In any business, the difference between getting by and success is simply maximizing efficiencies and profits. Real estate and the landlord business are no different. It doesn’t always require additional money to maximize profits. In this post, we will review zero-cost ways to maximize profits.
Listing Vacancies In July
When you list a vacancy, the month during which you post absolutely makes a difference in the rental income your property will produce. The rules of supply and demand apply to leasing. We want to lease in the environments that produce the highest possibly quantity of qualified tenants. I once purchased a property in the November and, by necessity, listed it on the normal outlets (craigslist, Zillow, etc.). I had only one showing in two months and, in December, was forced to accept a lower rent. The same unit posted, the following July, resulted in four showings during the first week and an increase in rent of 200 dollars. The holidays are a horrible time to list vacancies, as individuals are focused on family obligations and saving money for their respective celebrations. In direct contrast, July is usually the time of highest potential renters. High school and college graduates enter the job market place and require new housing. Families are far more likely to move during the summer so they don’t disrupt their children’s school year. These two factors (among others) make July the best time the most profitable time to list vacancies.
Appeal Property Taxes
For most landlords, property taxes are the single largest expense besides mortgage payments. Therefore, you should always invent the time and effort to appeal your taxes. While each county’s appeal process varies, the process is generally quick and easy and starts with a simple application. Most counties will publish what comparable (“comps”) sales are used by the assessor to establish your reported value. Review these comps for inconsistencies with your property. For example, I had a property where the comps used were exact equals of my property and located within a mile of my property. However, my property was located on a busy street, while the comps were all on quieter side streets. It was easy for the assessor to recognize the inconsistency in the comps and reduce my property tax appraisal. Also, find your own comps and submit them as true comparable properties. Use Zillow to look up recently sold comps to your property. If you can’t build a good case, or have time to perform the research, use a professional property tax consultant to dispute your taxes of your behalf. These services generally charge 50 percent of the reduction savings.
While property taxes are generally the largest expense landlords endure, insurance isn’t far behind. Increase your deductible to the highest deductible available (usually 2,500 dollars). If you don’t specify a high deductible, chances are your broker or insurance agent has your deductible set to a more expensive amount. The savings can be a hundred dollars or more on most properties. Remember that as investors, it doesn’t pay to make small claims, as claims will raise your premium and you may be dropped altogether if multiple claims are made in a short period of time.
Open a Line of Credit
As landlords, we need to carry reserve funds to pay for sudden vacancies and unexpected major repairs. Most experts recommend carrying 6 months of your total property portfolio rent amounts. I would recommend carrying closer to a year’s worth of rent, if you only hold a few properties and reducing to 3 months if you own twenty or more properties. These reserves, while a necessity, do limit our profitability, as we have large sums of cash sitting on the sideline. The reserves don’t necessarily need to be all cash. You should consider opening a line of credit on a property you either have a lot of equity in or own free and clear. Credit lines are also available on a group of properties. The interest rates are generally adjustable and benchmarked one or two points above the prime rate. Once set up, the funds are easily accessible, similar to a checking account. Remember that you will still need some cash reserves for the typical repairs and issues that may arise. Make sure you are capable and comfortable with the monthly payments if you choose this option. Also, remember even if you carry a zero-balance on your line of credit, mortgage underwriters will count the total available line of credit against your debt-to-income level. This option isn’t for everybody, but, when exercised, it frees up investment capital for what we do best: rent properties.