5 Secrets to Increasing the Profit of Your Rental

by | BiggerPockets.com

Hey All! Last week my wife, Liz, shared with you a step-by-step guide to purchase a buy and hold. Closing on a deal that meets your goals is fantastic, but it is only half the battle. I am here this week to tell you about the other half of the equation — keeping it profitable. To actually achieve those profit goals you set in your budget, you need to constantly monitor your investment’s performance and tweak things as you move along.

The first thing you need to do after a purchase is what I call Stabilizing the property. This means doing the up-front repairs, getting out the bad tenants, getting the good tenants on your lease contract and getting your longterm financing in place. Once all that is done, then you go into the longterm phase of landlording — maintain profitability.

In my ten years of investing, I have found some key actions that can make a world of difference in maintaining profitability. Here they are in no particular order:

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5 Ways to Maintain Profitability

1. Keep Your Leases Current and At Market

When I purchase a building with tenants, the lease contracts are usually mismanaged. I find that the leases are month-to-month and at least 15% below market. Typically, this is because the landlord was not tracking the expiration dates of their leases. They were just letting the original contract with the original rent stay in place. 

We purchased an 18-unit building this year. One of the tenants had a lease that had been in place since 1979, and their rent had only increased 3 times in that entire period!

Most residential leases are one year contracts and either auto convert to month-to-month or automatically renew for another year after the first year is up (this may not even be legal in your state, even if you lease calls for it). Either scenario is not good in my opinion.

A month-to-month is not good because the tenant can terminate the contract with very short notice, normally 30 days. The good side of this is that the landlord can change the terms of the lease with the same notice as well. This fact is a huge downside for the tenant and usually the incentive I use to enroll good tenants in a renewal lease versus staying in a month-to-month agreement. I will forgo the landlord’s benefits of a month-to-month lease in lieu of having the stability of at least a one-year contract with a good tenant in place!

An auto renewed lease is not good for you either, even if the lease has a rental increase built in. If you miss the deadline, you can’t make changes. If you rent in an area that does not have rent control, you may be leaving money on the table. What if market rate rents have increased substantially? There are also other things you may want to change aside from the rent.

What if you added amenities to the building like designated parking spaces or if you separated the utilities? If you let the lease auto renew, all the terms of the old contract stay in place, including the rent.

So the bottom line is that it pays to visit your lease contracts every year. Mark the date that you have to put a renewal in front of your tenant on your calendar. When that date comes up, take the opportunity to restructure things if you need to. All we do is send the tenants a one page renewal with any lease changes, the new rent amount and the date it takes effect. They have a certain number of days to sign it and return it, and we are both protected by a current contract.

2. Budget for and Monitor Expenses

It sounds funny to say that you need to expect to spend some money maintaining your rental portfolio, right? That being said, there are many landlords that don’t project what their expenses are going to be for the current year. If you are one of those landlords, all I can say that if you don’t plan for expenses to come up, then every expense that does will be an unwelcome surprise…

Having a budget will not only allow you to project how much money you are going to spend, it also allows you to know how much you are going to make. When Liz and I were looking to have a baby, we needed to know what our income would be a year ahead. Because we have solid financials, I was able to make financial projections that I could stand behind. When our son Zachary joined us, we had enough confidence in our financial stability for Liz to take some time off to be with him.

Additionally, if you plan on enrolling investors in your business, it’s imperative to have solid financial projections. We are able to tell our investors where our profitability will stand not just next year, but 3 to 5 years out.

It’s not that hard to create a budget. If you have owned the property for more than a year, all you need to do is look back at what you paid through the prior year. If you are already using accounting software, this is as simple as running a report. If not, just go through your prior year and categorize everything into a spreadsheet. Assuming no major one-time expenses came up (see item 3 below on Capital Improvements), you can project that what you will pay in expenses this year will be similar to the prior year. I even mark up my expenses from the last year by a few percent to factor for inflation.

3. Set Aside for Capital

Capital improvements are things you do to your rental that improve the value of the property. In accounting terms, they are not a one-year expense like a utility expense or maintenance repair would be. They are capitalized into the value of the building — adding their cost to the value of the property — and depreciate over time.

Typical examples are roof replacements and new furnaces. You can also apply major renovations, new appliances, cabinets and windows as capital improvements if you can say that they add to the value of the property. It’s a good conversation to have with your CPA before tax time comes around.

That being said, if you don’t set aside a few dollars each month to cover these things when they come up, you can end up blowing your annual budget when the furnace needs to be replaced. By setting aside some money per unit into a side savings account, you will develop a capital improvement fund for things like roof replacements or other major expenses that could be capitalized. A good rule of thumb in my area is $400 per unit per year.

4. Plan for Preventative Maintenance

Some landlords wait for problems to occur before they send someone out to do a repair. That can be very costly as the tenant may not make you aware of an issue until it gets way out of hand. Little things can turn into big things and you can’t wait for a tenant to decide when you should do some upkeep on your investment.

