What can you do with a rental property that isn’t performing the way you expected it would?
Maybe the rents aren’t where you want them. Maybe the maintenance costs are continuous and expensive. Perhaps you cannot seem to find a great tenant who is willing to stay in place for the long term and renew the lease. Frequent turnover is expensive. Long vacancies are frustrating.
Today, we’re talking about how to identify an investment property that is dragging you down rather than lifting you up. We’ll also share some tips on how to turn their performance around.
What Makes a Rental Property Underperform?
Identifying an underperforming rental is the first step towards a turnaround. Here are a few common warning signs that we think can raise a red flag when it comes to profitability and success:
High Vacancy Rates. A rental that consistently struggles to secure tenants is likely underperforming. This could be due to poor location, pricing issues, or property condition. Whatever the problem, having to fight for tenants can be exhausting mentally and also a huge drain on your finances.
Low Rental Income. If your rental income barely covers your expenses—or worse, falls short—it’s time to investigate further. Negative cash flow can be understandable at the very beginning of your rental experience when you’re paying down a large mortgage or in a depressed market. However, you can’t come up short for too long and still succeed with the investment.
Excessive Maintenance Costs. Older properties or poorly maintained rentals often come with frequent repairs that eat into your profits. If you can change course with more preventative strategies or with replacements rather than repairs, you may have a good shot at turning an underperforming into a success story.
Negative Cash Flow: If you’re consistently putting money into the property without seeing adequate returns, you’re dealing with an underperforming asset. Upgrades and improvements should help you earn more rent. If that’s not the case, you’re only throwing your money into a property that isn’t succeeding.
By staying aware of these common red flags, you’ll quickly identify which properties are falling short of their potential and save the endless analysis that can have you wondering where you’re going wrong.
Steps to Turn Around an Underperforming Rental Property
Here’s how to take an underperforming property and transform it into a thriving, profitable rental home.
1. Analyze Market Trends
Take a close look at local market data, such as current rental demand, rental values, and local demographics in the area. Is there a lot of competition, and are those other rentals thriving? If so, what sets them apart from your property? This analysis will help you align your property’s potential with market expectations.
2. Reassess Pricing
Pricing impacts everything from marketing to tenant quality to retention. The wrong rental price can discourage potential tenants while leaving your property vacant longer than necessary. A renewal rate that’s too high can chase good residents out of your property. Make sure you’re getting the pricing right. Compare your rental rates to market benchmarks. Are you asking for too much or not charging enough? Adjusting pricing to align with competitive rates can make an immediate difference.
3. Address Repairs and Renovations Proactively
If maintenance costs are excessive or your property is dated, consider investing in repairs or updates. Improvements such as fresh paint, new flooring, or modern appliances can make a property more attractive to tenants and allow you to bring in higher rents. Make some upgrades that may lead to quick ROI, including energy-efficient features like LED lighting or smart thermostats. You can also create curb appeal with modern landscaping or a refreshed entryway. Update outdated kitchens or bathrooms for maximum impact and make sure you’re prioritizing preventative maintenance, which is far more cost-effective than deferred maintenance or unreported repairs.
4. Improve Tenant Retention
Happy tenants are more likely to renew leases and take care of your property. Poor tenant relationships or mediocre rental experiences often result in high turnover, costing you both time and money. Make excellent customer service a priority. Be responsive to maintenance requests and communicate policies clearly. Share expectations early. We’ve found that satisfied tenants not only stay in place longer, thus contributing to the profitability of your property but also pay rent on time and contribute to the maintenance and care of the property.
5. Market More Effectively
Don’t underestimate the power of strategic marketing. If your property isn’t attracting tenants, evaluate your marketing strategy. High-quality photos, compelling listings, and advertising on the right platforms can dramatically boost your property's visibility.
6. Invest in Professional Property Management
A lot of rental property owners are surprised at the difference a property management partner can make. Think of us as your secret weapon when it comes to increasing earnings and bringing down expenses. We can handle everything from tenant screening to rent collection, freeing you to focus on growing your investment portfolio and its success.
Re-evaluate Your Investment Strategy
Sometimes, it’s not about fixing the property itself but instead changing how it's used. Can the property be repurposed as a short-term rental? Would another tenant demographic be more ideal? Perhaps a 1031 exchange is the best way to re-route the path you’re on. Regularly revisiting your investment strategy ensures you adapt to evolving market trends. If things are not working out with one particular property or with a large part of your portfolio, it may be time to re-evaluate your investment goals.
Regularly review your property's financial performance by tracking cash flow, expenses, and ROI. Small, incremental changes can snowball into long-term profitability when properly managed.
Why Turning Around Underperforming Rentals Matters
Underperforming rentals aren’t just a financial drain; they’re also missed opportunities. If you’re sinking investment dollars into a property that isn’t going to measure up to what you need, you’re missing out on other potential investments. Address inefficiencies and align your investment property with the existing market demand. If you can do that, there’s far more potential for profits.
Whether you’re an experienced real estate investor or building your portfolio, transforming these “problem” properties can accelerate your path to success.
At the same time, improving these properties also enhances tenant satisfaction, contributes to better retention, and increases overall property value—a win-win for everyone involved in the rental experience.
Let’s talk about how we can support you. Contact us at EPOC Property Management.
