25 ways to make property ownership more profitable
Once you become the owner of a property there are a number of key things you need to do in order to maximise your returns from the property.
The following article assumes you already own the property so does not do into detail about buying and selling costs, and assumes you are renting the property out as an investment property. Even if you’re just considering buying a property the following examples are very useful to consider:
1. Use a professional management company
Overall it will save you a huge amount of time checking rents, chasing and dealing with tenants, paying bills, calculates who owes what, phone bills, taxes will be more organised, no risk of late payment penalties, no need to store as many documents
2. Consolidate multiple properties under one management company
If you own more than one property consolidate all your units with one management company. This will make reporting more consistent, you’ll only need to deal with one point of contact for a range of issues across all your properties and you’re much more likely to get a better deal on management and accountancy fees the more units you have with one company.
3. Charge your tenant late payment fees
When your tenant is late charge them late payment fees – this not only generates you a little more money but sends the right message to the tenant that you take payment of rent on time very serious. Lazy property management companies often won’t do this.
4. Get your tenant to pay in advance
Get your tenant to pay in advance of the contractual month start date – typically if rental contract starts on the 1st of the month we require our tenants to pay 10-15 days in advance of this date, then if there are any problems we catch them and deal with them sooner.
5. Get your management company to pay all your utility bills
Get your management company to pay all your property bills on your behalf, not only does this save you time and hassle, but saves you banking fees for each transaction and penalties for late payments.
6. Get good tenants and retain them
Be flexible with good tenants, and always ensure maintenance items are handled swiftly (lower voids, less turnover)
7. Increase the rent on your tenant
It is often easier to increase the rent on your property with a sitting tenant (as they don’t wish to move) as opposed to rent at such a price on the open market (especially in times of over supply of units on the market)
8. Reduce void periods
Voids can make a huge whole in your yearly rental income, better to find good tenants at a fair price than leave your property on the market for months empty (not only that but when you have an empty apartment you are still responsible to pay bills such as service charges, whereas the tenant would normally pay most of this)
9. Only give tenants one set of keys
Firstly this saves you money and stops lots of keys to your property floating around. If tenants want more keys you, as the owner, should control how many copies are cut (buy security keys/locks that can’t be easily copied). For large properties with multiple occupiers they will usually need more than one set of keys and its better to include this in the rental of the property than lose a good tenant.
10. Take above average deposits
The market standard for deposits in eg Prague is 1 months rent. At Sim Property we always take 1 months rent + bills as a deposit. If the tenant is a foreigner (and thus harder to pursue if they default on the rent) we usually ask for a 2 months deposit. In locations outside of Prague we will often take 3 months deposit. Generally tenants will not look after your property in the same way that you would as the owner, thus its important to have as large a deposit as possible to protect yourself in case of damage or lack of rent payment.
11. Ensure tenants pay for all their utility usage
It is common practice in Central European countries that the bills (eg service charges, electricity & gas) remain in the owners name. The owner pays the bills and the tenant pays an equivalent bills deposit amount each month with the rent. The owner (or management company) should then calculate regularly (eg one a year or at the end of the contract) how much the tenant has actually used compared to how much they’ve paid, then either pay back to or request from the tenant the difference. In many cases this is a lot of hassle for owners (and lazy management companies) and does not get done, this could cost the owner many hundreds of EUR per year. This is especially important when the tenant is using a lot of utlities (eg large families with young children often use more electricity, water for washing, heating etc).
12. Optimize your tax
This could be a whole article on its own. Needless to say its important to comply with local tax regulations and there are legally many ways in which to minimize your tax burden when owning property. This is often an after thought for most people but a good property management company should advise you how to plan your tax affairs in advance.
13. Don’t own your property via a company
For most people its generally its not a good idea to own a property via a company (higher costs, higher taxes, more legal requirements to fulfill and more hassle). If you already do so its generally not worth the cost of transferring the property into your own name (then you still have the costs of closing the company down, taking the money out without being heavily taxed and so on). It is even more important to plan your tax affairs when you own a property via a company and legal & accountancy costs can vary widely so make sure you are getting a good deal. Some property management companies will even provide a registered address for your company and other services necessary for running your company.
