A Small Leak Can Sink a Great Rental Property

by  Julie Broad

“Beware of little expenses. A small leak will sink a great ship” ~ Benjamin Franklin

Years ago the “latte factor” became famous. Everyone was talking about how spending just a few dollars a day on coffee adds up to enormous sums of money over your life.

Now, in the interest of full disclosure, I am writing this post with a freshly brewed Starbucks Americano to my right, so while I believe fully in this message I’m also going to tell you that awareness and conscious choices are just as important. I am aware that the $3.00 I spent on that drink adds up, but I am also aware of the fact that if it weren’t for that $3.00 I would be having a nap or staring at a blank screen instead of happily typing away. So I made a choice.

When it comes to your rental properties the small expenses also add up. But with rental properties you also have a choice.

You can choose to accept that passive income is a myth and you can choose to actively manage your property managers or actively manage your tenants and make more money

OR

you can choose to make much less money from your properties but keep more of your time to yourself.

For the first years we chose the latter. We were in pursuit of freedom. We wanted passive income. And as we’ve said many times – we worked hard to buy a handful of properties and then passively let things fall apart.

Ever since then Dave monitors our cash flows very closely. He spends several hours every month reviewing the bills that have come in, the cash that came in and any cash that was spent. He asks our property managers about each expense and discusses any tenant issues we have.

And … this has saved us more than a few times.

Most recently, Dave noticed the water bill on one of our rental properties in Nanaimo, BC was double what it usually is. He immediately contacted our property manager and asked that it be checked out. The property manager initially told us it was because the billing frequency had decreased. We were now being billed fewer times so it was expected that our bills would be double when we were billed.

Because we own properties in 4 different cities Dave wasn’t sure but he seemed to remember that change had occurred over a year ago. He pulled up our property expense tracking spreadsheet and sure enough – we’d moved to bi-monthly billing over a year ago.

He called our property manager back and insisted they investigate.

Turns out we had a water leak. The leak was quickly fixed and the next water bill was back around what it usually is. This home is a split level with a one bedroom basement suite and because they aren’t on separate water meters we pay those bills. His swift action saved us hundreds of dollars that year!

It wouldn’t take too many little leaks like this to remove all the cash flow from this property completely.

So besides just monitoring the water bills … what else should you watch on your rental property?

  • Rent payments: If you’re managing the property yourself I think you’ll usually notice when you haven’t been paid but when you have a property manager handling your rent collection you might forget about it. You also might assume you’re property manager will let you know when rent was not paid but that is not always the case. Stay on it. If rent wasn’t paid, find out why and what’s been done. Never assume things are being handled. In every case a non-payment of rent notice (or the equivalent type of notice for your state or province) should be issued should you eventually have to take steps to evict the tenant.
  • Utility Bills: Whether you pay the utilities or not you should keep an eye on the bills because increased utilities could indicate other issues like the water leak. It could also indicate a broken seal on a window or a door if your heating or cooling costs have gone up… or just inconsiderate energy usage. When our tenants usage of electricity goes up more than 25% we always let them know and remind them to turn lights off, turn the heat down, turn off the tv when not in use and so on. It’s not just better for our bottom line it’s better for the environment.
  • Repairs and Maintenance: Your property managers should be getting 3 quotes for any major work. If it’s going to cost you more than $500 to do something then you need options. And you need to insist on this. You also need to monitor what is going on. Unfortunately we have so many examples of where our property managers have mismanaged repairs and maintenance, not gotten more than one quote, or have allowed the repair budget to go well over what was agreed upon. Even with diligent management we still get stuck in these positions on a regular basis and sometimes we don’t have enough time to deal with it ourselves and we spend money that we could have saved.

So listen the warnings of Ben Franklin and us … spend a few hours every month reviewing your monthly expenses and cash flows. Ideally enter them into a tracking program or a spreadsheet so the discrepancies are easy to spot. The spreadsheet we provide in our Real Estate Millionaire program makes it super easy to spot when bill expenses have gone up or rent is missing. And there are plenty of property management programs on the market that can help with that too!! The point is that you have to actively manage your property managers or your tenants to prevent the small leaks from sinking your rental properties!!

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8 Comments

Filed under Property Management, real estate

8 responses to “A Small Leak Can Sink a Great Rental Property

  1. Kevin

    What a good catch Dave made!! I am surprised your property manager argued with that …

    Anyway – good article! Thanks for the reminder to be on top of the bills and stuff.

  2. Thanks so much Kevin!! We have good property managers but you, as a real estate investor, will never find a property manager that loves your money as much as you do. You still have to manage your property manager.

    • Hi Julie,

      I like the proactive approach that you and Dave take with regards to your rental properties.
      Being on top of things and being proactive is the best way to be.

      Personally, I have always been hesitant to make the transition over to property managers. To date, I have self managed my properties as they are all less than an hours drive from where I live.

      Perhaps one day I will make the transition over to property management. As a result, your advice is well received. Managing your property managers is good advice. As indeed you are correct, ‘no one loves your money as much as you do’.

      Onwards and Upwards!

      Neil.

      • Thanks Neil! Do you find that you have tenant troubles to deal with when you don’t have time? How do you handle that?? I tried managing one of our properties before and it was a disaster for me. There were a lot of things that went wrong and I self destructed. I would do better now because I know so much more but still … I found it to be a pain in the butt. Other than our rent to owns which we manage I’ve just found that it’s so much easier to have PM that handles 90% of the work for you. How do you make it work with all that you have on your plate?

  3. Very cool read Julie. You and Dave seem like a good team. You have really worked yourselves into a good team.

    BTW: The Latte Factor is still living strong here in the Northern Virginia area… Funny how people use that to market their cost of their product.

    • Thanks Eric!! Well the latte prices have gone up too!!! That makes the latte factor even worse!! 🙂 Have a great weekend and thanks for reading our blog!!

  4. Hey Julie,

    Good question you ask.

    I think that the reason I have been able to make it thus far without property management, is because I have a great all purpose handyman on my team.

    I often delegate issues to him to handle, and he is really on top of things. I am fortunate to have a good guy like him on my team, as he definitely makes my life a lot easier.

    In addition, for the most part, the property type that I invest in is the same, so the issues that come up are usually predictable and the same.

    Also, I try to be pretty pro-active with my tenants, in terms of my contact with them.

    As a result, I find that whenever small things come up, they take care of it, and then let me know afterward what it was that they took care of.

    🙂

    • This is an awesome tip!!! You should write about this …. that is the only way I survived managing the triplex we have in Toronto. But eventually our handyman moved out to Milton and wasn’t able to pop in anymore!!!

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