Income earned from real estate sources is considered to be passive income, however, maintaining the cash flow may not seem completely passive. In an ideal world, it may seem that a landlord can stay passive from everyday operations of maintaining the property to generate a higher return on investment. However, in reality, real estate property owners have much work on their plate and should actively participate in the maintenance and upgrade process to earn a higher rental yield. It is also important that they actively take part in collecting rent and addressing tenant grievances. Here are some pointers to build a strong passive income base and ensure a consistent cash flow.
- Price your rent accurately
If you are looking forward to minimizing vacancy, then you must price your property accurately. While quoting the rent, you must conduct a little research in the neighborhood to understand the minimum and maximum rent quoted on similar properties. If you are looking forward to charging higher than them, then your property must be upgraded to include features that are not already provided by others.
- Whatever you do, don’t get greedy
Times like ‘increase in inflation rates, etc. give the landlords a leeway to increase the rent. However, while increasing the rent, you must be realistic and careful. You must make sure that you are in line with the current market rental rates. On increasing the rent, you must inform the tenants 90 days prior. It is also advised that you don’t increase the rent more than once in 2 years. While quoting the rent, it is also important that you explain the breakdown to your tenant. Let them know about the expenses such as maintenance charges, repair costs, insurance, tax, etc.
- Choose tenants wisely
Vacancy, turnover, and eviction are realities of renting your property. Even though you cannot eliminate such contingencies, a wise landlord can reduce them by efficiently selecting his tenants. Here are some of the dos and don’ts to identify potential clients:
- Do make sure to thoroughly screen the applications
- Do collect rents regularly and don’t allow late payments for your rental dues and other lease violations
- Do encourage tenants to sign a long term lease agreement
- Do check for grievances and don’t delay in addressing them.
In a rental market, it is important that you keep reliable tenants and as a landlord be responsive, attentive, and respectful.
- Focus on long-term opportunities
Long-term rentals mean consistent cash flow in the long term. By engaging in long-term lease agreements, you can reduce vacancies and also ensure consistency in your yield. A short-term lease can be a little expensive in your pocket as you will have to frequently advertise your property and tiring as you will have to repeatedly screen tenants. The long-term tenancy is also better as it enables you to keep a check on intervals in which you can increase the rental income.
- Get tax-savvy
Landlords always look for ways to increase their income and reduce their expenses. Some of the common expenses on the property may be a maintenance, repair, and tax. Thus it is very important that you know your tax laws and plans efficiently to reduce the tax burden. While investing in rental real estate, you must know the provisions under Sections 24 and 80EEA whereby reductions are granted if the property is financed through leverage. Under section 24(b) you can claim deduction up to Rs.2 Lakh on the interest paid and under Section 80 EEA, you can claim a deduction of an amount up to Rs. 1.5 Lakhs on the interest paid for affordable housing.
You can also pay the Municipal taxes and claim tax reductions. You can also claim deductions on the expenses incurred under the ‘standard deductions’.
- Make cheap and effective repairs
Maintenance has the power to make as well as break you in a rental game. To stay up on your rental game, it is important that you ensure consistent cash flow and that you don’t overspend on repairing and upgrades. Even though some of the maintenance charges are not recurring, you must set a maintenance estimate. It is always important that you ensure good quality in the repairs made but it is also equally important that they are cost-efficient and not costly. By managing your expenses well, you can earn high profits.
- Keep accurate records
Nothing is more challenging for a landlord than trying to maintain a property with a messy record. If the documents and all the financial matters are kept in a well-organized manner, the task of running a rental property can be easier. It helps you to inspect on a regular basis without any difficulties. For example, if you have a very well-maintained record of tenant grievances, you can ensure that they are settled regularly. By doing so you not only ensure that your work is up to mark but also improve tenant satisfaction. Similarly, if you have proper records of rent payment, then you can keep track of the same. By maintaining proper records, you will not face issues when it comes to lease termination, vacancy, or unexpected tax bills.
Rental properties have been considered a stable way to earn long-term returns which is capable of making your bank account smile. It is an investment that involves little risk but great ROI. Even though rental properties are less risky, they are not risk-free. By taking some efficient steps you can reduce the risk involved to a very large extent. Vacancy and delay in payment of rent are some of the common risks involved in rental investments. Some reasons for this may be an improper screening of tenants, default in your research mechanism, or even overpricing. Thus make sure to avoid such common mistakes to earn higher.
Bringing consistency can also be a difficult task but not impossible. By taking some proactive steps such as those mentioned above, you can bring consistency in your investment to a great extent. If you are unable to manage it yourself, you can always hire asset managers who can help you in managing the properties. Assetmonk is an online investment platform offering rental properties in cities such as Hyderabad, Chennai, and Bangalore. We offer commercial rental options with an expected 8% rent paid monthly. Visit our website to know more.
7 Tips to keep rental income consistent year-round FAQ’s:
Maintaining a proper record of your rental income and expenses is an excellent way to keep track of the same. One of the best ways to keep the record is by creating an excel sheet wherein you record your expenses and income on a monthly basis.
Some of the ways to save tax include investing through home loans, bifurcation of the maintenance fees and rent, claim deduction on grounds of municipal tax and standard deduction, etc. You can claim deduction on expenses such as costs incurred by you when traveling back and to the rental property, the advertisement costs, telephone calls made in connection with the rental property, cost of safety certificates, etc.
You can get your rental income by investing in real estate assets and then leasing it out to tenants. It is advised that you enter into long-term rental agreements as it helps in avoiding vacancies. Commercial properties earn more rental income than residential properties.
Yes, rental income has been considered to be a good source of income. You can create a regular flow of income by investing in rental properties. Investing in rental properties can also be beneficial as it involves less risk. Commercial properties bring in more rent than residential properties.