5 Ways to Supersize Your Profits – Part 1

Everyone always wants to make more money on their properties, this is a given. But how do you make your next deal more profitable as well as potentially squeeze more cash out of the properties you already own?
Veteran investor, Gord Lemon explains.
From Canadian Real Estate Wealth Magazine

There are a few strategies to help you make more money, ranging from the simple to a bit more advanced. For the purposes of this article, let’s assume you are buying (or already own) a property which is typical for the average Canadian real estate investor: the detached singlefamily home. You can apply most of the following suggestions to small multi-family properties also.

1. Assess the Potential to Raise Rents.

It is quite common to be looking at what seems to be a good property only to find the rents are lower than market rents in the area. Before you immediately pass on the deal, take a deeper look into why the rents are low and if there is a quick fix to make the numbers work. Every province has their own Residential Tenancies Board which dictates the annual rental increases.

Surprisingly many landlords are reluctant to enforce these allotted increases. Why would this be? Often the landlord is worried about losing good tenants and has not increased the rental amount for years, fearing even an inconsequential rental adjustment will lead to a vacancy. The answer is to enforce the rental guidelines. If the tenant moves out,then you can set a new rental amount with the next tenant.

Another common scenario for low rent is the neglectful landlord that hasn’t injected a lot of money(or any) into regular maintenance. The only way for this landlord to keep tenants is keeping the rent very low… we have a name for these kinds of landlords.

In most cases you will be able to justify market value rent by injecting a surprisingly low amount of money into key areas of the property. First impression is everything and it is no different with tenants. A nice kitchen and bathroom, clean and freshly painted walls plus a strategic front yard landscaping can substantiate a rental increase to market value and will aid in attracting a better overall tenant.

The list on the right highlights some small key items which add a huge ‘perceived’ value in the eyes of the tenant. These items can be acquired at any of the big box discount stores.

2. Create a Secondary Suite

Any time you are viewing a single-family house, make it a point to look at the property with the potential of adding a secondary suite. A secondary suite can generate critical income which can turn a negative cash flow or ‘break even’ property into positive cash flow. Also, from a vacancy perspective, if you have two units and one goes vacant, at least there is still some income being generated.

You must check the municipal zoning bylaws before embarking on the creation of a secondary suite. In most cases the zoning will not permit a legal secondary suite. However, many municipalities will endure an ‘unauthorized’ suite. Typically, if there is adequate parking and the tenants are quiet, you should have no problem.

Complaints from neighbours are usually the main reason the municipality gets involved in shutting it down. The key to a successful secondary suite is creating a safe living environment that passes fire code regulations. This will aid in acquiring insurance for the suite.

Some fire code regulations are:
a) minimum ceiling height of 1.95 metres
b) minimum of two fire exits. The main door to outside being one plus each bedroom must have at least one window with an opening of 0.35 metres as a minimum. An additional exit door is a bonus
c) Ceiling and doors must be ‘fire-rated’ which means the drywall must be at least 5/8″ and the doors must have a much longer ‘burn time’ than regular interior doors. Common ratings go from 20–90 minutes
d) the furnace and water heater must be enclosed in their own room using at least ½ inch drywall and a sprinkler is required within the room
e) smoke alarms are mandatory in each room which should be connected to each other and tie into the main breaker system so they operate in unison
These upgrades will cost very little compared to the extra income a second unit will generate.

Check out 3 more excellent strategies to increase the profitability of your existing rental property portfolio in Part 2 of 5 Ways to Supersize Your Profits

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