How to Make Being a Landlord Your Primary Income Stream
For a lot of people who can set money aside to invest in property, owning a rental as a new landlord is a perfectly fine way to build an extra income stream, perhaps to put towards your retirement or the occasional holiday. However, the potential is there for it to become a lot more. There are plenty of full-time landlords who make managing and renting out property their full-time job and main income stream.
What’s more, the more that you’re able to scale, the more lucrative the rental property business tends to be. So, how do you start scaling to make it your main operation?
Make Cash Flow Your Priority
The money that you make from your properties needs to reliably cover all of the costs associated with them, no matter what. This includes your mortgage payment,s insurance, maintenance, taxes, repairs, and more. Many new landlords focus too heavily on rising house prices, but capital growth does not pay your bills each month. Cash flow does. Before buying, calculate the expected rent, subtract realistic costs, and decide whether the remaining profit supports your income goals. You need to make sure that the overall monthly profits from each property can combine to provide a livable income for you. How much you need to live on is something you need to work out.
Reinvest Profits to Expand Your Portfolio
If you have one or two properties, they are not likely to provide enough profit to support you as your primary income channel. When that’s the case, then you should instead avoid spending those profits as much as possible, but rather set them aside to build the savings necessary to buy a second property. And then a third. Then a fourth. Instead of treating early rental income as spending money, as many new landlords do, you should use it to strengthen your portfolio. Over time, this creates a compounding effect, funding more purchases with more income. However, your expansion should be controlled, ensuring that you have a growing reserve fund to help you cope with the greater risk of unforeseen expenses down the line.
Choose High-Demand Rental Locations
When you’re first trying to expand your portfolio, it’s easy to look at what is most accessible on the market and hop on it as quickly as you can to get growth rolling and build some momentum. However, location is one of the key determining factors as to whether or not a venture is going to be profitable enough to support that momentum in the first place. Strong rental areas reduce void periods, attract better tenant interest, and support rent growth over time. Use resources like the local lettings market news to look for places with employment opportunities, transport links, universities, hospitals, regeneration projects, and lifestyle appeal. The better your rental yields from every individual property, the easier it becomes to scale even further.
Reduce Your Reliance on Property Management Companies
For those who are new to landloriing, working with property management companies can undoubtedly be useful. But they are also going to take a significant chunk of your monthly profits, sometimes enough to jeopardise your property’s profitability in the first place. If your goal is to make landlording your main income, property management software can help you keep control while saving money. Modern landlord software can track rent payments, tenancy dates, maintenance requests, inspections, documents, expenses, and compliance reminders. They can streamline all the administrative side of being a landlord so that you’re able to handle it much better yourself, and can eventually make it a lot easier to step into the role full-time.
Treat Tenants Like Long-Term Customers
If you want to improve your earnings as best as possible and build the revenue necessary to support your growth and, eventually, your earnings, then you should aim to retain your tenants as best as you can. High turnover creates cleaning costs, advertising fees, void periods, and extra stress. To reduce this, landlords should treat tenants professionally and respond quickly to reasonable concerns. This is especially important in light of recent legal changes, in which landlords aren’t able to evict tenants without cause or a clear violation of the rental agreement. It’s in your best interest to keep tenants happy and secure in place, especially when you need to justify rental raises over time.
Consider Diversifying Your Property Types
Relying on one type of property could potentially limit your eventual income. As your experience grows, consider diversifying into different rental models, such as single-family homes, flats, HMOs, student lets, short-term lets, or professional house shares. Every different kind of property is going to have its own regulations and risks, but it could also help you maximise your returns if you’re able to spot areas where certain types of rental might make a lot more money than purely investing in one kind of property. The more specialist the niche you get into, the more you might want to consider looking for professional advice, so you need to work out the cost-benefit of any outsourcing you need to do as well.
Create Systems to Scale With You
At some point, you are going to reach the point where you are not able to keep handling more property management demands simply by working harder. This is when you put systems in place to make it easier to handle that work and to scale. For instance, you should have a repeatable process for screening tenants, collecting rent, handling repairs, and responding to emergency needs. A lot of these can be handled with the help of property management software, but when you need additional spreadsheets, accounting tools, contractor lists, and other systems in place, you should aim to cement them before you start scaling, rather than stressing yourself out with the extra work first.
While buying more homes should certainly be a step, becoming a full-time landlord requires a smarter approach, as well as one that’s more hands-on, so that you’re able to keep more of your income.
This is a collaborative post.
