"Rental Property Expenses: 5 Tips to Optimize Cash Flow"
Rental property expenses tend to sneak up on you if you're not looking. Therefore, part of your strategy should be to keep an eye on your expense base and make improvements when you can. These 5 tips will help facilitate this process.
TIP #1: FIX SMALL THINGS YOURSELF
It pays to be a little handy. I am certainly no Bob Vila, but I do try to fix as many things myself as possible. You have to be willing to try, and if you find you can't, then bring in a pro.
Learning to do the little things will save you thousands and thousands of dollars over the course of your investing career. As an example, a new deadbolt lock set costs around $20 at a home center, and will take about 15 minutes to install once you know what you are doing. But a locksmith would charge you about 4 times that much. And you ALWAYS need to change locks when tenants leave, so you can see how something simple like this could add up to a lot of wasted expense over time.
Some examples of things I learned "on the fly," which you too will want to learn, include:
- Changing locks
- Patching holes in walls
- Putting in a new toilet
- Fixing kitchen cabinet clasps, magnets, rollers, etc.
- Putting down new kitchen / bathroom vinyl flooring (the 12x12 self-adhesive squares from any home improvement center are cheap and work great)
- Affixing door stops
- Replacing doorknobs
- Hanging blinds
- Hanging towel racks, medicine cabinets, etc.
- Patching cement
TIP #2: BUY THE CHEAP STUFF
Installing high-quality items does not pay because tenants will invariably beat things up. So help keep your rental property expenses down by purchasing low cost items. In other words, go for the basic medicine cabinet at Home Depot for $19.99, instead of the $39.99 option. You'll also want to keep that in mind when getting bids for more comprehensive projects.
TIP #3: DON'T LET CONTRACTORS RIP YOU OFF
Here are a few quick things you can do to protect yourself:
- Get 3 competitive written bids on any project
- Press for a firm project completion date
- Never pay for the full amount upfront
- Pay by the job not by the hour
- Make sure contractors are licensed, bonded and insured
- Monitor the work continuously
TIP #4: KNOW WHEN TO HIRE A PROJECT OUT
As I've said, I try and do the little repair jobs myself to help minimize my rental property expenses. But more complex jobs should definitely be hired out because in many states, liability applies to the entity that does the repair work. Getting sued certainly has the potential to put a crimp in your wallet!
For example, if you upgrade the property's electrical system yourself, and a tenant gets shocked, then you are liable and may very well be on the short end of a lawsuit. But if an electrician did that same work, then it is the electrician who would be liable. Consult with your
investment property attorney
for more details.
For this reason – along with the fact that my handyman skills are average at best – I hire out larger projects when rehabbing
and the like. For example, I'll never personally do any electrical, pipe replacement, drywall, roofing, structural, exterior door replacement, carpeting, HVAC, or window replacement work.
TIP #5: REALIZE YOU CAN'T AFFORD A PROPERTY MANAGER
A property rental manager
is an example of a rental property expense that you simply can't afford. Click on the link for a detailed discussion.
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