When we buy rental property our primary goal is to make money. In this article I would like to give some tips on how to maximize your profits by using the rental contract. Not only can you increase profits, you can also increase the control you have on your property. Let’s consider the following things you can do to help yourself:
- Consider when you make the rent due. On most contracts the rent is due on the first of the month and then there is usually a three to seven-day grace period. Stop allowing these grace periods. Your cash flow is important and you should expect your money on the first of the month. Understand you are making a free loan when you use a grace period. None of us are in the business to provide free loans.
- An effective way to maximize your investment is to offer a discount instead of having a grace period. Let’s say we want to have a rent of $600 on our rental unit. Tell the tenant that the rent will be $700 per month, but a discount of $100 will be extended if the rent is paid on or before the first of the month. This will be beneficial to you in a couple of ways. First, you are getting your rent paid on time. Second, in the event there is a dispute regarding non-payment of rent, you will be able to claim the $700 as rent and not the $600. At times judges may not allow all of the late fees, but rents are always allowed to be recovered.
- Typically, we sign rental contracts for one year periods. By so doing we are giving a lot of control of our property to our renters. Try evicting a renter who is not taking care of the property, but is paying rent. A solution to taking back control of your property is a month to month contract. You can then raise the monthly rent each month until they leave or begin to take care of the property. With the proper notice you will be able to raise the rent and have more control of your investment. Also, consider the fact that the world’s greatest renter would break their lease in the event of a job transfer or other major life changing events. Why should you be giving such control to someone else? Instead you maintain control and maximize your investment.
By taking a few simple steps you can make a rental contract more effective for you. Be aware however, if you are going to have Section 8 renters you will have to use the government contract. For all other renters use these simple techniques and have fun making your bank deposits!