Mortgage

How to Create a Profitable Rental Property

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Recent tax increases have deterred many people from becoming landlords, however, rental properties can provide a fantastic monthly yield, as well as a unique and interesting alternative to other investments. An additional benefit is that you will have a substantial asset to your name, meaning that whilst the market may experience highs and lows, you will remain in a strong position. So, if you’re looking to create a profitable rental property, this is how to get started. 

Identify your target market

The first, and perhaps most important, the thing to do, is identifying what kind of tenants you want in your property. This will then determine the subsequent decisions you make, so it is important to get this right. There are so many different directions you can go in that we will discuss briefly. 

  • City Centre Professionals – city centre flats are in high demand, especially by young professionals with plenty of disposable income. They provide a fantastic return on investment, especially if you manage to find a flat in a great location. A spacious, modern flat in the city centre that is close to public transport, bars and restaurants could draw in a sensational monthly yield. The best places to invest in currently would be Manchester and Sheffield as they are the hotspots when it comes to graduate jobs and socialising. 
  • Students – if you have a substantial amount of money available, investing in student housing is a great option. The areas that students commonly live in, for example Smithdown Road in Liverpool or Fallowfield in Manchester, offer extremely reasonable house prices. Buy something older that needs some cosmetic work doing and your profits will be even greater. All students really want is a large, open space living area for socialising and at least one bathroom for every 3 people. Aim for a 5 bedroom property for the best returns. The weekly average price per student per room in Smithdown Road is around £100 including bills, meaning you could be earning around £22,000 a year from the property. The downside is that the maintenance for student properties is much higher and the tenant turnover is also much more regular, so you need to be prepared for more involvement than with other properties unless spending money on property management. 
  • Families – families often want to rent properties in areas with good school districts, local parks, good transport and plenty of activities, which are most often expensive areas. If you have the money to invest, buying a property in an expensive suburb is a great option. You can charge substantial monthly rent which people will be happy to pay for the privilege of living in an affluent area. Once a family is settled, moving won’t be a huge priority to them, so you are likely to develop a good relationship with them over time. Targeting families who want to live in areas that are in demand like Didsbury or Cobham, but are unable to afford the deposit, are ideal. 

Buy the property at auction

One of the best ways to make a considerable profit on a rental property is by buying the property at a cheap price to begin with. The lower the cost of the initial investment, the quicker you will get your money back and start profiting. A great way to do this is through property auctions, which involves you finding the perfect area for your target audience, viewing properties that are due to be auctioned and then bidding on the property at the auction. 

Go in with a maximum price in mind. The excitement of a live auction may get the better of you, however staying in your budget from the beginning is key. You may end up paying thousands and thousands less than the market asking price, so looking into property auctions is definitely advisable. Be sure to carefully research the location and have the property surveyed prior to purchase to ensure you aren’t left with any unwanted surprises when you start working on the property.

Select eco-friendly options

Another fantastic way to make the property more profitable is by selecting eco-friendly options when you are renovating or making improvements. Whilst some of these things would need quite a large investment, it would be worth it in the long run. 

  • Get a green boiler which prevents heat waste
  • Have the loft insulated
  • Install tap aerators to taps and showers to reduce water waste
  • Update double glazed windows to prevent condensation and mold
  • Fit energy-saving light bulbs throughout the house
  • Install energy efficient radiators
  • Install a washing machine with eco settings

When you install as many of these things as possible, not only are you likely to attract energy conscious tenants but you will also be saving them money. Whenever energy is saved, the tenants bills will automatically be reduced, meaning your implementations have saved them money. So, offering an energy efficient property that is going to save them money on bills will enable you to up the monthly rent. There are also often tax incentives for landlords who make their properties energy efficient, so this should be one of your priorities. 

Go for neutral colours

Whether the property just needs a bit of cosmetic work or you’re doing a sizable renovation, the most important thing you need to know is that you should keep the colour palette neutral. You may have a vision for exactly how you’d want the house or flat to look if you were living there, however interior design preferences differ massively from person to person. So, to make the property as appealing and profitable as possible, keeping things simple is the best option. 

Potential tenants will be looking for a clean, airy and open space that they can add their own touches to. So, go for white or cream walls throughout with warm wooden flooring. For the permanent fixtures, choose a simple cream kitchen with a wooden work top and subway tiles and a white bathroom suite with cream tiles. Not only will the property look extremely appealing for viewings, but tenants will be able to visualise adding things to the space that will make it feel like home. As it is unlikely you will want tenants painting any walls, fit hooks in large open wall spaces to allow wall art to be hung. If someone walks into a dark and drab space, it is unlikely they will be interested. So, keep things simple and the property will be in high demand, meaning you can make the rental price competitive.

Consider furnishing the property

For particular properties, providing furniture is sure to increase its profitability. For example, for students and young professionals who are unlikely to have their own furniture, it will be extremely appealing. Best of all, you can rent out furnished properties at a higher rate. The initial investment really doesn’t need to be a lot, as splashing out on designer furniture would be pointless as even the best tenants are unlikely to take as much care of the property as you would. Instead, opting for simple furniture that all matches will be all you need to do. As discussed earlier, keeping things neutral will be most popular amongst tenants so this is the best way to go. 

Try remortgaging for a better rate

Remortgaging the property can be a good option for some people, for various reasons. Firstly, it provides you with the opportunity to find a lower interest rate than the one you currently have. You can also access a large amount of cash if you were looking to make another investment in a property. This may not be the best option for everyone, however it is something to look into in order to make more money elsewhere or to find a better interest rate. 

Offer incentives for good tenants to stay

Once you have found good tenants, your best option when it comes to making a profit is providing incentives for them to stay. The cost involved with advertising the property to finding new tenants, as well as the time needed for viewings and background checks, can be significant. So, try offering a month’s free rent if they stay in the property for another year or provide early rent discounts. Not only will you save the cost of having to find new tenants, but if you know tenants look after the property, your maintenance costs are likely to be lower. It can be rare to find a tenant who is clean, considerate and pays rent on time so once you have one, try to keep them! 

Summary

Investing in residential real estate is a great option for many people and should be considered before investing elsewhere. If you are willing to spend money on property managers, you won’t need to invest much time in the project at all, or you can be heavily involved if that suits your schedule. You will require a lot of money to begin the process, yet the high investment will also provide high returns for you. Seriously consider rental properties when deciding where to make your next investment.


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The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.

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Daisy Moss is a freelance writer specializing in business, investment, and real estate. When she's not writing, you'll probably find her reading a good novel!

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