Strategies to Maximize ROI with Long-Term Rental Properties

As the real estate market goes through a period of significant change, brokers and lending partners will need to refine their approaches to better position themselves for success. Winning in an environment where interest rates are dropping means advising clients on how to implement strategies to best take advantage of these conditions. Lower rates are especially important for rental property investments, where even a small drop in interest rates can have a huge impact on profit margins. By making use of these smarter strategies, investors can maximize their returns, and that’s when both you and your clients can win.

Read on as we cover some of the key strategies brokers can focus on to help clients maximize their ROI with long-term rental properties.

Why Improving ROI Matters for Lending Partners

ROI for rental properties can be increased by either improving income or reducing expenses. For the most part, investors tend to focus on the former while largely ignoring the latter. Lending partners can provide more value to their clients by advising them on how to improve both these aspects with an investment, and in turn, improve ROI. Better ROI means investors can achieve better cap rates, build equity faster, and move on to other projects sooner. This also typically leads to more opportunities to provide clients with financing for new projects, improving your repeat business pipeline.

Here are 5 smart strategies you should discuss with your clients to improve rental property ROI:

Strategy 1: Choose High-Demand Locations

Due diligence is often the key difference between a successful real estate investment and a failed one. With rental properties, due diligence means identifying markets and neighborhoods with strong rental demand. Some important market indicators to look at include job growth, population trends, and the direction overall rental pricing is headed. Brokers can use tools from data aggregators like ATTOM Data or REI DealMaster to help them conduct market analysis on both a greater and market-specific level. These tools can also be used to analyze individual properties, find comps, and ultimately help clients make better investment decisions.

Strategy 2: Optimize Financing

Lending partners play a crucial role in improving returns by matching their clients with the ideal financing solution for a specific investment scenario. In order to achieve this, you should offer a variety of loan options from different lenders. These can include traditional mortgage loans, DSCR loans from private lenders, as well as multifamily and portfolio loan options for further investment growth.

Choosing the right option isn’t just about securing the lowest interest rate, though. Be sure that the lenders you choose to work with have a good track record of delivering financing for investment projects, and value speed and customer satisfaction just as much as providing good financing programs. That way, you can be confident that both you and your clients will have a pleasant financing experience.

Bonus tip: As interest rates improve, consider refinancing to lower monthly costs on your clients' investments.

Strategy 3: Improve Property Value

Another strategy rental investors can use to boost income is making gradual improvements to their properties. Making renovations improves demand for a property, and in turn boosts the rent owners can comfortably charge. You should highlight low-cost upgrades that have a big impact such as fresh paint, updating lighting and kitchen hardware, and taking care of the property’s exterior to boost curb appeal.

Alternatively, suggest energy-efficient upgrades that lower monthly costs to improve returns. These can range from major renovations like better insulation and heat pumps, to simple fixes like high-efficiency appliances and lighting fixtures.

Strategy 4: Reduce Operating Costs

Next, you should recommend strategies that reduce costs at a higher level. For instance, there are many tax saving techniques rental property owners can utilize, from deductions to depreciation. Nearly all of the operating costs associated with a rental business can be deducted, and owners can use a cost segregation study to depreciate the assets on a property over their usable lifespan, furthering their tax savings. Be sure to recommend working with a tax professional to maximize the effectiveness of this strategy.

You should also highlight the importance of good management. Keeping in regular contact with tenants ensures that their issues are addressed in a timely manner, and also helps reduce vacancies. Additionally, owners should strive to stay on top of maintenance, and take care of repairs immediately before they balloon into larger, costlier issues later down the line.

Strategy 5: Maintain High Occupancy

The opportunity cost of non-paying tenants and extended occupancies can quickly eat into annual returns. In order to combat this, rental property investors should develop systems that help them find reliable tenants, and quickly fill vacancies when they occur. This typically means utilizing good tenant screening practices, such as running background checks and reaching out to prior landlords to get a good understanding of how a potential tenant will be. It also helps to use technology to conduct market research, which ensures owners are charging a competitive rental rate without sacrificing profitability. Similarly, technology platforms can be used for marketing apartment listings, collecting rent, tenant communication, and keeping track of lease renewals.

Common Mistakes That Hurt ROI

Let’s also cover some common mistakes investors make that only end up hurting their final returns. Many rental investors, especially those new to the space, tend to overestimate their property’s rental income. It’s better to be realistic and use conservative estimates in order to avoid these unwelcome surprises. They also tend to overlook the importance of maintenance, and fail to keep a maintenance reserve to appropriately deal with issues as they arise. This causes unnecessary stress, or they simply ignore these issues which leads to unhappy tenants and costlier fixes.

It's also important to stay on top of the market, and adjust strategy as necessary to keep up with the changes. Always look at comparable properties, and make upgrades such as offering new amenities to entice potential tenants and keep existing ones in place. Also, adjust rental pricing to stay in line with market rates so as to not miss out on any potential income, but be careful not to raise prices too quickly as this will only hurt tenant relationships.

All in all, being an effective rental property owner is more than just running a profitable business. Staying involved helps ensure that the investment is successful for years to come, which only gets easier as a client gains more experience managing their rental investments.

RCN Capital

To help your clients maximize the returns on their next investment, partner with a lender that can provide you with the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors and lending partners. If you are looking to offer rental property financing to your clients, RCN Capital has competitive loan options and an award-winning broker referral program available to partners.