The goal of every Detroit real estate investor is to turn a profit. In the same way that people who invest in the stock market want to choose the right stocks and get the most out of their money, the people who invest in the Detroit rental market want to put their money to work for them and earn a good return. The real estate market is complex, which means you need to go into every investment with a plan in place. Whether you’re new to the world of Detroit real estate or you’ve been in the game for a while, these tips can ensure that you’re generating as much profit as possible.
Establish an LLC
When you become a landlord, you’re not just investing in a piece of property. Instead, you’re starting a business that’s under your complete control. One of the biggest mistakes that new investors make is that they treat their real estate investments like they treat stocks and bonds. If you’re going to find success in the world of Detroit rental properties, you’re going to need to be involved. This actually starts before you put the first tenant in place.
Establish an LLC that “holds” the property and any subsequent properties that you add to your portfolio. LLCs are the most popular type of structure for real estate investors because they protect their personal finances in the event of a liability lawsuit or other financial issues. Also, LLCs are eligible for tax breaks that private property owners can’t get, allowing you to maximize profits.
Take Advantage of Tax Breaks
Speaking of tax breaks, they’re a great way to maximize your profits. So many landlords miss out on perfectly legal savings because they simply don’t know about them. Once you open your LLC, it’s a good idea to form a professional relationship with an accountant who understands real estate law, as they can guide you through the process of writing off every possible deduction. Detroit real estate investors can take advantage of several deductions including:
• Property taxes
• Travel expenses incurred while traveling to maintain or improve the property
• Improvements and repairs
• Mortgage interest
• Property depreciation
Choosing the Right Tenants
Real estate investors have a luxury that many business owners don’t have. In most cases, they can choose who they do business with. While there are plenty of state and federal laws that focus on discrimination, there are several ways that you can make sure you’re putting people in your Detroit rental property who are likely to pay their rent on time every month. Get written consent to run a credit check on an applicant, and have a minimum credit score requirement in place. Verify employment, and require a deposit. When you do your due diligence regarding tenant screening, you’re setting yourself up to generate a profit.
Making Your Property Tenant-Proof
Ideally, you’ll find a tenant who treats your property like it’s theirs. Unfortunately, we don’t live or invest in an ideal world, which means you need to have some measures in place that protect your property, and in turn, your profits. Many rookie investors assume that they’re ready to put a tenant in place as soon as the property is safe and clean enough to rent out. They think that a new coat of paint and a couple of new appliances have them in a position to make money. While those things certainly help, they’re only part of the equation. You need to have written policies in the lease that protect your property, such as prohibiting tenants from mounting their TV to the wall. If something happens and the brackets break, it will damage your wall, costing you money on repairs. You should also have door stops in place that protect the drywall behind your doors. These seemingly small threats have the potential to damage your property and cut into your profits.
Insurance, Insurance, Insurance
If you don’t already have homeowner’s insurance on your Detroit rental property, you need to take care of that as soon as possible. You can actually save on your insurance costs by requiring tenants to take out a policy that covers the contents of the property if they want to do that. This means that you can either take out a smaller policy to protect appliances that you own, or you can skip out on content insurance completely.
Add another layer of protection by investing in landlord liability insurance. While structuring your investment business as an LLC is a great way to protect your personal finances, having this added layer of protection is just good business, and helps you protect your profits in the event of a disaster. Successful investors are those who hope for the best but plan for the worst.
If It’s Not Documented, It’s Not Done
The most powerful tool that you have as a Detroit landlord is the lease agreement. With this in mind, it’s a good idea to work with a real estate attorney to draw up a lease that protects you against any sort of claim that may be made by a disgruntled tenant. While you aren’t looking for a chance to give your tenant anything less than a great rental experience, this is another way of planning for the worst. Make sure that the lease agreement covers everything that you’re responsible for and everything that’s expected of the tenant. When there’s no room for interpretation, you don’t have to worry about dealing with any sort of frivolous claims. Most tenants are good people looking for a property to call home, but there’s no guarantee that you won’t run into someone who wants to try to cut into your profits to pad their own pockets.
Building the Right Team for Success in the Detroit Rental Market
Whether you’ve been investing in properties for years or you’re in the market for your first Detroit investment property, having the right team in your corner is crucial. Contact Upside Investments today to find out more about how our team of industry experts can help you maximize profits for your investment business.
