Being a landlord can be a highly profitable venture. However, the current COVID-19 pandemic is, unfortunately, turning the rental property business on its head. Several tenants are losing their jobs and incomes and are struggling to pay rent. This is having a domino effect on landlords. To deal with the situation at hand, some landlords are choosing to temporarily reduce or suspend rents.
However, as much as you may want to be flexible with tenants that are struggling financially, you don’t want to put yourself in an impossible financial position. Apart from mortgage payments, you may have other rental costs like property taxes, insurance, maintenance, inspections, and management that need to be paid using the rental income. In light of current events, even if you will be reducing or waiving rent for your tenants, you may also experience vacancies. The best way that landlords can cushion themselves during such harsh economic times is to cut costs. By cutting costs wherever possible, you will be able to maximize your return on investment or at the very least reduce the impact of harsh economic times on your business and your loyal tenants.
In this post, we are going to show you how landlords can cut costs and save money. Without further ado, here are 11 great cost-cutting strategies to consider:
11 Ways Landlords Can Cut Costs
1. Carefully Screen Your Tenants
One of the best ways that you can cut costs in the long term is to find good tenants. You should only allow reliable and trustworthy tenants to rent from you. Bad tenants will cost you in the long run with rental property damage, late rent payment, evictions, and vacancies.
To find the right tenants, be sure to check every potential tenant’s criminal history, eviction history, and credit history. By doing so, you will greatly alleviate the risk of ending up with troublesome tenants. Good tenants will take care of your investment property, pay their rent on time, and follow the rules set out in the lease agreement. During tough times, it may also be easier to come to an agreement with them that satisfies both parties.
2. Review Your Mortgage
Mortgage payments are usually the biggest expense for landlords. Therefore, you can save a lot of money even with a marginally smaller interest rate. To cut costs, you should regularly review your mortgage policy to ensure that you are getting the best possible deal. Even if you think that you currently have a good deal on your mortgage, there may be a better deal for you out there.
Refinancing rental property could be a good way to increase your disposable income. Talk to your bank and see if your mortgage can be bettered. Some lenders may even allow you to defer mortgage payments if you are struggling due to the COVID-19 pandemic.
3. Choose Your Landlord Insurance Carefully
Another important cost reduction measure for landlords is taking out a good insurance policy. Landlord insurance can help you cut costs in case of an incident that can be claimed like injuries or property damage. Without landlord insurance, a serious predicament at your rental property could bring a huge monetary loss.
Having said that, you should take note of what you are paying since landlord insurance is not very cheap. Compare different quotes online and do proper research to ensure that you are getting a good deal.
4. Keep on Top of Property Maintenance and Repair
The annual cost of maintenance and repair is also one of the biggest rental property expenses. Ensuring that your rental property is always in tip-top condition will help you cut costs and prevent it from depreciation in value.
Be sure to communicate with your tenants and conduct routine inspections so that you are always aware of any small issues with the property that need to be fixed. (Be sure to take proper safety measures to follow the best practices for social distancing.) This will reduce the chance of problems escalating and costing even more in the long run. However, how regular your maintenance work will be will depend on the features of your rental property.
5. Perform Most Property Maintenance Work Yourself
If you do property maintenance regularly, most needed repairs will be minor and you may be able to do them easily. This can save you hundreds of dollars. Luckily, most of these simple tasks can be easily learned online by watching tutorials on YouTube. However, if you have a major problem that you can’t tackle yourself, be sure to hire a professional with the right training and experience. Considering the required skill level and time commitment, sometimes DIY might not be the best option.
6. Be a Good Landlord
Just the way no landlord wants to deal with a bad tenant, no tenant wants to deal with a bad landlord. If you are a distant, grumpy and insensitive landlord that never handles requests from tenants in a timely manner, they are likely to treat the property recklessly, vacate, or even take matters to court. All these will, of course, drain your funds.
Therefore, if you want to cut costs, make sure your tenants feel comfortable in your rental property. Provide a high level of service and fulfill your legal obligations. If you value your tenants, you will have fewer problems with them.
7. If Possible, Don’t Hire a Property Manager
Property management costs also eat into your rental income. If you have a smaller real estate portfolio and have the time and will, you should consider managing the rental properties yourself. This will enable you to cut costs and keep more profits to yourself.
However, property management is not easy. You should be ready to do tasks like marketing, tenant screening, property maintenance, rent collection, accounting, and dealing with tenant issues. Thankfully, there exists rental property management software that can save your time through automation of processes and keeping you organized.
Just as with DIY maintenance, weigh your options. If managing your rental properties on your own means unhappy tenants and empty units, the cost of a property manager is well worth it.
8. Charge Fair Market Rent
To keep tenants in your rental house and reduce turnover costs or vacancies, it’s vital that your rental rates are reasonable and possibly lower than comparable properties. Sometimes, especially during periods of economic uncertainty, you may need to charge even less than what your rental property is worth. Charging your tenants slightly lower rents could pay off in the long term since you will avoid vacancies. It may be better to drop the rent slightly than to have a high vacancy rate.
With that said, you should know the average rental rate for comparable properties in the area so that you can set the right price. If you don’t assess the market rate, you might end up undercharging for the rental house and losing a lot of money each month. You can find rental comps here on Mashvisor that will help you make sure your rates are both fair and competitive.
9. Maximize Your Rental Property Tax Deductions
Owning a rental property means that you can offset many of your rental property expenses against your tax bill. Therefore, another tactic for saving money is maximizing the deductions you qualify for.
Make sure you know what expenses you can claim. You might want to talk to an accountant to help you know the tax breaks you qualify for. Moreover, ensure that you keep a record of all your receipts.
10. Keep Inventory Reports
When a tenant vacates, they may sometimes leave behind a lot of damage to the rental property. To save money on repairs, make sure you check the condition of the property and all the items in it before they get in and make a report.
When a tenant vacates, you will be able to assess the level of damage caused during the tenancy period that doesn’t constitute wear and tear. You can then deduct the costs from their security deposit accordingly. This is particularly important if you are offering a furnished rental property.
11. Improve the Energy Efficiency of Your Investment Property
Energy costs are usually higher than other utility bills. In that regard, if it’s your responsibility to pay the energy bills, you should try to find the best energy deals. If your property is energy efficient, you will be able to cut costs considerably.
Manage your energy costs by using more efficient and less expensive alternatives. This can be done through small changes like using LED lights, using solar panels, modernizing the heating systems, etc.
The Bottom Line
Maintaining a rental property business is quite expensive and the current coronavirus pandemic makes the situation even worse. Knowing how to cut costs without negatively impacting the service you provide, however, can be a cushion against possible losses and financial strain. Adopt a cost reduction mentality today by using some of these strategies to protect your rental property business no matter the economic situation.
If you are yet to buy your first rental property or want to add more to your portfolio, the best way to avoid worrying about ways to cut costs is to make sure the numbers work. Be sure to use Mashvisor’s rental property calculator for your property analysis before making a purchase. Our calculator allows you to find rental properties for sale in the US housing market that have good cash flow. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.