As an investor, of all the magic words you’d love to hear, these are the sweetest: passive income. Because everyone would love to hit the jackpot of ways to invest some of their hard-won money into something that pays a handsome return without having to do much else – or anything!
While it pays to remain realistic (because the old saying “you reap what you sow” is generally true), there most definitely are ways to give yourself a head start on the road to this holy grail.
Obviously, your choice of investment is key, as is the need to keep those aforementioned expectations in check. One way to do this, on a tried and true pathway to profit, is to purchase a residential or commercial property with the view to renting it out.
Maximizing Passive Income from a Rental
But of course, a profit doesn’t just magically appear in your bank account the minute you purchase a house, apartment, or commercial building. Here are some expert tips to mitigate your risk and maximize your returns.
Top Tip 1: Choose the right location
First things first, the most important factor in your success is the location of your investment property. Rochester, NY, is one of the most up-and-coming places in the country and, as such, is the perfect example to use. Its low rate of unemployment, great infrastructure, and strong, sustainable economy consistently attract people who move here looking for a better standard of living. This is one instance where you really should have a tick-box system in place, because purchasing in the wrong location can lead to financial disaster. Any location in which you’re purchasing should tick ‘yes’, for the following:
- Strong economy, with future growth projected
- Good infrastructure in place
- Low unemployment, plenty of opportunity
- High standard and low cost of living
- Range of cultural activities
- A good range of high quality properties with proven capital growth
- High demand from quality tenants
If you can’t say yes to all of these aspects, it’s probably not a good place to purchase an investment property. (Rochester, NY, ticks all these boxes and more.)
Top Tip 2: Purchase the right property
Once you’ve decided on the location, if you’re going to begin creating passive income, the next tip is to ensure you purchase the right investment property. Rochester, NY, has plenty of opportunities and the things you need to be aware of are:
- Proximity to schools, transport, cultural attractions
- Locations with high demand for rentals (average rent and vacancy rates)
- Affordable areas with proven capital growth and projected future growth
- Properties in good condition with the features to attract quality tenants
- VIP: a good rental yield
*** Rental yield is one of the most important considerations for the viability of achieving a consistent passive income. To calculate rental yield, divide the annual rent produced by the purchase price and convert to a percentage. (Disclaimer, there are many factors that can affect the rental yield so you should always discuss with a professional.)
Top Tip 3: Set competitive (but profitable) rental rates
If you’re going to attract quality tenants, minimize vacancies, and maximize passive income, you need to set a competitive rental rate. This will depend on a range of factors including features of the property, rental trends, and supply and demand. The challenge is getting the balance right to ensure you make a profit. Key to being able to sustain a good rental income are:
- Installing high quality tenants prepared to pay a good rent for desirable features
- Keeping the property in tip-top condition, responding promptly to maintenance requests, and basically keeping your tenants happy! A happy tenant means a happy landlord every time.
Top Tip 4: Take care of your legal requirements
If you’re to achieve long term profits and income from your investment property (Rochester, NY, or anywhere else), it’s vital that you make sure you’re covering all your legal responsibilities and compliance issues. You should understand the local rental regulations, ensure that all your contracts and obligations are upheld, and make sure all the correct insurances are in place for your own and your tenants’ protection.
As well as this, if you’re to maximize your income, you should be aware of all the legal tax deductions you can claim from your investment. This will, of course, depend on your personal financial situation, however as a general guide these are some of the things you may be able to claim tax deductions on:
- Mortgage interest
- Local authority fees and taxes
- Property management
Top Tip 6: Capitalise on your investment
Over an extended period, the capital value of your property will more than likely appreciate. It then becomes easier to add to your portfolio by capitalizing on its equity to purchase additional properties and grow your wealth. This is called ‘diversifying’, meaning you spread your risk over several investments rather than having all your eggs in one basket. So, for instance, if one is vacant for a period of time, you can cover your costs/mortgage with the income from another, if necessary.
Top Tip 7: Employ a professional management company
The last, and arguably most important, tip to creating and sustaining a passive income from your rental is to enlist the resources and skills of a professional property management company. Every tip above can and will be maximized by a good property manager, who will either advise on, or undertake the task themselves. Most investors do not have the time or skills to manage the property themselves, and attempting to do so creates a whole new level of risk. Small errors or omissions can mean big knock-on effects, and ultimately make the difference between a high profit income, or a deep financial hole that’s very difficult to climb out of. Your property manager will, among other things:
- Assist with the purchase (everything from market advice to pre-settlement legals)
- Provide local market expertise for an investment property, Rochester, NY
- Help to maximize your portfolio
- Screen tenants
- Liaise responsively with tenants
- Take care of maintenance, repairs and upgrades
- Conduct regular inspections
- Take care of insurances and compliance matters
Get in Touch
If you’re considering the purchase of an investment property, Rochester, NY, is one of the best places in the country to do it. Here at Torres Turn Key, we’ve been helping investors reach their financial goals and ensure their asset grows in value, year on year, with our professional management services. Get in touch with one of our expert team members and find out how we can assist in your journey as a landlord and investor and watch your passive income flourish!