We do preventative maintenance walkthroughs on all our properties twice per year. We carry along a checklist and look for two kinds of issues during our walkthrough — proactive repairs and opportunities to reduce expenses.

Proactive repairs can be done immediately at a reasonable price, before they become a big expense or liability. The small roof leak the tenant didn’t want to bother you with will turn into a larger one, sooner or later. The smoke detector with the dead battery is unsafe for the tenant and a liability issue for you. The broken gutter downspout will eventually cause a water leak in your roof or basement. The list goes on and on. You can schedule to address these small things in a reasonable timeframe versus addressing them when they become an expensive emergency.

Expense reductions are ways that we as the landlord can reduce our overhead on the building, primarily by reducing utility expenses on multi-family properties. Put simply, we find things that are leaking that aren’t supposed to be! That includes faucets, toilets, window seals and door seals. We own a few 4-unit buildings that are identical and right next door to each other. When I got the water bill, I saw that building A had a water bill that was $200 higher than building B for the same quarter. On a site inspection the culprit was found — a toilet in a tenant’s apartment was running all the time!

A simple fix and savings of $800 per year.

5. Evict

If you did smart profit projections for your property, you included a line item for vacancy, even for a single family home. To maintain or beat that vacancy rate you can’t allow a tenant to stay in a unit for any longer than a month without paying. Reason being if you have them removed, you will still need to spend the time and money to get the apartment turned around for the next occupant.

Filing eviction is tough. Even I have a problem with this one because I am a big softie. Every tenant that is back on their rent has a reason that they can’t pay, and there are times that it is a heart wrenching one. I have looked the other way for many tenants while they got their act together. There have been a few times that these tenants were able to get back on track, but there have been more situations where they have not been able to get back on track. Fortunately, I don’t have this problem anymore because I hired an office manager to deal with the tenants. She is not a softie and sticks to the rules that her and I established.

Our rent is due on the 1st, and it’s late after the 5th. On the 6th we send a letter reminding the tenant that they are past due and informing them that we will be filing eviction on the 10th. If the tenant contacts us and is in distress, we will put them on a written payment plan with most of what they owe paid within 30 days.

If we don’t get a response, we send the file to our attorney, whose fees are paid by the tenant if they want to stay (it’s written in our lease). In our area you can get from an eviction filing to removal within 4 to 6 weeks. I have heard much longer time windows in other parts of the country – all the more reason to file immediately and get the process moving. The tenant can always catch up after you file, and unfortunately some tenants won’t take you seriously until you show them that you are willing to evict.


Don’t get me wrong, buying a rental property with great potential feels great. But potential is just that — potential. That potential energy is not unleashed as cash flow into your pocket until you implement a proper management plan.

Buying great deals is a necessary first step. Maintaining your rental’s financial performance is the second step and your longterm wealth builder.

Ok, so I’m not perfect, what did I miss? Do you do anything on your properties to maintain and increase your profit?

Did you hear any ideas here that you can’t wait to implement?

Let’s hear your thoughts!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area.

One of DeRosa’s mantras is “to make money while making a difference.”


  1. I loved the post Matt! Such detail, great! I really liked the part about evicting sooner rather than later. I’m a softie too, but at the end of the day, you are risking your own neck by being so.

    • Hey Frankie – thanks for reading and for the comment. I am charitable in many places in my life, but I can’t run my real estate business like a charity! It sounds cold but at the end of the day we cannot be responsible for the tenant’s problems (I have enough of my own, LOL!)
      Take care and thanks again.

    • Hey Steve – perhaps you are right but I have found that common sense is rarely common practice, LOL!

      The truth is, there are no secrets on ways to run a real estate business. All the tricks of the trade are all out there because its not that complicated of a business, actually. As there are certain things that work and others that don’t, it makes sense that they would be repeated on BP…

      I do hope that you found value from the article, or that what I wrote here reminded you of some thinks you heard before. All I ask is that you apply the lessons to increase your profits and reach your goals! Best of luck.

  2. Matt I really liked many of your ideas. I would disagree slightly on your view of keeping your rentals at market rates. Staying below market can help you get a good pool of tenants to choose from. You also have to look at the increased cost of changing tenants. Granted I have a day job and so my free time is valued. If I can keep a good tenant for a few extra years by keeping the rent at 10% below market levels I am money and time ahead to give the lower rent price. I had one tenant who rented for over 12 years. I never raised her rent during that period. Yes I could have rerented it for more, but I never had to repaint, no cleaning, no vacancy, etc. Obviously very few tenants are that good you would be willing to lose $1,200 a year to keep the same tenant. Thanks for taking the time to write the article.

