Owning a rental property can be a fantastic investment vehicle, helping you build wealth and financial stability over time. That being said, many investors don’t fully understand the power of their investment and how to harness it. I call it the magic of real estate investing. It goes way beyond just collecting a rent payment each month.
There are numerous ways to maximize the performance of your investment, some are obvious and some not-so-obvious. The key is to take a longer view with real estate. The benefits of the investment might not be apparent for many years, but it is coming. Given enough time, however, the results can be astounding.
So how can you crank up your wealth-building machine?
Cashflow
At a very basic level, the property should put a little money in your pocket each month. This is a fundamental that shouldn’t be ignored. It’s going to be difficult to build wealth when you have a property that is draining your finances. Sure, you might be able to sell it at a profit someday, in the meantime, are you really getting ahead?
Equity-build
So many investors stress over having to make a mortgage payment, especially if the cashflow is weak. But you need to think of it this way: every mortgage payment made is like forced savings for you. Approximately 50% of a mortgage payment is Principle, which is equity that you build and retain. It’s your storehouse of money and it’s amazing how quickly this accumulates over time.
Rent Increases
One thing that is pretty much certain: Rents will go up over time. As the years pass, it’s amazing how much more rent you’ll be receiving for your property. The key is to always serve the annual rent increase as permitted by law. Many Landlords don’t want to “rock the boat” with a good Tenant by serving them with a rent increase. You need to keep in mind that your expenses are going up each year (ie. Property Taxes!) and most Tenants will expect a nominal rent increase each year, assuming the tenancy is going well. Believe me, you don’t want to find yourself with a long-term Tenant paying the same rent as when they first signed the lease with you. You might also obtain more substantial rent increases as you turn Tenants, ideally every couple of years.
Automate everything
Using technology to automate things like Utility and Tax payments don’t necessarily make you money, but they do make your life so much easier. Automation also reduces the time-demand of real estate investing, which technically increases your profitability, considering that your time has a value.
Get help to make it passive
The beauty of real estate is that it can be a passive income stream, if you have the right team to support you. You can hire-out many of the day-to-day functions, like Tenant Placement, rent collection, inspections, repairs and maintenance. This comes at a cost, but your time and peace of mind might be more valuable.
Improvements to add Value
An investor should look beyond the month-to-month income and expenses and plan for reinvestment in the property to increase value. Do not focus solely on the value of the property for when you sell or refinance it. You also need to look for re-investment areas in terms of it’s value in the eyes of a prospective Tenant. Proper maintenance, updates and upgrades will attract high-quality Tenants and command a higher rental rate.
Appreciation
In general, real estate goes up in value over time. You really don’t have to do anything for this to happen, but you can affect the amount of appreciation through effective maintenance and improvements. Again, it’s a matter of looking beyond the month-to-month income and expenses and planning for the long-term.
Capital Cost Allowance
Under CRA rules, you have can claim capital depreciation to offset any potential taxable income realized from your rental property. It is strongly advised you should consult a tax professional to learn the ins and outs of this approach. To give you some background, here is an article to read that gives a pretty thorough explanation.
In summary
Have questions about how to improve the performance of your investment property? Feel free to reach out to us for a free, no-obligation consultation. We are Real Estate Investors too, so we understand all elements of the business and how to maximize your investment.