14. Don’t buy an apartment in a building that is in bad condition
Buildings in bad condition will often need numerous items fixing which means you’ll often need to pay higher service charges and more money into the repair fund each month. This is a hidden cost to both your and your tenant (the more costs to the tenant the less rent you can charge them).
15. Don’t buy in a building with lots of extra facilities
In some buildings (particularly new developments) you might be paying high service charges for such things like security cameras, onsite staff (such as doorman, security guard, reception), expensive lifts, expensive gardening, inefficient energy use in the common areas of the building and so on. This again is a hidden costs and makes it much harder to be competitive on the rent (most tenant might like these extra facilities but very few are prepared to pay for them).
16. Fix maintenance issues promptly
Most maintenance issues are generally easy to fix. Its better to get them fixed soon rather than later. If not they could grow into a bigger problem which will cost you more money in the end, you’ll spend more time dealing with a tenant complaining about them, it will upset your tenant which could result in them either stop paying the rent or moving out (both of which will cost you money).
17. Don’t waste money on expensive fixtures and fittings
A large percentage of tenants will not care for the property as well as you would as the owner, and these fittings will only become degraded over time and be expensive to replace. Furthermore, across most of the rental market (apart from only the really high end) tenants are not prepared to pay any (or much) extra rent for better fittings. And if an item breaks (eg washing machine) usually you as the owner would have to pay to have it replaced, which over time is only going to cost you more money than necessary.
18. Don’t furnish your property for tenants
Most Central European rental markets do not generally demand owners to furnish their apartments, which is a good thing for owners. When you look at the initial cost of purchasing furniture, the time to choose, buy and install it compared to the extra rent you will receive it just doesn’t make sense to furniture your rental property. When you come to rent the property again to another tenant that tenant may not want to have furnish there (or not all of it), it then becomes costly and time consuming to move/store/dispose of this unwanted furniture. Lastly when the furniture breaks through normal use you will need to spend money to replace it, then also after several years of use it will look scruffy and out dated and will need replacing which is again a cost in time and money.
19. Ensure you have a water tight rental contract
Tenancy law in most countries is generally not on the side of the landlord in disputes with tenants. Its important to have a watertight rental contract and deal with the tenant in a way that complies with the law. This again would require a standalone article to discuss in detail.
20. Change insurance provider
Ensure you don’t have insurance products you don’t need, or multiple products covering the same thing, eg just to ensure a problem with a kitchen is very expensive. Property insurance costs vary widely – so shop around. A good management company should be able to get you a market beating rate on your property insurance.
21. Protect yourself with appropriate insurance
Insurance can be very useful to protect yourself from high impact events, it requires small costs upfront offers potentially large savings over time. If you have a mortgage on the property it will often be a requirement of the lender to have sufficient insurance cover in case of catastrophic damage.
22. Get a better mortgage
Firstly, when arranging your mortgage shop around as interest rates (and hidden costs) vary widely. Usually mortgages in the Czech Republic have a fixed interest period. During this fixation period if you sell the property many people just accept what the bank gives them, but often there are better deals when you shop around and/or negotiate with your current bank as they’ll probably want to keep you as a client
23. Pay your bills on time
Not only is this good practice but many companies charge late payment fees and if these are left too long debts can build up a your property could be repossessed. This is especially true with mortgage payments, many banks charge hefty fees for late payments which can quickly turn into a slippery slope to losing your property.
24. Ensure you have a good lock on the property
Have a security lock and where keys can’t be copied without a authorisation card (protects your property and means if the tenant moves out they can’t keep extra keys etc).
25. Don’t own properties in far away places
Properties in far away places will often have higher costs (certainly travel costs). Furthermore, cottage or resort style properties often have high costs and longer voids.
We’re not suggesting you take a penny pinching approach on every single item – far from it – however, we hate to see needless waste. Given the difficulties inexperienced landlords face with their cashflow situations its imperative to do all your can to maximise your revenues and reduce your costs where you can. A good property management company can pay for itself many times over.