Selling More Real Estate Rentals
Selling real estate rentals is quite different from selling houses. You could have a house painted to improve its appearance. Rental properties, especially larger ones, are different, because they're bought by investors, who look at income more than new paint. Raise the income, and you increase value to investors.
Find out what capitalization rates are. If investors are expecting a capitalization rate of 0.08 in your area, then they want a net return (before the loan payments and taxes) of 8% on the purchase price. So if your three-plex generates $12,000 net income annually, they'll value it around $150,000 ($12,000 divided by .08). If you can have it generating $16,000, then it would be worth $200,000.
More Income From Real Estate Rentals
Of course raising the rent is the most obvious way to increase income, that is, if you can justify it. Find out what the rates are of similar units. If your units are $60 below the going rate, then you can raise it and not lose your renters. By increasing the rates of 3 apartments by $60, you will gain $2160 more every year. Your property will be worth $27,000 more with a 0.08 cap rate.
You can increase the rate in other ways, too. Add a carport, and your tenants might be willing to pay $30 additional every month. That's $1080 more net income annually, meaning roughly $13,500 more value added to your property. (That's $30 x 3 units x 12 months equals to $1,080 divided by 0.08 cap rate, which gives you $13,500.) If the carport costs $4,000 to build, then pretty good return on investment, eh? What else do they want?
You should think of other ways to gain more income than by just increasing the rent. Storage sheds can be rented to tenants or you could put in a coin-operated washer and dryer. You can also install pop machines.
Decreasing Expenses
Could you add insulation to reduce the heating costs? If you're paying $80/month for lawn care, will one of the tenants do it for $40? Can you get cheaper insurance? Decreasing the expenses will increase your net income, but don't go overboard or you'll scare your tenants away. A new $4,000 furnace that saves $800/year on heating costs means you just turned $4,000 into a $10,000 higher sales price.
And obviously, the appearance and other factors matter, too. But know that increasing the net income is the best way to get more for your rental real estate. If you can, make the changes a year or a few months before selling the property. Also, learn how do the math - it really does matter with real estate rentals.
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