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Why Is Your Rental Property Underperforming Financially?

Every rental owner has a goal of making money with their properties. However, several factors can impact your income, and if you’re not diligent, it could result in your rental property underperforming. Today, we’re reviewing some of the signs to watch for, why your rental property may be underperforming, and how to improve your rental’s cash flow. Read along to learn more!

Contents of This Article:

Signs Your Rental Property Is Underperforming

A bag labeled "Rental Income" next to a small house model and a calculator, symbolizing real estate income.Typically, several signs point to your rental property underperforming, the most obvious being a lack of rental income. However, if you’re a busy landlord with several other properties, that might not be the first thing you notice. Whether you’re a rental owner or a rental property management company in Baltimore, knowing what signs to watch for is important. 

Here are some signs that may indicate your rental property is underperforming. 

  • Negative Cash Flow- One of the first and most obvious signs that your rental is underperforming is negative cash flow. When your monthly expenses consistently exceed rental income, it’s clear that your property is underperforming.
  • High Vacancy Rates- If nobody wants to rent your property, you won’t make any rental income. That said, if your property sits vacant for long periods, it may suggest underlying issues with demand or pricing. Consider your property’s location, condition, and the amenities you offer.
  • Frequent Tenant Turnover- Tenants moving in and out of your property frequently increase costs due to re-leasing, cleaning, and marketing. If you notice tenants don’t stay very long, there may be issues with your property.
  • Negative Online Reviews- Poor reviews or consistent complaints from tenants can indicate issues that push tenants away or deter new ones from renting your property. If you have negative online reviews, it’s important to carefully consider them and work toward solving any issues tenants may have.
  • Increased Maintenance and Repair Costs- If you continuously spend money on maintenance without increasing rental income, you may become unprofitable. So, consider what you’re spending money on and adjust your overall budget as necessary.

Why Is Your Rental Property Underperforming?

If you notice some signs that your rental property is underperforming, the next question to ask yourself is–why? Several factors go into a successful rental property, which means several things can impact that success. Here are some of the main reasons rental properties don’t do as well as others financially. 

  1. Bad Location
  2. Ineffective Marketing
  3. Outdated Amenities
  4. Unfair Rent Pricing
  5. High Operating Costs
  6. Market Conditions

Bad Location

Rental property location is crucial when it comes to success and profitability. If your property is in a bad location, tenants may skip over it while looking for a rental property. Most tenants have preferences and don’t want to live in an area with high crime or limited access to schools, public transportation, or job opportunities. In turn, if nobody is renting your property, you won’t make rental income, resulting in an underperforming property. 

 A man sitting at a kitchen table, looking concerned while reviewing bills or documents, with a laptop and papers spread out in front of him.Ineffective Marketing

Effective marketing is a crucial part of rental property management. If nobody knows that your property is for rent, you won’t receive any applications from prospective renters. On the other hand, if you’re marketing your rental with an inaccurate description or poor photos, tenants may not be interested, resulting in longer vacancy periods.

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Outdated Amenities

These days, tenants generally have high standards regarding what they want in a rental property. Many renters look for modern features like energy-efficient appliances, in-unit laundry, or smart home technology. That said, if your property doesn’t have these amenities, you may struggle to compete with other rentals, resulting in lower rental income and fewer tenants interested in your property. 

Unfair Rent Pricing

If you set your rent too high, potential tenants may not consider your property as they compare it to other similar properties. While higher rental rates can increase your income, if you can’t secure a tenant, your property sits vacant, earning no income. On the other hand, you don’t want to set your rent too low, as you may not earn enough to cover your expenses. Finding a fair balance is key

High Operating Costs

If your property has high operating costs such as utility bills, maintenance costs, or property management fees, these expenses can eat into your profits. For instance, if you have an older property, you may find yourself frequently performing maintenance and repairs, reducing profits significantly.

Market Conditions

Economic factors like high interest rates, inflation, or an oversupply of rental properties in your area can reduce the demand for your property. As you can imagine, this makes attracting and keeping tenants harder. Unfortunately, this is one of the factors that may be out of your control as a property owner. 

How to Improve Your Rental Property’s Cash Flow

 A person signing a real estate contract with a miniature house model and a calculator on the table.If you want to save your underperforming rental property from losing precious income, there are several things you can do to turn things around. Here are a few ways to improve your rental property’s cash flow. 

  • Review and Adjust Rental Rates- It’s important that your rental is competitive with others in the area. So, regularly review comparable properties to ensure your rent is competitive and aligned with current market trends.
  • Carefully Screen Tenants- Finding the right tenants for your property is key. While renting to the first applicant may be tempting, screening them carefully is important. One bad tenant can cost you a lot of damages or lost rental income.
  • Reduce Operating Expenses- If your operating expenses are too high, you may find yourself spending more than you’re making. Luckily, some easy fixes can help you save money. For instance, consider installing energy-efficient appliances to save on energy bills, find cost-effective vendors or contractors, or try to re-negotiate contracts with current vendors.
  • Consider Boosting Property Value- Another way to increase cash flow is to make upgrades that boost property value. For instance, kitchen and bathroom upgrades tend to offer higher returns regarding rent increases. Additionally, you can install modern amenities, new flooring, or smart home features to attract higher-paying tenants.
  • Hire Cost-Effective Property Management- Yes, hiring a property management company is another expense. However, a good one can help you optimize your business to save on costs and increase cash flow. So, check out companies like Bay Property Management Group for effective property management.

When to Hire a Property Management Company

Nobody wants to see their rental property underperforming. However, there are several ways to improve your business strategy or spending habits to increase rental income. One of the best ways to manage your rental properties effectively is by hiring professionals to do it for you. So, if you’re at a standstill and don’t know what else to do to increase your ROI, leave it to the professionals.

Bay Property Management Group offers comprehensive rental management throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC. Whether you need help marketing properties, screening tenants, collecting payments, or performing maintenance–we’ve got you covered. Contact BMG today to learn more!