Time to learn about capitalization rates. If investors in your area expect a capitalization rate of .08 it means they want a net return (before 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 make it generate $16,000, you make it worth $200,000.

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, you can raise the rents and not lose your renters. Increasing the rent $60 for three apartments means $2160 more net income annually. With a .08 cap rate, you just added $27,000 to the value of your property.

There are other ways to raise rents. Maybe your tenants will agree to $30 more per month if you have a carport built. That’s $1080 more net income annually, meaning roughly $13,500 more value added to your property. ($30 x 3 units x 12 months = $1080 divided by a .08 cap rate = $13,500) If you can build that carport for $4,000, that’s a good return on investment right? What else do they want?

Higher rent isn’t the only way to get more income. 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

Could you add insulation to reduce the heating costs? If you’re paying $80/month for lawn care, will one of the tenants do it for $40? Could you buy 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.

This isn’t an exact science, and of course appearance and other factors matter. Increasing that net, though, is the surest way to get more for your rental properties. Make the changes at least several months before you try to sell the property (a year before, if possible). Also, learn how do the math – it really does matter with real estate rentals.

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Before you purchase any parcel of land, do some research into the zoning of the area. Find out if it is zoned for residential, commercial or both. Finding something that is zoned for both is a great find because it gives you the widest array of options when selling. Also try to find out if there are any liens or easements on the property, this information will be critical when selling. Now consider the area that the land is in, is it an area that is likely to be developed? How does it match up in terms of location and proximity to amenities existing or proposed?

Also try to find out how the surrounding land has appreciated in the past years. If the area you are looking at has seen a push on development there is a good chance that land will be selling for a premium price as the development continues. To make your land more attractive to buyers, try clearing it yourself (if possible). Having all scrub and stumps removed is an attractive aspect to developers as it will save them time and money in the long run. Prospecting on the value of land can really pay off in the end if done correctly. development companies will pay top dollar for land in the right place so do your homework and good luck!

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