Around a decade ago, my husband and I bought our first rental property. We weren’t entirely sure what we were doing, but we were determined to learn the ropes along the way. And that’s exactly what we did; through experience, trial, and error, we came up with a rental strategy that made sense – at least for us.
Just this month, we paid the final payment on one of our properties – a three-bedroom brick ranch in Greenfield, Ind. Suddenly, the dreams we’ve planned for years are starting to come true. Where our rentals were once a liability, we now own a house free and clear at the age of 37. And now that our first rental is paid off, we can snowball payments to pay off our other rental faster and continue saving to buy yet another rental in cash.
It hasn’t been easy; as any landlord knows, owning rental property means experiencing lots of turmoil at least part of the time. For us, those bumps in the road have included tenants completely trashing our property, a series of expensive and unexpected repairs, and other small lessons you can only learn first-hand. But, years later, we feel like we’ve finally made it – but only because we made lots of smart decisions along the way.
Seven Ways Landlords Can Save Money
Part of our strategy as landlords is saving money – not only by buying properties that will easily cash flow, but by looking for ways to reduce our out-of-pocket business costs. Some of the things we do to save go completely against the grain, but I’ve found they work quite well. I’ll explain more in a minute.
In this post, I wanted to share a few of our money-saving strategies as landlords, but also share some other landlord strategies that may work better (or worse) depending on your rental portfolio, where you live, and your local real estate market. If you’re a landlord who wants to save or are considering becoming one, here are some money-saving strategies to consider:
#1: Keep rents low to reduce turnover.
When I share that we keep rents lower than we could, it leaves people scratching their heads. But if there’s any strategy I stand behind, it’s this one. By keeping rents slightly lower than competing properties, we stay 100% occupied, have multiple applications with any vacancy, and save money along the way.
You see, each time somebody moves, it costs us money. Not only do we shampoo the carpets and paint, but we must market a vacant property until someone moves in. That can sometimes mean a month with no rent, which is bad enough — but it also means driving back and forth to the property and dealing with potential tenants. In terms of both time and money, marketing a property for rent can be extremely costly.
Of course, this strategy might not work depending on where you live. If rents are surging tremendously in your market, you could lose a lot more than you gain by keeping rents low. But in a small, sleepy town, this strategy works quite well. Not only do we provide our renters with a bargain, but we save money along with the hassle and stress that comes with constant turnover and vacancies.
#2: Choose smaller properties that are easy to upgrade and repair.
When we moved to Noblesville, Ind., a few years ago, we briefly flirted with the idea of turning our old residence into another rental. But we changed our tune when we realized how much that might cost. Sure, our home would turn a profit, but any repairs would be through the roof!
Our other rental properties are around 1,000 square feet each, which means we are intimately acquainted with how much it costs for that much carpet, that size furnace, and that big of a roof. The home we were moving out of and selling, on the other hand, was nearly 2,400 square feet – more than twice as large.
We ultimately decided that we didn’t want to pay for huge repairs and 2,400 square feet of carpet or even carpet cleaning between tenants. We also decided that larger repairs – a new, huge roof over the next few years, a larger furnace, a larger yard to take care of – could potentially eat away at our returns.
Sure, larger homes rent for more money, but at what cost? Just like any other home, a larger rental means pricier everything – from repairs and upgrades to property taxes and homeowner’s insurance. As independent landlords, we decided to stick with smaller properties with costs we could easily manage.
#3: Get a contractor account and stack discounts.
Becoming a landlord isn’t a cheap affair, and that’s true even after you get the property in your own name. On top of mortgage payments and property insurance, you need to pay for upgrades and repairs. And sometimes, those repairs can be extremely costly.
Property owner Alexander Aguilar says he saves money by pooling his rental buys at one store that offers a sizable discount for contractors.
“On tenant turnovers and vacancies, I buy everything I need in one order and run it though the Home Depot contractor desk, which is free,” says Aguilar, who blogs at CashFlowDiaries.com. “Depending on how much I’m buying and who the customer rep is, I can save anywhere from 5% to 12%.”
