Monday, July 25, 2011

Increasing Income in Rental Properties (Part 2 of 3)

In our previous segment, we looked at investigating government grants and rebates.  After making a concerted effort to check to see "ALL" of the possible grants and rebates that we can find, we move onto looking at our expenses.  Look at your trending report or for the smaller property investors, look at your monthly expenses, and find out if any particular month is not making sense.  If it's winter, then obviously in those months, your expenses will be higher for heating, electricity and mostly likely water as well because tenants will tend to want to take longer, warmer showers or baths.  But, is there something that stands out?  If something doesn't make sense, you need to investigate it.  For instance, if you're continually seeing higher water bills over a period of months, compared with the same periods the year before, you may have a water leak in your plumbing.  It makes sense to be proactive about this before hand by having an inspection of plumbing fixtures done periodically.  This can be done by having someone do a quick walk through of the property, looking for dripping faucets, or over-flowing toilets.  How do you think I know this?  See that scar....right...there!

In one of my properties, when the tenants would flush the toilet, the flap inside one of the tanks would lift up and not drop down as it should.  Water would just ooze out.  It apparently did this for months before I found out about it, just because I didn't have a quick periodic inspection done.  This is money literally going "down the toilet".  This was only one unit.  Imagine what happens when you have 100 or 200 units and you have leaks in many of them?  Your tenants probably won't bother telling you because if they're not paying the bill, then they probably will turn a blind eye.  Other culprits include leaking faucets, dripping bathtubs, leaking pools, or exterior water lines that were left on and forgotten.  Just keep in mind that when someone doesn't pay for something, they won't treat it the same way as you would.  Remember how your teenage kid takes a 60 minute shower?  I know you parents remember that! LOL!

Now how about your heating controls?  Are they working properly?  What is your temperature set point?  If you pay the heating bill, you need to ensure that you meet minimum government standards.  That's it.  You don't have to offer tropical heat in the middle of January just because your tenants like that.  If the government standard is 70 deg. F., then set your thermostat for 70 deg. F.  A digital thermostat that is tamper-proof is what you need in such a case.  You can use a cheaper old-type mercury thermostat, but it's not as accurate.  You can purchase tamper-resistant plastic boxes to house your thermostat if you have individual controls in each unit.  They are inexpensive and can pay for themselves in a matter weeks.  While we're on the topic of heating, you should before the start of the heating season have your heating equipment serviced by a reliable heating technician and who has a good reputation so that it's in optimum performance.  A furnace that is not maintained and serviced properly won't operate at peak efficiency.  You should also ensure that the furnace filter is replaced periodically for the same reason.  Talk to your heating contractor or consult your heating equipment guide for replacement frequency.  A clogged filter will make your system work harder, which translates into higher costs for you.

What kind of heating are you using?  Natural Gas, Oil, Propane, wood?  Depending on where you are located, determine which fuel is the lowest cost per unit of energy and factor in equipment costs.  Right now, natural gas is by far the lowest cost fuel in a time of very high fuel costs.  If you can switch to natural gas and it makes sense, then do it.  With one of my properties, the oil furnace was about 20 years old on acquisition, and I found out that the natural gas line was just outside along the highway.  The cost to get the gas line installed was a mind boggling $35.  Yes, that's right..just $35.  From there, I had to buy a new furnace (it needed a new one anyway because it was 20 years old), and then remove the old one and install the new one.  By being frugal and using my contractor background, I bought a new furnace for wholesale and paid for labor and parts, saving about $2,500 on the installation by arranging piece work.  If you want to know how that's done, reply to the blog below and I will reply back promptly.  Remember, that this type of upgrade sometimes can be done with a government grant to help with your costs so do spend some time looking into different options.

We've addressed water and heating, now let's talk about electricity.  Let's face it, this utility has become very expensive over the past few years.  You can shop it around in most cases with different retailers and see what the best reliable deal you can get.  Make sure you are dealing with a reputable company when doing so, and don't get tied down to a long term contract unless it makes absolute sense to do so.  Only you can be the judge of that.  Now, the exterior of the property.  Replace all exterior bulbs with compact fluorescent type bulbs where possible.  They cost more up front but the savings can be very significant over time.  Make sure that you use a timer with a light sensor for each set of exterior lights that you have.  If you don't have a light sensor on that light circuit, an electrician can install them for low cost.  Remember, you can use one sensor for each circuit, you don't need a sensor on every light.  This way, the lights go off in the morning with the sunrise and go on at dusk, with the times adjusted automatically throughout the year as daylight increases and decreases depending on what time of year we have; this maximizing savings.  

Interior lights should also be compact fluorescents for the same reasons in common areas.  If your tenants pay for power, then you don't have to worry about their units but you could distribute a flyer suggesting they do make these changes to save them money.  They will appreciate the thought.  If you pay however, you do need to ensure that the bulbs are changed to compact fluorescent, the seal on the refrigerator and oven is in tact, and that you put a simple sign on the inside of the main entry door that says, "Before leaving, please turn off all lights and tv's".  Your tenants may not do it, but it helps to have a reminder.  If your management company (or you) is doing the job right, keeping your tenants happy, you will probably get more cooperation than you may think.  It only costs a piece of paper, but it will pay for itself immediately if you have a good tenant / management relationship going.  

By the way, you should also have a clause in your rental / lease agreements that prohibits window air conditioners and extra electric heaters.  If your heating system is working properly, there will be no need for extra heaters.  Of course, putting these clauses in applies if you pay the electric bill and when addressing window air conditioners it could be a matter of aesthetics if you do or don't pay the electric bill.  It's all a matter of how you run your property, but remember that you may want to put those clauses in your rental agreement anyway.

So far in our first two segments, we've discussed how to reduce costs using some techniques.  In our last segment, we will discuss how to raise income, the professional way, and we all would like to make more money from our rental properties.  I'll discuss some ways we can do this next time.  Until then, thanks for reading and be well.

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