      • Hey Jerry and Dave – you are BOTH right, if it alings with your goals. I saw the key comment in Jerrys post – you have a fulltime job. In that scenario I would agree that a hastle free scenario would include renting to your tenant a bit below market. You would probably forgo the additional cash flow in exchange for not having to deal with a move out, rehab of the unit, and some vacancy. Just make sure that the money you are giving up for renting below market is at least half of what it would cost you to rehab the unit and deal with some vacancy on a move out. I also would say that a 3% increase per year would not push anyone out the door and would allow you to keep up with expense increases.

        I am a full time investor and am willing to push rents to market and take a loss every once and again becaue I have an in house team to deal with the repairs and the leasing. In exchange for that I am able to achieve high returns for myself and my investors, but do need to have more of a hands on approach overall.

  3. Matt: Great article. I am 18 months into my investment career and decided we need to do a fall inspection of the properties. I need to develop a checklist. How did you develop your checklist? Are you willing to share your checklist? Thanks!!

  4. Rent doesn’t always have to be below market, but it does help get interest in the property. I’d say play each tenant by ear. For example, I have a tenant who will be moving into my primary home soon. We live in an area in Georgia where alot of the forced landlords don’t maintain their homes, they are outdated, dirty, and smelly. Prospective tenants go look at a few of these homes and when we show the house, they tell us stories of landlords who refused to clean or paint over crayon marks on the walls, carpets bleach spot cleaned so many times in a few spots that it showed and just general uncleanliness and unprofessional landlords. I see other townhomes in the area for rent by management companies and am shocked to see photos where the carpet is coming untacked and showing wave patterns in it which could be a tripping hazard.

    So yes, just pricing $5-$15 below market helped get more interest in the home, but after knowing what my competition is doing, I could see raising rent slightly.

    • Hey Scott – it sounds like you are in an interesting market place, LOL! If you are producing a product that exceeds what you listed above you should be able to get great rents. I try and create an apartment that is something we can be proud of and most importantly is safe overall. It sounds like you aim to do the same thing.
      If shaving a few dollars off the asking price will get you the showing and a closed deal, you are only talking about a fraction of a percent per year. If you have good product compared to the market, all you need to do is get them in the door and the unit will sell itself!

  5. Hey Matt,

    Good article. You touched on something that, in my opinion, deserves more respect: following the rules. If your tenants think you’ll waive a fee, or worse, if they know you have in the past, you’ll have a never-ending parade of excuses and requests. If, on the other hand, they know you live by the contract, you save yourself tons of headaches.

    My husband once waived a late fee. The tenant had a sob story, of course. I had a DUCK when my husband told me about it. His opinion was that the guy was a good person, just down on his luck. Turned out the guy was then late twice more, and he moved out without giving notice, and then tried to dodge us. So much for being a good person.

    Unfortunately, I have many similar examples. Every single time anyone has to deal with issues like this, it costs money. Following the established rules pays BIG dividends.

    Thanks for the sound advice.

    • I agree, I think if a tenant knows in advance they’ll be close on making the rent payment in full and explain their situation ahead of time and how they are going to work things out, it shows more responsibility on their part as opposed to the tenant who waits til the 5th of the month and then comes up with a sob story after you have to contact them about the payment. Luckily, I haven’t had this happen yet.

    • Hey Darla – I love that phrase – “Had a DUCK!” LOL.

      It all goes back to a simple truth – you teach people how to treat you. If you offer consessions of fees and give lieneancy on eviction once, the tenant will expect it again. I am charitable and generous in most other places in my life, but have learned to curb that part of myself in my business.

  6. Great article Matt, I am a buy and hold investor so these tips are very helpful. I definitely need to work on keeping leases current and also getting market rents. This is something I am working on this year to make sure I do better job and at least get market rent or very close to it. Thanks for the advice

  7. I appreciate the article! I also have a 12 yr tenant in a distant condo who pays regularly and rarely do I need to do anything. I’ve raised the rent a few times and she gripes due to her disability income (yet her adult son had moved back). Now the areas rents have increased considerably. I’d like to keep her as a tenant as it makes my live much easier. But I’m wondering how often and by how much one should reasonably raise the rent and what are reasonable advantages to give a very long term & usually hassle free tenant.

    • Hey Susan – I said this in an earlier comment too – if you do 3% per year the tenant will most probably not move out. This will at least keep you up with your increasing expenses including increasing real estate taxes and insurance. If the tenant is long term, you could even tell her that you are planning to increase the rent yearly by that amount so she is prepared.

      • Hey Matt & Susan,
        I’ve included a clause in my rental contract that states “there will be an automatic increase in rent (3% per year) at lease renewal”. This makes it much easier to increase the rent annually since they’ve been notified in the lease.

  8. Cynthia Hartley on

    Thanks for the article, Matt. I always hate having to ask tenants for money when they are late. So rather than using the stick, I decided to use the carrot. I offer an incentive of $25 or $50 off the rent if it is paid before the first of the month, not on the first of the month. A tenant once paid after the first, but before the 5th. I told him that the incentive did not apply for that month that he did not pay early. He paid the extra $25 and he paid the next month’s rent a month in advance. He was never late again.

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