In addition to seeking out contractor discounts, you can also pursue sales, stacked coupons, and discounts. The blogger behind ESI Money, a landlord, says he combines sales other discounts to get the most bang for his buck.
“When I bought appliances for several units, I combined a sales price, competitor’s sale price match, coupon, rebate, and cash back credit card deal to save over $3,000,” he says. “Better yet, I locked in those same prices for subsequent purchases even if I bought only one item!”
#4: Avoid using a property manager.
Property managers promise to reduce the stress that comes with being a landlord. They’ll advertise and market your rental on your behalf, taking special care to properly vet potential tenants. On top of that, they meet with renters, collect payments, and deal with tenant issues.
Unfortunately, these services come at a steep cost. If you’re willing and able to manage your properties yourself, on the other hand, you can cut out the middle man and keep more profits for yourself.
This is exactly how Steven D., the blogger behind Even Steven Money, increases profitability on his rentals. When he found that real estate agents and property managers charged up to a full month’s rent for a year of service, he decided to do the heavy lifting himself.
“We decided to list the property ourselves online using a combination of Zillow Rental Manager and Craigslist,” says Steven. “This allows us to save money and be more hands on with who is going to live on our property.”
#5: Don’t be afraid to say ‘no.’
While some tenants seem happy with your house the way it is, there are always those who crave changes and upgrades. And truthfully, it never hurts for tenants to ask for a new kitchen sink or a new coat of paint in the living room. I mean, the worst you can say is ‘no,’ right?
The thing is, you can’t make every tenant happy. And when you replace something that doesn’t need to be replaced at your own expense, you’re working against the best interests of your business and your bottom line.
Elizabeth Colegrove from The Reluctant Landlord says being able to say “no” has saved her tons of money and heartache over the years. Colegrove says she’s had tenants ask for ceiling fans in every room, kitchen cabinet color changes, upgraded mini-blinds, and more. The thing is, they want to do it at her expense – not theirs.
“My tenant can [make upgrades] at their expense, but the items must be left behind,” she says. “Not only does this save me thousands, but I am not the bad guy.”
Of course, you can also let your tenants do some of the work themselves and offer to pay for materials only. That way, both of you benefit from the upgrade, but you’re not paying for unnecessary labor. This is the exact strategy used by Pauline Paquin, a landlord that blogs at Reach Financial Independence.
Paquin says her tenants will occasionally offer to fix or upgrade components of her rental they don’t like. “I’m lucky they are handy, so when they asked if they could paint the place, I said sure and just refunded them for the paint and brushes,” she said.
#6: Be intentional about paint colors and flooring.
Chad Carson, the real estate investor behind CoachCarson.com, uses one simple trick to streamline the vacancy process. He uses the same interior paint color and style at all of his rental properties.
“This allows us to buy paint in bulk, and makes touch-up MUCH easier during turnovers,” says Carson. “I estimate this saves us $250 to $500 every time in reduced painting labor and wasted materials.”
Carson also tries to avoid rentals with wall-to-wall carpet, he says. This helps him save untold sums of money during each vacancy since solid flooring doesn’t normally need to be replaced between tenants. “We try to buy houses with hard-surface flooring like tile or hardwoods, or we install it upfront,” says Carson.
#7: Perform upkeep and maintenance yourself.
Veteran and landlord Doug Nordman owns one rental property with his wife. While their goal isn’t necessarily long-term income since they plan to move into the property themselves, they still want to save money along the way.
Their strategy? Performing a lot of the maintenance, and specifically the yard work, themselves.
“It’s low-maintenance landscaping for only a couple hours every six weeks, but it gives us a great chance to look over the property and chat with the tenant,” says Nordman, who blogs at The Military Guide.
Before you buy any rental property, it’s crucial to make sure the numbers work. Bringing in a rental income is nice for sure, but it helps to keep your expenses at a minimum so you’re not paying out more than you’re bringing in.
While no particular savings strategy is right for everyone, it’s important for any landlord to find the right strategy for their business. Without one, buying rental property could easily become a losing proposition.
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How do you save money as a landlord? Do you think these strategies work? Why or why not?