Like any kind of business, there are property cash flow leaks for landlords that you can miss, and they will be the sources of stress, mismanaged time, and lost money if they aren’t addressed.
But what are these, and how can you plug them for an easier time as a landlord?
From vacancies and voids to property management fees, here are some of the most common.
Poor Screening Resulting in Underpayment
You can never really know who your tenants are, as the worst people can be the best liars, and might come across as the nicest in the world.
However, unpaid rent is a major issue that most landlords face, and it usually stems from poor screening.
Of course, you can use a screening service to perform background checks, which is powerful when combined with a rent collection app. These two alone can potentially save you the stress, time, and a lot of wasted money.
Property Cash Flow Leaks from Vacancy
A prolonged vacancy period is a nightmare scenario for a property owner, as it means you have no income from that specific home.
However, the mortgage, taxes, and fees must still be paid, and the average loss from a vacancy in the US is between £1,500 and $5,000 per month:
- It helps to secure the property to reduce potential damage from variants and crime.
- Keep up with maintenance to ensure deterioration doesn’t cause more damage.
- Put aside money for legally liable expenses such as council tax (UK) and insurance.
Higher Tenant Turnover
Having tenants come and go can be seen as a good thing, but property managers Brisbane insist the most efficient way to manage properties is to retain tenants who pay.
Between tenants, there can be a lot of expenses that need to be covered, and they come out of your pocket and add up over time.
These include “make-ready” costs you must pay out to prepare the home for the next tenant, such as cleaning, painting, and changing the locks, which can cost a landlord up to three months’ rent.
A Lack of Proactive Maintenance
Maintenance is one of the most critical expenses a landlord has, and it can be managed pretty easily with planning, regular upkeep, and a proactive approach.
The problems come when maintenance is neglected, where small problems become major ones over time.
For example, you can ignore a small gathering of mold or a leaking faucet.
However, these are common issues that get worse when ignored, meaning you then have to pay out for larger repairs.
Property Cash Flow Leaks by Undercharging
Real estate investment is, of course, a way to make money.
However, it’s easy to fall into the trap of charging a reasonable rent and feeling good about providing someone with a home, especially to low-income families and single mothers.
However, even staying $50 under the market can cost thousands over time.
So it's not good business to "set and forget” the rent, even if tenants love you for it.
But there are some things you can do to stay fair as a landlord.
Use data to find the sweet spot
With some research, you can keep rent to a minimum without losing profit, such as looking at similar properties online, value percentage charges, and adjusting for premium features.
Focus on retention over turnover
The most expensive tenant is the one who isn’t there!
You can retain tenants with small rent increases over time, flat rates for longer terms, and by addressing repairs and issues quickly.
Streamline operational expenses
A proactive approach will help reduce costs over time and is fair to the tenant.
It helps to schedule preventative maintenance, improve energy efficiency, and screen all tenants.
No Multi-Unit Sub-Metering
All properties need utilities such as electricity, water, and gas.
Landlords can decide to include these as part of monthly charges; however, these are so variable between tenants that a flat fee is hard to justify.
For instance, a tenant might enjoy very long and hot showers, increasing energy bills. To remedy this, it is more useful to install sub-meters in multi-unit housing.
That way, tenants can be charged on an individual basis by energy and utility providers.
Severe Tenant Damage to the Property
Damage to properties is common, and around 15% of move-outs suffer some kind of severe damage by a tenant, which is so extensive that an initial security deposit doesn’t cover the extent.
This means you will have to either claim through insurance if you have the right cover or pay out of your own pocket.
You have the option of taking a tenant to court, but that means a lengthy process that ends up costing you even more money, so this becomes a tricky situation.
Management Fees Can Be Property Cash Flow Leaks
Most people believe that managing property themselves is the best way to save money. However, you will miss out on the expertise of an agency.
Even so, the fees can be a money drain if you have a long-term vacancy, so be aware of some of the most common charges:
- Just by signing with an agency, you will be expected to pay weekly or monthly fees.
- You can also face extra fees when someone from the agency inspects the home.
- There are also admin costs for the set-up and re-letting of a property you own.
Not Understanding Available Tax Strategies
Paying taxes is one of those things that you must do to avoid some of the worst legal issues you can imagine. So, if you are on top of that, then well done.
However, many property owners aren’t aware that understanding tax as a landlord covers more than their annual return.
For example, accelerated depreciation deductions are available to property owners. If you ignore these kinds of strategies, you will end up paying more tax than you actually need to.
Conclusion:
Poor screening that results in missed rent is one of the most common property cash flow leaks for landlords.
However, some landlords actually undercharge to the point of inflation catching up, and you can also pay more tax than you need to if you ignore any available deductions.
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