize their rental property investments. 

Despite the economic uncertainties, residential rental properties remain a popular and tax-efficient way for investors to build wealth, diversify their portfolios, and save for retirement.

Whether you're a seasoned landlord looking to expand your rental portfolio or a first-time investment property buyer, it's crucial to have a strategic approach to maximize your real estate investment. This article will share valuable landlord tips to help you achieve this goal.

1. Look at key market indicators

When deciding where and when to purchase an investment property, consider the following key market indicators:

• Positive net migration: This measures the number of people coming to a market versus leaving. The top U.S. cities that Americans are currently moving to include Fort Myers, Las Vegas, Sarasota, Jacksonville, and Louisville, with Florida and Texas having the highest net domestic migration gains. It's important to note that different generations and demographics have different migration patterns, and smaller, less dense suburbs near these cities could offer additional investment opportunities.
• Market peak: In real estate, knowing when you're at the top of the market is way more important than knowing the bottom. Find an investment that is a good deal in today's market, has the potential to withstand economic downturns, and has an opportunity to appreciate in both value and cash flow over the next several years.
• Interest rates: Interest rates determine how much money you'll spend on your home. If interest rates creep up, the real estate market will typically slow down. 
• Supply and demand: As of February 2023, the total U.S. housing inventory is estimated to be around 2,292,420 units. The supply of homes for sale is currently low, which is driving up demand. This is due to the gap between single-family home constructions and household formations (i.e., groups of people living together) that have grown. Before buying, know your market intimately — from available units and vacancies to rent prices.

To better evaluate the financial implications of potential rental properties, Azibo offers a range of online calculators:

• Rental Property ROI Calculator can estimate the return on investment for a rental property by considering factors such as property appreciation, rental income, and operating expenses. 
• Cash on Cash Return Calculator can help investors evaluate the return on the actual cash invested in a rental property, expressed as a percentage. It takes into account the property's annual pre-tax cash flow and the total cash invested in the property, including down payment, closing costs, and renovation expenses.
• Net Present Value (NPV) Calculator can calculate the present value of all expected cash flows, including both income and expenses, associated with a rental property investment over its projected holding period, discounted to reflect the time value of money. It helps investors evaluate the profitability and potential for positive returns of a rental property investment over the long-term.
• Property Appreciation Calculator can estimate the rise in a property's value over time due to market demand, inflation, and other economic factors, resulting in higher selling prices and equity gains for investors. It can be helpful for long-term investment planning and determining the potential for capital gains.

2. Think of short-term rentals as a long-term play

Short-term rentals are not just a passing trend but can be a lucrative long-term play for landlords looking to maximize their rental income. With higher average daily rates, better revenue per available night, and sustained occupancy rates, short-term rental housing offers the potential for greater returns compared to traditional long-term rentals.

In fact, Forbes predicts continued growth in the short-term rental industry, making it an attractive investment opportunity for those willing to navigate the changing regulatory landscape. As the world adapts to new ways of working and traveling post-pandemic, the demand for short-term rental properties is expected to remain strong, offering a promising future for landlords looking to diversify their portfolios.

Air DNA reports that despite some economic pressures, the short-term rental industry is predicted to reach all-time highs in supply, demand, and total revenue in 2023. This means an increased number of active listings and nights will be supplied, leading to broader availability of rentals. Even though there may be some slight declines in occupancy due to strong supply growth, the trend towards more affordable experiences offered by short-term rentals is expected to continue to draw crowds. The same Air DNA report predicted demand for short-term rentals in 2023 would increase by 5.5% year-over-year, making it a great time to invest in this industry.

3. Get long-term returns with multifamily investing

Multifamily investing has proven to be a resilient and lucrative investment strategy, even in challenging economic times. While a potential recession could impact the multifamily rental market, it is better positioned to weather any downturn than commercial  property types like office and retail. In fact, with lower construction costs and a potential increase in renter demand from those postponing home purchases, a recession may present unique investment opportunities for well-capitalized apartment developers.

Dallas-based commercial real estate group Momentum reports that Multifamily investing in 2023 is a smart move for real estate investors seeking long-term returns. With strong demand for affordable rental properties, the trend of co-living, and the opportunity to incorporate sustainable features, there are multiple avenues for success in this market. While challenges such as rising costs and tenant turnover exist, careful assessment and risk mitigation strategies can help investors capture a significant market share and generate strong returns on investment.

4. Capitalize on real estate tax strategies

Navigating real estate investment tax laws can be complex territory, but with the right knowledge and guidance from a tax professional, there are many landlord tax benefits to capitalize on. For example, if you’re thinking of selling your rental property, you can use a 1031 exchange strategy to defer capital gains taxes — as long as you sell one investment property and replace it with a like-kind property within the required timeframe.

Landlords can further reduce their taxes by conducting a cost segregation study. Cost segregation helps to accelerate asset depreciation, resulting in lower taxable income and higher cash flow for property owners. Warren Dazzio, Executive Vice President of CSSI - Cost Segregation Services, Inc., says an engineering-based study can generate $30,000-$80,000 in tax savings per $1 million in building costs. 

No matter which tax strategy you pursue, you can stay organized with Azibo's free real estate accounting solution for landlords, which helps landlords track income and expenses, tag transactions by Schedule E classification and property, create financial reports to monitor their portfolio’s performance, and more.

