How to Maximize Your Rental Income
San Diego property owners with homes in the rental market have been growing increasingly frustrated. While purchasing property and using it as a rental used to be an income generator, in recent years investors here in San Diego have been struggling when they buy rental homes. Unfortunately, it is extremely difficult to earn a rate of return above 10 percent on your San Diego rental investments. This has led to a great deal of frustration, and understandably so. Even with a 20 percent down payment on a rental property, it’s difficult to get the numbers to work.
There are things you can do, however, to maximize your income on your rental properties. If you’ve never considered it before, think about making a relatively inexpensive change by adding additional bedrooms. Some groups will pay a premium for a property with many bedrooms. In fact, over the years, I’ve met and built relationships with groups looking for these types of homes. For example, these groups may be establishing a senior living facility, drug rehabilitation center, or a battered women’s shelter. When I help these groups find a location, I actually seek high square-footage homes with low-bedroom counts that are selling at really good prices.
Here’s the model.
- Buy a home with 2,200 square feet and only three bedrooms selling at a great price. This will only work for homes that have sufficient parking, so seek one with plenty of outdoor area for parking.
- Discover your renter’s needs and work on a renovation of the home. That way, if they have special needs you can incorporate them as you renovate instead of later, after work has been completed. For example, one of my renters wanted a water fountain in one of the rooms, and it was much easier to add it during a renovation instead of after the fact.
- Once you’ve completed the work on the home and added extra bedrooms, you can actually charge as much as double for the rent, simply by increasing the bedrooms from three to six. Where you may have only been able to charge $2,000 per month for a three bedroom home, now that it has six you may be able to charge as much as $4,000 per month. You can quickly earn back the cash outlay for renovation simply by adding extra bedrooms!
When I describe this model to others, the question I most commonly receive is this:
Nobody has a crystal ball, so it’s difficult to predict what future market conditions will look like. It is also difficult to know the needs of any individual buyer. However, you might be able to sell as-is to an investor seeking a really good rental property. In fact, I’ve sold properties for $100,000 above market using this model, because many investors will pay a premium for a solid income stream. Of course, you can always convert your property back to its original configuration, as well. This won’t be terribly costly for you, since you are just creating new interior walls.
The bottom line on resale is this:
How you choose to resell will depend on market conditions and profitability at the time of sale. If there’s good appreciation in the market, you’ll be able to make a decision to choose the most profitable path at the time you are ready to sell.
Current conditions in the San Diego real estate market have provided you with the opportunity of a lifetime. With low interest rates, low housing prices, and a huge array of properties on the market, conditions have never been better for people seeking to maximize their real estate investments. There has never been a better time to purchase rental investment property. When the San Diego market begins to appreciate again, you’ll be sitting on growing equity. In the meantime, you will be generating monthly income.
Want more real estate information? I’ll be happy to share my knowledge with San Diego real estate investors seeking to expand their portfolio of properties. Visit BrandonBlum.com to read more articles and sign up for my newsletter!