For many real estate investors, the first question that pops up in their mind when predicting their cash flow is “Should I focus on increasing income or reducing expenses”? Cash flow involves a simple mathematical equation: Saving = Income – Expenses. Saving is the priority since it appears first in the equation. To increase saving, real estate investors can either increase income, reduce expenses, or do both at the same time.
1. Reducing your expenses
If your main focus is on cutting down your expenses, it is all about economizing. When you don’t know how to increase your income, cutting down expenses is the easiest route to increase your net worth. So, what can you do to reduce your monthly expenses in real estate investing? Well, for starters, take advantage of the real estate tax break! Real estate investors have a huge advantage when it comes to taxes and with the right mindset you can benefit greatly from this opportunity.
- Deductions: Real estate investors can deduct expenses associated with their real estate investments such as loan interest, their mortgage, and office expenses.
- Capital Gains: With capital gains real estate investors can subtract from what they owe on their taxes from the profits they make.
- Depreciation: If their investment property decreases in value, investors can subtract their losses.
2. Go and find cheap labor
Like in any other business, the hard and money-consuming part is labor. In real state it’s no different. Labor is expensive. How can you reduce labor expenses in real estate investing? Well, besides the fact that you can try to do it yourself instead of wasting your money on real estate experts, there are other different ways as well. For instance, you can get an intern. The cool thing about interns is that they can work for free and if not free – for very cheap. Real estate interns can do much of the work, so you won’t have to do so much yourself.
3. A well-maintained property is a keeper
Keeping your rental property well-maintained can help you save a lot of money in the long run. Real estate investors can reduce their recurrent expenses by replacing high end products with suitable and affordable ones. For example, replace an old window that might crumble in the near future with an affordable one that isn’t so expensive or with an overwhelming price. Homeowners usually hesitate to repair or update their home in fear of expensive prices, but nowadays everything is available in a wide range of prices.
4. Real estate partnering
Of course this is one of the best ways to minimize your expenses in real estate investing. Find yourself a partner who has money and whom you can trust so that you can work together in your real estate investments. If you are hesitant to work with someone in real estate investing, find someone whom you can borrow money from. And always remember that there a million different types of loans out there, so don’t be scared to ask for help.
In the end real estate investing is not about having multiple rental properties but about being able to handle your income property well and making the most money you can out of it. Let’s take a step back and discuss some of the different ways you can use to make the most money out of your rental property.
- Decrease vacancy: The best way to minimize vacancies is to find a long-term tenant, so that you don’t have to deal with high turnover. Every month of vacancy costs you 8.3% of your potential yearly rental income. That’s a lot of money lost in one year. So, focus on keeping your investment property occupied.
- Minimize turnover: Turnover costs money in many ways. There are advertising costs, the cost of patching and painting walls and replacing flooring that your previous tenant would have lived with, and, of course, vacancy. One of your goals should be to find quality tenants that take care of your rental property and pay rent consistently. When you find these tenants, do what you can to keep them! You want to always look for tenants who will be loyal to you and your rental property, so choose wisely and carefully.
- Be diligent on late fees: Showing kindness and respect to your tenants does not mean being a pushover when it comes to rent collection and late fees. Collections are not the most enjoyable part of being a landlord, but are essential to running a profitable real estate investment business and succeeding in real estate investing. Make sure your tenants understand that this is a business, they have signed a contract, and it is your job to complete this transaction.
So always remember that just because you’re in real estate investing doesn’t mean you have to overspend in the process. You can increase your profits and decrease stress by taking advantage of these simple tips. And keep in mind that if there is a will, there is a way, and there IS always a way to reduce your monthly expenses in real estate investing. Be sure to check out Mashvisor for the latest real estate investing tips and strategies.