Selling More Real Estate Rentals

Selling real estate rentals is quite different from selling houses. You can paint a house, and get a little more because it looks nice. Rental properties, especially larger ones, are different, because they're bought by investors, who look at income more than new paint. By increasing the income, you can increase the value to investors.


Learn about capitalization rates. If the capitalization rate that investors are expecting in your area is 0.08, then it means that they want to get 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 raise the net income to $16,000, then the property would be worth $200,000.


Finding More Income From Real Estate Rentals


Raising rents is the obvious way to boost income, if you can justify it. See what similar units are renting for. If your units are $60 below the going rate, then you can raise it and not lose your renters. Increasing the rent $60 for three apartments means $2160 more net income annually. Your property will be worth $27,000 more with a 0.08 cap rate.


There are other ways to raise rents. Your tenants might agree to pay $30 more monthly if you have a carport added. 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 you spent $4,000 on the carport, then it was a good return on investment, right? What more do they want?


Think beyond higher rent. Storage sheds can be rented to tenants or you could put in a coin-operated washer and dryer. With a larger income property, you could install pop machines.


Reduce Expenses Of Real Estate Rentals


Can you have more insulation so you can reduce the heating bills? If you pay $80 a month for lawn care, could one of the tenants do it for less? Can you get cheaper insurance? Any way you can reduce expenses raises net income (unless it scares away tenants). 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.


The appearance and other factors are also important. But increasing the net income is the surest way to increase the value of your property. If you can, make the changes a year or a few months before selling the property. You must also learn to do the math.

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