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The best ways to lower expenses in owning rental property

 

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Question:

I am looking for top ideas out there on possibilities to reduce expenses in owning rental property. What can I do besides the real obvious stuff like appealing my property taxes, utilities in tenant's names, high deductible insurance?

Answer:

Craig answers:

Here is what I have learned over 5 years of landlording.
  1. A huge expense is vacancy, and many investors do not account for it when they make purchases. I have been at this for 5 years, and have 70 units. I can count on a 15% vacancy/ slow-no pay factor each year. It comes in waves, but averages out to 15%. Vacancy is a "double-killer", because each time you will have to spend time and money on the unit to get it ready for a tenant plus you do not get rent for this time. Minimizing vacancy is not easy.
    There various factors that you cannot control like tenants losing jobs, local recession, new construction of apartment units flooding your local market or just general deterioration of the neighborhood.
    But you can control other factors. You want to be discriminating when accepting new tenants, but you also want to get your units rented out. The more selective you are, the higher will be your vacancy rate, because it will take longer to find quality tenants each time you go vacant.
  2. Roofing is a big ticket item for me. I found a way to get discounted metal roof materials. I can put on a metal roof for about 20% more than a composition roof. This saves a ton of money in the long run. Plus - in my opinion - metal roofs look nicer than composition.
  3. Flooring is a killer. I have struggled with this since day one. Tenants destroy carpet fast, very fast - and vinyl too - but vinyl is cheaper. A normal human being can live one one carpet for 10 years or more. But tenants will tear it up in 2-3 years. What to do? First, I carpet only bedrooms. All other areas get vinyl, particularly high-traffic areas like living areas and hallways. I am going to experiment with pre-finished saltillo tile on a couple of units. This stuff is almost indestructible, and does not stain. it is more expensive that carpet, but should last a lot longer. I will use the darkest color grout that I can find, because the grout is what starts looking bad the fastest. I can always go in and refinish the tile. I am not convinced this is the answer, but I am willing to try it. I am going to start snooping around for a bargain on a truckload of tile, and then warehouse it. If I can get it cheap enough, I can make this work.
  4. Replacing heaters and AC units is another killer. Take a good look at them when you buy a property. Make sure your pricing accounts for the remaining life of these items. Replacing a coil/ condenser is a $1200 job, and I have done it at least 15 times.
  5. In your lease agreements you should reserve the right to conduct periodic walk-throughs. Do it every 60 days. Look for neglect, leaks, AC filters, window screens, etc. Make the tenants kee the places neat, clean and orderly. You can head off some big problems if you do this regularly. I learned the hard way.
  6. I use commercial, stated-value insurance policies. I get the highest deductible they will allow, as this has a huge impact on the premium. But be careful here. I lost two properties to fires last year, and learned a lesson. Increase your coverage by the amount of the deductible to protect yourself. Also, add some extra coverage for demolition and removal and site clearing. If your property would otherwise be insured at 100K, add the deductible to the coverage, plus another 8K for demolition. I had the worst possible thng happen. A house burned HALF THE WAY to the ground.




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