Novice Mistakes When Trying to Save Money In Real Estate

“So, how much money did you lose… I mean think you were going to save?”

Have you ever met anyone so inclined to save money that they will take on projects that they have no business doing just to save a few bucks? It seems that there is always one person in every family that is like this.

Everyone wants to spend the least possible to get the highest return possible. While this, on the face, seems like a smart strategy, in real estate, it does not pay off. Oftentimes, getting the professionals to do the job and be done with it is the best way to go.

Rental properties, if they are not managed by a professional property management company, can attract this type of thinking and behavior. The reason is simple to understand. These are large investments and the owners want to maximize the profit available.

Spending Money Will Save You Money

What if I were to tell you that to maximize your profit, you shouldn’t worry about pinching pennies and trying to DIY everything? Would you believe it? Would you believe it if you were told that, in some circumstances, you have to spend money to save money?

You may say, “What? Spending money will save you money? How is that possible? Outgoing expenses that I reduce by doing repairs myself will lead to more dollars in my bank account. It’s simple math”

That may seem like the right answer to a novice but to a professional or a seasoned veteran in the real estate rental business, the answer couldn’t be further from the truth. Here is a breakdown of the costs of DIY Donny vs getting the professional to do it.

DIY Donny vs Professional Property Management 

DIY Donny owns a rental property and there is a repair that needs to be done before new tenants can move in. He looks at the cost of a professional but he believes that he can save the money and get it done himself. They don’t call him “DIY Donny” for nothing!

Since he works a full-time job, Donny is only able to work in the evenings and on the weekends. He is occupied a few of these evenings and weekends but he figures he is doing the repair himself so he can take a little bit of extra time because he is “saving money”.

This is how the costs break down.

DIY Donny:

• Cost of repair is $1200

• Mortgage cost monthly is $1100

• Water and Sewer monthly is $50

• Electric while vacant $30

• Rent amount is $1300 

• 2 months later the problem is finally fixed and a new tenant is in place

This means that Donny spent:

Repair the damage for $1200

2 months mortgage payment at $1100

2 months water and sewer at $50

2 months electric at $30

Total costs = $3560

He also missed out on two months’ rent which is $2600 in lost revenue.

Net results= $6600 in costs and lost revenue

Professional Property Management

• Fixed the problem with a professional in 72 hours. 

• Rented the property shortly after the repairs, closer to the “actual market rate” $1400

• Total rent loss of 7 days. 

The property management company calls a professional and has the issue resolved in days. For argument’s sake, say that the repair is double the cost. This means that the property management company spent:

• Repair the damage for $2400

• 7 days water and sewer = $11.66

• 7 days power = $7

• Lost 7 days rent: $1400 divided by 30 days= 47$ x 7 days= $329

• The cost of the property management rate monthly

Net Result: $2747.66 in costs and lost revenue (plus the cost of the property management company)

The Numbers Don’t Lie

Not only does DIY Donny take more time, lose more revenue and cost more money, the job still isn’t done by a professional! That means that the repair will not last as long and need to be repaired again sooner. Also, if it is a visible repair, it will reduce the value and potential rent of the property. 

Instead of trying to save money his way, DIY Donny should have had a team of professionals at his side to help guide him through the situation.

This is a prime example of why it pays to have a professional property management team at your side. Centurion Property Management is that team. Reach out today and see how Centurion Property Management can help you maximize your properties potential.