Property Expert Nicholas “Nick” Statman on property investment.
The whole reason you got started investing in property is probably because you wanted to make money. Isn’t that the end goal for all investments? So what happens when your investment property is costing you money instead? This can be a stressful time for property investors, especially those who are new to the industry.
It’s important to remember that property investment is a constant flow of ups and downs, and a lull in cash flow does not mean your investment property is a total loss. Here are the 4 most common reasons a property isn’t making money and how to turn it around quickly:
Your rent is too low
Setting your rent too low to attract tenants and reduce vacancies is not a long term strategy for profit. Low rents may get people in the door, but it won’t make much financial sense. The costs for maintaining a home are on the rise, and the rent you charge should reflect this. The whole point is to make enough to cover your expenses and make a profit, not just barely scrape by.
To avoid losing money this way, research the average monthly rental rates in properties similar to yours in the same area. Give your tenants notice that the rent will be increasing, and then do it. If they stay, they pay higher rent. If they leave, you can advertise the property at a higher rental rate and find tenants who can pay it. Either way, you start earning a monthly income that is more aligned with the value of the home.
You’re spending too much
Just like in any other business, the profit you make on an investment property depends on the balance between the money going in and the money going out. Income vs. expenses. While you should be investing money into the property to keep it clean, safe, and livable, it’s essential to research how much you’re spending on maintenance and repairs. Calling professional service companies for every repair will add up quickly, and doing it yourself if you aren’t skilled or trained in specific home repairs could also end up turning a small issue into a much bigger, more expensive problem.
To avoid losing money this way, build relationships with local, trustworthy, experienced contractors who offer excellent service at fair rates. Consider repairing things before you spend money to replace them, and take care of small issues before they turn into big ones. Your job as a landlord is to keep the home in good condition, but your role as an investor is to find the most cost-effective way to do it.
You’ve got too much turnover
If your property seems like a revolving door of tenants, this consistent turnover could be the reason you aren’t making any money. Why aren’t people staying in your property for the long term? Why do you have so many extended vacancies? If you’re not sure, ask!
If it’s something you can fix, like the property needs repairs, the tenants don’t feel like there is open and transparent communication between the two of you, or the rent is too high, you may be able to salvage the professional relationship by making some changes. Sometimes, though, tenants will move for reasons beyond your control, like the property is too far from their new job or they need more space.
To avoid tenant turnover and attract long term tenants, make sure you perform in-depth screening before signing a contract. This will help determine if the property is the right fit and avoid unexpected vacancies. Small changes like a commitment to fixing repairs or offering a discount on the rent could be what they need to stay and help you continue to make money on your property.
You’re not being a good landlord.
This one can sting a little, but keep reading. If you’re an absentee landlord and don’t have a property management company taking care of your property, the home is going to suffer, and so is your cash flow. If you only visit once or twice a year, you’re risking walking into a big, expensive mess that will significantly impact the value of the home and how much rent it generates. If you aren’t intentional about repairs and renovations, and if you’re not in regular communication with tenants about the condition of the home, small issues can turn into big issues. When you finally return to face these issues head-on, you’re looking at expensive repair bills and extended vacancies, which also cost you money.
Avoid losing money this way by either being a present and active landlord, or hiring a property management company that can serve as eyes and ears on the property when you can’t be there.
If your investment property isn’t making money, it’s not a lost cause. It could be that you’re spending too much, spending too little, or aren’t taking the right steps to ensure your tenants are in it for the long-term. Small changes can make a big difference for investment properties that are seeing a lull in profits. A careful analysis of your income vs. expenses will tell you a lot about the condition of your investment and what you can do to improve it.