Real Estate Investing: Saving Money on Rental Properties

by NerdWallet | September 23, 2013 1:00 pm

Real Estate Investing: Saving Money on Rental Properties

If you’ve ever considered investing in a few rental properties, now might be a good time. Prices are still low, but have been on the upswing. According to the National Association of Realtors[1], the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases[2]. New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.

Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rental market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”

The more skills you bring to the table and the more time you have to devote to your properties, the faster you can make a return on your investment. But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new property, and what you can do to mitigate how much they cost you:

Handyman

You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location, but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs[3]. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager 

As the owner of a handful of properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers[4] is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on.

Real Estate Agent

Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor to show units once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units, the services of a realtor would set you back between 10-20% of the unit’s rent per month.  Mueller recommends interviewing with several brokers before making your final decision.

The Bottom Line

As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your new rentals, you can buy close to home and start small. Mueller recommends beginning with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.

Endnotes:
  1. National Association of Realtors: http://www.realtor.org/news-releases/2013/08/existing-home-sales-spike-in-july
  2. increases: http://www.nerdwallet.com/blog/investing/2013/real-estate-investment-trusts-reits-good-investment/
  3. repair costs: http://www.angieslist.com/articles/how-much-does-it-cost-hire-handyman.htm
  4. residential managers: http://www.bls.gov/news.release/pdf/ocwage.pdf

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