By Melissa Dorman, April 29, 2019
The purpose of any business transaction is making profit. Profit is the reward in return of money invested and risk undertaken by the owner.
So making profit is ideal, as long as it is a win-win for everyone involved.
Similarly the landlord is also involved in the business for earning a profit. One doesn’t become a landlord/investor for a charity purpose or for giving back to society alone.
They invest their fund in the property in order to generate income from it later on.
But knowingly or unknowingly landlords/investors may be making costly mistakes that may be killing their profitability.
Common Decisions by Landlords that affect the profitability if gone wrong
The best and successful landlords are cost-conscious. They understand that costs accumulate over time, so they avoid mistakes and make deliberate efforts to maximize revenue.
For example, a $100 mistake due to wrong decision might not seem like a big deal in isolation.
But if similar mistakes are repeated every month on say, three properties, then it will cost around $300 per month—or $3,600 per year!
It will considerably be a large amount and can definitely reduce the income and can create cash flow issues.
4 Biggest Decisions by Landlord/Investor that Affect Profit.
1. Selection of Properties
The biggest source of profit for Real Estate deal is while buying a property. So selection of the correct property is a must for making good profit. The phrase goes “You make your profit on the purchase price”.
The biggest problem that landlords face can be investing in the wrong property or overpaying for the right ones.
Selecting a property in a wrong locality or a property which need a lots of renovation works are just a few examples which can increase the cost or can block the fund supply and cash flow.
So the best property must be selected after proper planning and with patience; taking into consideration the favorable locality and the one that is in a good condition, only then profit can be achieved easily.
2. Selecting the Internal and External Finishes
Landlord/Investor must be smart with the finishes they choose for their property -both for sale and rent.
Tenants enjoy for nice designer, but that must be balanced with materials that don’t require expensive replacements after every tenant moves out.
Carpets are cheap in price but can also get ruined easily, to prevent that you will have to check over here to hire a professional who can clean it for you. Frequent stains, rips, and snags damage it and has to be replace or cleaned for each buyer/new tenant.
So instead, for a little more money they can have vinyl plank flooring and get a better look with greater durability and longevity.
3. Initial Screening of Tenants
Since selection of tenant has a direct impact on revenue, you must have a proper screening processes. Otherwise, it can seriously impact the long-term profit.
If a landlord/investor accepts a bad tenant who has financial issues or one who has a lack of regard for the property, it can cost thousands of dollars.
Some people think, selection for tenants does not need special attention, any one who accepts the terms and payment schedule can be selected.
But in the absence of proper tenant screening procedure, you may select the wrong tenant, which in turn can increase the cost.
Common problematic behaviors from tenants
- If a tenant pays rent checks late or misses payment regularly
- Causes frequent damage and maintenance issues
- Violates the lease agreement terms, and
- Leaves the property in poor condition while moving out etc.
With right tenant screening, chances of these instances reduces and profitability increases.
4. Selecting proper insurance and loan Rate
Many landlords make the mistake of accepting whatever insurance or personal loan products offered to them, without comparing and selecting the best.
So many times in their haste to move on, they end up overspending for loan and insurance policies.
The best practice is to never be in a hurry, and instead compare the rates and select the best.
Online services like GoBear.com allows to analyze and compare hundreds of products to select from.
Landlord/Investors who are vigilant in this area will enjoy larger profits.
Final Words:
There’s a very small difference between successful landlords and investors who make good profit from the average investors who earn less.
The successful ones make all the effort to increase revenues and reduce even the small unnecessary expenses. This way they strictly keep their cash flow in control and as a result maximize profits.
Simply put, limit your expenses and maximize the revenues.
Melissa Dorman is an Oregon and Washington Licensed Broker with Yascha Group at Living Room Realty in Portland, OR. Follow Yascha Group on Facebook.
Melissa Dorman
Broker | OR & WA
She/Her
Ten years ago, Melissa was living in a slum in Kolkata, India, helping over 200 women escape sex trafficking by providing alternative work at a social business.
It was there she discovered her passion for financial education as a means of empowering people to move out of poverty. After graduating from UCLA with a Masters, Melissa spent 5 years working as a Social Worker; assisting clients facing homelessness, in jail, or at a psychiatric facility.
As much as she loved the work, imagining saving for retirement on the meager salary of a social worker was becoming grim. That's when Melissa discovered "passive income." In no time, she fell in LOVE with real estate as a vehicle for wealth. Soon after, Melissa began locating off-market multi-family properties to purchase through creative financing strategies and win-win opportunities. Two years into investing, Melissa quit her day job as a Social Worker to become a full-time broker and investor. Initially, she was drawn to people in difficult circumstances, so she developed extensive experience assisting families facing foreclosure, short sales, and probate. Melissa is well versed in helping her clients overcome complex real estate challenges.
Currently, Melissa is teamed up with Super Broker, Yascha Noonberg at Living Room Realty. Together they assist clients to achieve their real estate dreams, including how to strategically buy and sell a personal residence to maximize profits. Far from the slums of Kolkata, her greatest passion now is empowering other working professionals to develop passive forms of income through buying multi-family properties in Portland.
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- T: 503-567-4697
- melissa@livingroomre.com
