Manage Your Costs and Expenses
Costs are a significant issue for most landlord businesses and owners are investigating strategies to control expenses and manage resources more effectively.
For those in rent control districts and those suffering from unpaid rent, the cost issue is even more pressing. Regardless of your situation however, is the more important matter of using your property management software to determine the value in your expenses. Which costs are producing revenue, better tenants, and resulting in protecting your wealth?
Rental operating expenses are typically 35% to 80% of the gross operating income (GOI) depending on the type of rental property — Zillow report.
You’re eager to start slashing, yet cost cutting still has to be done with an eye on where you’re getting good value and where you’re not. It’s the effect on your income that’s most relevant to your business. Cutting without strategy and value creation isn’t wise.
Most troublesome sources of losses/expenses:
- emergency repairs
- maintenance services
- taxes and fees
- turnover costs
NAR Rental Property Costs Report
In 2017, the average annual operating expenses per unit was $ 5,270. The average annual capital expenditure was $3,856, or a total of $9,126 per unit per year, or $760/month. If that is inflation to 3% inflation cost per year, that is equivalent to $830 in 2020 dollars. — from NAR landlord expenses report.
See additional stats on the report below.
As we arise from the pandemic, your cost picture is likely to change. In fact, with inflation, some of your expenses are going to grow fast.
Consider the amount of inflation happening this year already and that growing consumer spending will raise prices, materials and products are rising in price, manufacturing output may not grow as fast, import tariffs on non-green friendly products will push prices up, energy prices will rise, and contractor fees will rise too. Interest rates might rise and your cheap financing options might dry up.
If you don’t control your maintenance, repair, financing and other landlord costs, it may take a huge bite out of your profits going forward. And the reduced funds available could prevent you from making needed property improvements and begin pushing you into a downward spiral. So yes, expense reduction strategy is a thing.
Bear Down on all Your Expenses
Greater scrutiny through your expense reports can help you identify problem areas and begin to manage your properties differently. The beauty of property management software with big strengths in accounting is how it will help you control the costs of your properties. You can explore expenses as deeply as you want to find areas of concern.
Of course, it’s not on individual properties, but rather your cost control strategy overall that generates savings. In terms of wealth, you may not be gaining on asset appreciation going forward. This may be the peak.
Instead, it’s protecting owner value, streamlining management, and making good decisions about tenant acquisition, flooring and appliance choices, financing sources, contractor choice, property management agreements, and most importantly keeping your admin and tenant time optimized.
Costs of Owning Rental Property
What are the costs of owning and managing rental properties? NAR put together an interesting view of landlord costs in 2018 with the 2017 year report on expenses and expenditures. This provides a reliable look at where landlords might be suffering lost profits.
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If you have drilled down to determine where revenue, profit and value exist in your portfolio, it’s easier to identify what is causing your losses.
12 Key Ways to Control Your Costs Forever
- use your platform’s reporting feature – identify units/buildings with the highest cost per unit vs lowest revenue and identify specifically what expenses/costs are causing the trouble
- identify all of your expenses most likely to rise with coming inflationary pressure – plumbing, HVAC, electricity, natural gas, payroll, marketing, tenant acquisition, leasing, property management fees, etc.
- automate your maintenance using property management software – ensure you don’t have to manage things with spreadsheets and paper tickler files – that’s too old school and your time is too valuable and costly
- choose your property investments wisely – old, dilapidated buildings or units spell trouble if you don’t have a reliable contractor to handle constant repairs and do proper maintenance schedules.
- buy higher quality water heaters – a bad thermocouple or thermostat are the usual culprits when water heaters break down. Take a good look at gas fired, tankless water heaters. These save energy, make tenants happier (and lucky) and if there are breakdowns, they’re easier to fix.
- buy high quality A/C units – they breakdown much less, which means fewer costly repairs and time spent. Shop for reliable equipment.
- hire a property manager if you’re a multifamily housing investor – the cost of a property management company is prohibitive however, the management of high volume properties and tenants will stress you out. Find out more about good property managers.
- screen your tenants more carefully – the best tenants are low cost tenants who don’t mind paying for value. See how to screen tenants effectively.
- keep on top of your expenses, repairs, contractors, and maintenance – significant losses occur between the lines so to speak (unneeded repairs, poor repair service, overcharging)
- simplify your accounting – definitely use a good property management software with a functionality to record your expenses with more detail so you can pinpoint issues in your reports.
- ensure you educate tenants on equipment operation so they don’t damage anything or create conditions in the unit that lead to water damage, mold, insects, etc. Discuss the lease agreement and remind them of how to care for the lawn, driveway, and wood flooring and how illegal pets can damage flooring and carpeting. A little communication will help tenants be more respectful of the home.
- use property management software’s communication power to keep tenants connected, able to pay easily, and ask you questions. Ultimately, this leads to lower tenant turnover, calm and focused tenants, and a progressive reduction in issues you have to deal with.
A Top Down, Executive Approach
A top down approach to property management executed through top notch property management software is the best way to reduce costs.
Now you’re mindful of reducing costs and know there is a way to get control. Check out Managecasa’s business process automation capabilities. It’s your key to managing multifamily units and growing your rental property yields.
Try ManageCasa and discover how effective it is in reducing property management costs.
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