In this final instalment of my four-part series on rental income, I look at the expense side of the equation.
Your rental income depends on your ability to buy an affordable home, manage your clients, and cover costs related to financing and maintenance.
In finding an affordable home, I cannot overstress the importance of understanding rental market fundamentals, selecting the right location, and investing in a unit that gives you the right balance between the cost of buying the unit and the rent you can charge.
Investing in rentals is a business, so focus like a laser on managing the topline (rental income) and the bottomline (profit or loss).
Improve your topline by purchasing the right home at the right price. Then, manage your property so that you can cover your expenses and earn a profit.
In managing expenses, there are two areas of concern: financing and maintenance.
As a rental investor, you should obsess over mortgage interest rates. The lower the interest rate, the lower your cost of investing in a rental, so shop around for the best interest rate.
If you already have a mortgage, do not hesitate to refinance when interest rates drop.
Every dollar you save on interest payments goes into your pocket as profit (after taxes).
The trick to managing maintenance expenses is to spend just enough to keep your tenants happy, but not enough to cut unnecessarily into your profits.
There are two things you can do to regulate your maintenance expenses.
First, maintain the rental according to the type of tenants you are targeting.
If you are playing in the luxury rental market, you must install kitchen appliances and other amenities that will attract the well-to-do.
You cannot cut corners, so it is important that your real estate agent knows where to find clientele who can afford high rent and cover your costs.