Running a rental income property involves a lot of expenses. Typically, your monthly bills include utilities, mortgage, maintenance fees, administrative costs, and the like. The issue at hand is that these operating expenses take away from your net income. However, there are ways to reduce rental property operating expenses – from adopting preventive maintenance strategies to leveraging property management technology. Interested? Continue reading to find out more.
Key Takeaways
- Some of the most common operating expenses of rental properties include utilities, insurance, taxes, maintenance fees, and marketing needs.
- Owners can reduce rental property operating expenses through preventive maintenance, stringent tenant screening procedures, and more.
- Vacancies, turnovers, and legal fees are often overlooked as hidden costs of running a rental property business.
Why Understanding Operating Expenses Matters for Profitability
To start, why do operating expenses matter for rental property owners like you? Well, as a property manager in Austin, we know that operating expenses refer to bills, fees, and costs that you use to keep your rental running. And by that, we mean running to a standard that is safe, habitable, and compliant. We’re talking about utilities, maintenance, repairs, insurance, marketing, taxes, and the like.
While necessary, most of these costs are not fixed to a specific rate, so there are generally ways for you to lower your expenses. When you do this, you get to keep more of your profits, effectively boosting your rental income. So, understanding where your money is going (expenses) will allow you to make the much-needed adjustments to lower operating costs and improve profitability.
Common Operating Expenses for Rental Properties
To fully understand the impact of operating expenses on your income, you need to know what the most common expenses involved in running a rental business are. Typically, this includes:
- Routine Maintenance – paint touch-ups, lawn care, pest control, HVAC servicing, etc.
- Emergency Repairs – burst pipes, broken appliances, structural damage, and the like.
- Utilities – covers electricity, water, gas, sewer, and trash services.
- Property Taxes – While Texas does not impose a state-level property tax, local taxing authorities such as counties, cities, and school districts assess property taxes.
- Insurance Premiums – Includes landlord’s insurance, liability coverage, and even umbrella insurance policies.
- Leasing and Marketing – accounts for the advertising, listing fees, tenant screening, and other marketing needs to fill vacancies.
- Property Turnover – In between tenants, rental properties need to go through cleaning, painting, and other maintenance touch-ups.
How to Reduce Rental Property Operating Expenses
Now that you have a better idea of what the most common rental property operating expenses are, let’s look at the different strategies that you can use to reduce these costs:
Schedule Preventive Care to Reduce Maintenance Costs
Routine maintenance is a necessary, but often costly, part of running a rental property business. Adopting preventive maintenance measures in your operations can help lower costs by addressing minor issues early. Finding early signs of property wear and tear through scheduled inspections can prevent costly emergency repairs. On top of this, keeping systems in tip-top condition helps with energy efficiency and lowers utility bills.
Lower Utility Expenses Without Impacting Tenants
Speaking of utilities, another way to reduce rental property operating expenses is to lower utility-related bills and fees effectively. This is particularly important for rentals with utilities included on the lease, meaning that you shoulder your tenant’s utility costs. While you can raise rent to account for growing utility expenses, that is not the most sustainable way. Instead, you can utilize cost-saving strategies – such as using smart appliances, installing faucet aerators, and switching to LED lights.
Cut Vacancies With Smart Leasing Strategies
In rental properties, vacancies are undoubtedly one of the most cost-draining scenarios simply because you’re not generating any profit. That is why, as much as possible, rental owners want to fill vacant units as soon as possible. One way to avoid long vacancies is to offer flexible leasing terms – whether month-to-month or short-term. This will open the doors for tenants looking for housing with less than a full-term lease. This will allow you to continue generating income and avoid long-term vacancies.
Avoid Turnover With a Solid Tenant Screening Process
Another way to prevent vacancies and costly turnover in rental properties is through a consistent, reliable tenant screening process. Doing so will allow you to identify qualified tenants depending on their rental background and history. Common red flags, such as past evictions and late rent payments, may be grounds to disqualify an applicant. However, it’s important that you use consistent written screening criteria that comply with Fair Housing laws.
Negotiate Vendor Contracts and Service Agreements
A lot of rental owners skip this, but don’t be afraid to negotiate terms with your vendors and service providers. For recurring services, like landscaping, HVAC servicing, and cleaning, you can try to ask for lower service costs when renewing contracts. You can also leverage long-term agreements or book their services for all of your rental properties for lower fees.
Use Technology to Streamline Operations
In this day and age, technology is one of the most powerful tools that rental owners can use to enhance their operational efficiency. Particularly, project management software is key – with features such as online rent collection, tenant communication, maintenance and repairs requests, financial reports, and more.
Avoid Legal and Compliance Costs
When it comes to rental property businesses, one of the most important factors you need to pay attention to is the laws and regulations that govern the market. In Texas, we’re talking about the Texas Property Code, Fair Housing Laws, and more. Any form of violation can put you at significant risk. Not to mention that attorney fees, on top of any penalties and fines, can be the most expensive cost in this list.
Taking this into consideration, it’s important to stay compliant with all regulations, whether local, state, or federal. Always have a trusty legal guide to review documents and contracts and enforce rental policies consistently and fairly.
When Professional Property Management Helps You Save Costs
Operating expenses are necessary, but that does not mean you can’t find ways to reduce how much you are spending. Now, to maximize your savings, we recommend working with a professional property management company, such as BMG.
Unlike the common misconception that property management companies are just an added expense, that is most often not the case. With our services, we can provide long-term support designed to reduce total operating costs. From reducing vacancies to handling tenant screening and ensuring compliance, we are committed to protecting your rental property business. What are you waiting for? Contact us today!
