This thread follows on from one last used a few days ago but whose name I have forgotten and so cannot refer people to. This is a shame because there were one or two good posts on it, which are relevant to what I am about to say. No doubt though that somebody will point us in the right direction.
I have come across very many investors who struggle financially. There was a time when I could count myself as one of these people.
To use a simple example, they own a handful of rentals which they have to top up by around $5,000 every year, or roughly $100 per week. Their annual income is $80,000 and their normal living expenses, including a home mortgage, comes to $76,000, with an annual one off tax rebate of $6,000. They therefore have no room at all for manoeuvre, just hoping that no major repairs will be needed, foregoing any form of personal savings, and wondering what one earth they will do if they lose their job. In addition they may realise that they are highly geared and that they have bought at the peak of the property cycle with no real hope of capital appreciation in the near future to counterbalance their sorry cash-flow position. There are a thousand variations to this but I think you all get my point.
So, what else have I come across which may help these people? Well, how about any one of a hundred little money saving ideas which although small in themselves, collectively add up to a healthy reduction in costs, perhaps many thousands of dollars. For the people I have just described this would make the difference between sleepless nights and a fairly clear headed, comfortable life-style.
Some of these ideas are very simple and to many of us are commonsense, but to others they may not be. As I said, I thought it might be useful for people to post some of these ideas here, perhaps with accompanying anecdotes to liven them up a little. I am sure many people would find them helpful, including more seasoned investors.
I suppose I should start the ball rolling.
1/ Put all your insurance policies with one company and negotiate a discount on all of them. (But do not lie about any property to get a lower premium."Oh no, it was not built in the 1920’s. I think it was built in the 1950’s. Oh good, does that really mean that the policy is cheaper?" – it may come back to haunt you.) Saving? Perhaps $50.00 per annum per property. Small, but combined with others it adds up.
2/ Keep a close eye on mortgage rates in every respect – a small change can affect the cash flow considerably. Sometimes it may be worth breaking an existing mortgage, adding the penalty to the outstanding debt and refinancing at a lower rate. The improved cash-flow could amount to thousands every year depending on the size of the loan. I remember doing this many years ago. I remember being initially reluctant because the penalty would be around $10,000, money that I could not at the time afford. Sitting down with a glass of good wine one evening my mind became clearer and I realised the obvious, namely that the $10,00 would be added to my existing debt, increasing my gearing by only a fraction, and that my cash-flow would by improved to such an extent that I was effectively giving myself a $10,000 pay rise fixed for the next five years. I then poured myself a second glass and began dreaming of warmer climes.
3/ Unless you are good at being a handyman and have good person-to-person skills, and have lots of free time, and can deal with the sort of low-life that you never really associate with in your daily lives, then give very serious consideration to using a good property manager. One bad experience can totally turn you off rental properties and can cost you heaps. A five weeks vacancy, making a hatchet job of repairing the place thus having to pay someone to do it again properly later, panicking and discounting the rent just to get anyone into the place, and so on and so on. In one month you can throw away $2,000 and put yourself through hell, all for the sake of saving $1,000 in management fees.
There are numerous other ideas I know of. Anyone got any more ideas? (Sorry to those who have already put some down in that earlier thread I cannot find.)
I hope these base-line simple ideas will help some people. I look forward to the more sophisticated ones.
xris
I have come across very many investors who struggle financially. There was a time when I could count myself as one of these people.
To use a simple example, they own a handful of rentals which they have to top up by around $5,000 every year, or roughly $100 per week. Their annual income is $80,000 and their normal living expenses, including a home mortgage, comes to $76,000, with an annual one off tax rebate of $6,000. They therefore have no room at all for manoeuvre, just hoping that no major repairs will be needed, foregoing any form of personal savings, and wondering what one earth they will do if they lose their job. In addition they may realise that they are highly geared and that they have bought at the peak of the property cycle with no real hope of capital appreciation in the near future to counterbalance their sorry cash-flow position. There are a thousand variations to this but I think you all get my point.
So, what else have I come across which may help these people? Well, how about any one of a hundred little money saving ideas which although small in themselves, collectively add up to a healthy reduction in costs, perhaps many thousands of dollars. For the people I have just described this would make the difference between sleepless nights and a fairly clear headed, comfortable life-style.
Some of these ideas are very simple and to many of us are commonsense, but to others they may not be. As I said, I thought it might be useful for people to post some of these ideas here, perhaps with accompanying anecdotes to liven them up a little. I am sure many people would find them helpful, including more seasoned investors.
I suppose I should start the ball rolling.
1/ Put all your insurance policies with one company and negotiate a discount on all of them. (But do not lie about any property to get a lower premium."Oh no, it was not built in the 1920’s. I think it was built in the 1950’s. Oh good, does that really mean that the policy is cheaper?" – it may come back to haunt you.) Saving? Perhaps $50.00 per annum per property. Small, but combined with others it adds up.
2/ Keep a close eye on mortgage rates in every respect – a small change can affect the cash flow considerably. Sometimes it may be worth breaking an existing mortgage, adding the penalty to the outstanding debt and refinancing at a lower rate. The improved cash-flow could amount to thousands every year depending on the size of the loan. I remember doing this many years ago. I remember being initially reluctant because the penalty would be around $10,000, money that I could not at the time afford. Sitting down with a glass of good wine one evening my mind became clearer and I realised the obvious, namely that the $10,00 would be added to my existing debt, increasing my gearing by only a fraction, and that my cash-flow would by improved to such an extent that I was effectively giving myself a $10,000 pay rise fixed for the next five years. I then poured myself a second glass and began dreaming of warmer climes.
3/ Unless you are good at being a handyman and have good person-to-person skills, and have lots of free time, and can deal with the sort of low-life that you never really associate with in your daily lives, then give very serious consideration to using a good property manager. One bad experience can totally turn you off rental properties and can cost you heaps. A five weeks vacancy, making a hatchet job of repairing the place thus having to pay someone to do it again properly later, panicking and discounting the rent just to get anyone into the place, and so on and so on. In one month you can throw away $2,000 and put yourself through hell, all for the sake of saving $1,000 in management fees.
There are numerous other ideas I know of. Anyone got any more ideas? (Sorry to those who have already put some down in that earlier thread I cannot find.)
I hope these base-line simple ideas will help some people. I look forward to the more sophisticated ones.
xris
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