As you’re well aware, becoming a landlord doesn’t mean you’re in the simple situation of charging people rent and raking in loads of cash. It’s effectively like running a small business, and this means you have various costs and expenses that love to eat into your bottom line. They’re non-negotiable - you have to pay for them - but are you spending a bit too much money?
All landlords are probably guilty of spending too much here and there on a few key expenses, but our research shows that these things are the most frequent culprits.
Landlord Insurance
It’s very easy to overpay for insurance when you’re a landlord, and this usually happens in the same way in which everyone overpays for any type of insurance. You either do one of these two things (or both):
You took out a policy years ago and have kept it active
You don’t compare insurance policies
An old policy might’ve been the best at the time, but it’s now way outdated and costs a fortune. Always compare insurance for landlords to be sure you’re getting the best price every single year. Avoid auto-renewing your policy at the end of the contract, as it’s almost always going to be more expensive than what’s out there now.
Landlord’s insurance is one of those things you need to have for property protection, liability protection, and protection from loss of income. You can’t avoid it and remove the cost entirely, but you can improve how you search for insurance to save literally thousands a year.
Reactive Maintenance
Property maintenance is a necessity for all landlords, but are you guilty of spending too much money on reactive maintenance?
What this means is you pay for maintenance when something bad has already happened, rather than before. A common example is when you deal with HVAC care in your rental properties: preventative maintenance won’t cost much money and involves servicing the entire system so everything works well. Reactive maintenance could involve costly repairs or a full-on HVAC replacement - which costs a fortune.
It’s the same for every other aspect of your home that requires maintenance: you will always spend more money if you react to an issue than if you maintain to prevent issues. Get into the habit of scheduling routine services or inspections to keep all elements of your property in good working condition and cut down on the reactive maintenance bill.
Property Management
Hey, there’s no denying that property management companies help you manage your rental. You will absolutely see your profits increase if you’ve got a team looking after the lion’s share of things for you. That being said, it’s also very common for landlords to pay too much for property management services - usually because the firm is taking advantage of you.
Consider what services you actually need a property management company to perform:
Marketing listings
Screening tenants
Collecting rent
Property maintenance
Property inspections
Financial reporting
Some landlords need all of those services, but others may only need a couple. That’s where you start spending too much money. If you pay for a full service that includes everything, but you’re more than capable of handling a few of those tasks yourself, then you’re spending money that doesn’t need to be spent.
For example, if this is now your full-time commitment and you’re happy to handle things like collecting rent, maintenance, and inspections, then you only need to pay for a service that handles marketing or tenant screening. Your total cost of property management can decrease dramatically, so make sure you only pay for what you need.
Aesthetic Improvements
Landlords, you need to stop wasting money on pointless aesthetic improvements.
You don’t need to constantly paint the walls or pay for someone to jet wash the patio outside. There’s going to be some slight wear and tear that happens as your property is lived in and gets older - but you don’t need to continuously make aesthetic improvements. A tenant won’t care if there’s a bit of paint scraped from a wall - as long as you don’t blame them for it.
Aesthetic upgrades are one of those things you call upon very rarely when your property starts getting too old and worn as a way to attract new tenants. And even then, you need to consider what type of property you own and who your target tenants are. Does it make sense to spend a lot of money renovating your space and giving it luxury finishes when you’re in a mid-market area? No. You’ll either waste money on fittings and trims that nobody cares about, or you’ll price out the tenants within the local area.
Tenant Turnover
We’ve just mentioned them, but your tenants could be a source of excessive landlord expenses. We’ve bundled this under the heading “tenant turnover”, but it effectively relates to all of the costs associated with tenants moving in and out of your property:
Marketing
Cleaning
Minor repairs
Tenant screening
Like a lot of the things on this list, these expenses are necessary when someone moves out, so you can get the property in a nice condition for future tenants. The problem is that you’re doing this way too often. Your rental property is like a merry-go-round where new tenants are hopping on and jumping off all the time.
Ideally, you want a tenant to stay in place for a year or more - the longer, the better.
If you’re getting new tenants every few months, then you’ll spend a fortune on all of the associated costs listed above. And let’s not forget that you actually lose money for every month your property is vacated. How do you avoid these problems? You make your property nicer to live in, you become a good, attentive landlord, and you don’t keep hiking up rent for no reason.
To reiterate: these expenses are all necessary for landlords, but that doesn’t mean you have to spend an unlimited supply of money on them. If you feel like it’s difficult to make a large profit, then it’s probably because you’re spending too much cash on the expenses above and need to get things in order.
