Buying a brand new rental unit means no deferred maintenance and a new home warranty. However, your first tenants may have to contend with living in a construction zone for the first year. This article covers the Top 7 Best Tips used by professional real estate investors to maximize returns in this situation.
Request InformationTenants will expect a discount to live in a construction zone, so the first year's rent in a brand new community will be lower than the actual market rent of the property. For example, if the market rent should be 1,850 per month but you are only getting takers at 1,750, offer the first month at 50% off and 1,800 per month after that. This works out more or less the same for the renter and gives them a reason to choose your property over most others. Additionally, when you raise the rent in year 2, you are raising it from 1,800, not 1,750. A 5% increase will get you to 1,890 in year 2.
Units rent out faster and for more money during the high season, which is from April through August. During this time, rents can be from $100 to $200 more, which can make a big difference in your annual return. To make sure you’re always on the market in the high season, use 6-month, 18-month, or other non-standard lease terms. For example, if you close on your new home or duplex in December, offer a lease that ends in June of the following year (6 months) or June of the year after that (18 months). A 15-month lease ending on March 31 would also work well.
Dropping the rent is a quick and easy way to fill up your units during the construction phase, but it won’t set you up for success in the long run. Instead you should follow Tips 1 and 2, but this could mean you have to work a little harder to find the right tenant. We’ve found that advertising properties on MLS is a great way to connect with realtors. Property managers should offer realtors an incentive of about $200 to $400 and, of course, this customarily comes out of the property manager's leasing fee.
Security Deposit Insurance is a great alternative to a traditional security deposit because instead of the tenant needing to come up with a full month’s rent, he or she simply pays a small, non-refundable monthly insurance payment. Additionally, you can adjust the size of the insurance policy to cover pets and loss of rent, adding additional peace of mind. "Deposit-Free" listings have been shown to lease about 1 week faster, on average.
Allowing pets increases demand for your rental and therefore, the price. Rosehaven communities always include a dog park and receptacles for pet waste, and dog-owners love our properties because of the convenience of having a small backyard and a gated community in which to take their puppy for a stroll. It’s very common as of this writing for apartments and rental homes to charge $20-$30 in monthly rent. This is another great way to increase your returns that shouldn’t be overlooked.
Rosehaven properties excel at curb appeal. We use classic designs, understated ornamentation, symmetry, and a modern color palette to make our communities architecturally unique and appealing. Front lawn irrigation and maintenance is included in our communities ensuring our neighborhoods are kept in pristine condition and one bad landlord can't bring down the whole community. If you take a look at our communities that are 2 to 3 years old, you will find green lawns with healthy and mature trees and attractive parks - the kind of place people want to live and for which tenants will pay a little extra.
It’s hard to fight someone’s incentive structure but it can be done. The tips listed above create more upfront work for your property manager and might only earn them a few more dollars. For example, for an extra $150 a month per unit, your property manager will only earn an extra $12 a month (at 8%), but you will earn an extra $138 per unit and $276 per duplex, and all of that will go right to your bottom line, pushing up your cap rate and cash on cash return. When choosing a property manager, it’s a good idea to make sure he or she agrees upfront to follow these best practices to ensure your long-term success.