5. Don't overpay for property insurance

Azibo is the only national insurance provider dedicated to rental property owners, helping to ensure you get the right insurance coverage at the right price. We help landlords understand their current coverage and find ways to reduce payments, streamline policies, and ensure they're not over- or under-insured. By increasing transparency and choice throughout the insurance-buying process, landlords can easily compare terms and choose the right policy for their business. 

And it's not just for new real estate purchases — you can optimize your portfolio's existing coverage or get a better policy if you're refinancing. 

6. Set up online rent collection

For existing real estate investors, setting up online rent collection in 2023 will help you stay organized while reducing the extra stress of tracking down tenant payments. Online rent collection is more secure than paper checks and increases efficiency and flexibility for landlords and tenants. Online rent collection also increases transparency, enabling landlords to automatically send tenant reminders and track payment status in real time. 

7. Create an LLC

Creating an LLC for your rental properties has several benefits, such as shielding personal finances, segregating personal and business assets, and potentially reducing taxes. By establishing an LLC, investors can safeguard their personal assets if faced with a lawsuit or other legal action related to their rental properties.

Additionally, segregating personal and business assets can aid investors in managing their finances and simplifying property management. Finally, forming an LLC may offer tax benefits, including claiming certain expenses as deductions and, in some cases, lowering the overall tax rate for your business.

8. Consider sustainability

Sustainable rental properties can be more attractive to tenants looking for environmentally conscious living spaces — and can even command higher rents. By incorporating sustainable features such as energy-efficient appliances, renewable energy sources, solar panels, and water-saving technologies, investors can reduce operating costs and increase the value of their properties in the long term.

Sustainable properties are becoming increasingly popular among tenants, leading to lower vacancy rates and higher demand for these rentals.

Additional landlord tips to maximize rental income

Looking for more landlord tips? Here are a few additional strategies to consider as a real estate investor:

• Incorporate smart home technology: Install smart home devices into the rental property, such as thermostats, security systems, and appliances that can be remotely controlled and monitored. This will appeal to tenants who prioritize convenience and security, allowing you to charge a premium rent.
• Offer mid-term rental agreements: If you’re looking for increased flexibility while still maintaining stability, consider offering flexible lease terms such as month-to-month or mid-term rentals with six-month leases. This can meet a growing demand from high-quality tenants who want flexibility, are remote workers, or want to explore a new area without a long-term commitment.
• Provide tenant incentives: Offer incentives to tenants who refer a new prospective tenant to your property. This strategy not only helps to increase your tenant pool but also promotes loyalty. Consider offering rent discounts, free parking, or free utilities to encourage current occupants to spread the word about your property.
• Consider offering furnished rentals: This can be a unique way to attract renters looking for convenience and ease. With furnished rentals, tenants can move in without worrying about buying and moving furniture, making the process more seamless and less stressful. Additionally, furnished rentals can command higher rental rates, as tenants are willing to pay more for the added convenience. 

Final words on maximizing your rental income

Maximizing rental property income requires a strategic approach that involves careful consideration of market indicators, a willingness to diversify your portfolio, and taking advantage of tax strategies.

By staying informed about market trends and investing in properties that offer short- and long-term returns, landlords can set themselves up for success in 2023 and beyond. 

With the right tools and resources, such as Azibo's streamlined property management solutions, landlords can navigate the challenges of the rental property market and achieve their financial goals.

Whether you're a seasoned investor or just getting started, implementing these landlord tips can help you make the most of your rental property investments and build wealth for the future.

Landlord tips FAQs

What is the 2% rule for rental income?

The 2% rule is a guideline used by real estate investors to evaluate the potential profitability of a rental property. The rule suggests that a property's monthly rent should equal or exceed 2% of its total purchase price.

For example, if a property is purchased for $200,000, the monthly rent should be at least $4,000. While the 2% rule is not a hard and fast requirement, it can help investors quickly evaluate whether a potential investment property has the potential to generate sufficient rental income to cover expenses and produce a profit.

What is a good rate of return on rental property?

A good rate of return on rental property varies depending on individual investment goals, risk tolerance, and market conditions. Generally, a return of 8% or higher is considered a good rate of return on rental property, but this can vary depending on factors such as location, property type, and financing costs.

It's essential to conduct thorough market research and analysis before investing in a rental property to determine a realistic rate of return. Use our Internal Rate of Return calculator to estimate the profitability of a potential investment property. 

What percentage of Americans rent?

According to data from the U.S. Census Bureau, approximately 36% of Americans rent their homes, while the remaining 64% are homeowners. This percentage has been relatively stable over the past decade, although there has been some variation in different regions of the country and among different demographic groups.

What makes a successful landlord?

There are several key traits and practices that contribute to a successful landlord. Firstly, effective communication and responsiveness are essential to building a positive relationship with tenants and addressing issues promptly.

A successful landlord should also understand the local rental market, including rental rates, tenant expectations, and legal requirements. Maintaining the property in good condition, being proactive about maintenance issues and repairs, and providing timely and accurate financial statements are also important factors in a successful landlord.

Finally, treating tenants with respect and fairness, and cultivating a reputation for being a trustworthy and reliable landlord, can help to attract and retain high-quality tenants and ensure a positive rental experience for both parties. Read our blog post for more tips on establishing positive landlord-tenant relationships.