Landlording & Rental Properties

5 Overlooked Tricks to Diminish Capital Expenses on Your Rentals

Expertise: Personal Finance, Personal Development
31 Articles Written
eliminate_capital_expense_rentals

Investors, especially new investors, focus on how to correctly run the numbers on their investment properties. They plug numbers into spreadsheets and formulas to come up with the correct income and expenses. If the numbers look good, they buy it! That’s when the investment leaves the spreadsheet and becomes reality. Unfortunately for the novice investor, too often the real word gives the spreadsheet a slap across the face with a cold, hard reality check.

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The real question that needs to be asked is, How in the world are these investors coming up with the numbers to plug in? Maybe a newbie truly understands the formula, but has zero understanding of what makes up its variables. For example, we know capital expense includes things like roofs, plumbing systems, electrical systems, drywall, etc.

The investor then says, Well, the roof doesn’t leak, the plumbing works, electrical works, and the walls are all standing. They want to be conservative, so they budget for things to go wrong. Unfortunately, they go wrong much faster than the spreadsheet ever told them.

Related: 12 “Hidden” Real Estate Expenses That Blindside Investors

Often investors are buying houses that have cap ex monsters lurking everywhere, but they fail to address them or even know about them until they are too bad to handle. Understanding the ins and outs of how to prevent capital expense or having someone on your team who does is vital to not getting stuck with one of these money-sucking monsters.

Preventing Capital Expense

Newbies often straight out miss looming capital expenses staring them in the face. We all did it a few times starting out. The more experienced investor has learned from others (or their mistakes) to know what to look for. They have checklists, contractors, and inspectors. No major issue gets past their due diligence!

What blows my mind is that once the property is owned, even the experienced investors let depreciation run its course. They take the tax deduction and smile. Not me; I’ll take the take depreciation and reduce my capital expense through preventative measures.

You’ve heard of tenant-proofing a property, right? I do that — and take it one step further and life-proof these properties to forever cut down on my cap ex.

Just because it’s not broken doesn’t mean it can’t break tomorrow!

Below, I will list 5 of the most overlooked, yet simple tricks to prevent or slow capital expense on your properties.

1. Attic Ventilation

A roof is one of the most common capital expenses because every rental has one. When these things cause problems, they can be a big money sucker. What many forget to look at is that it’s not just how the roof keeps water out, but also how it lets air out. Ever been in an attic in July? Yeah, it’s hot. I live in Ohio and have been in 160 degree attics due to poor ventilation. Air should be able to circulate through the soffits and up through a ridge or some other type of vent. Not venting an attic can dry rot shingles from the inside out. This can turn a 30-year shingle into a 15-year. On top of that, it can dry rot roof decking and joists.

2. Insulation

I have heard so many landlords say, The tenant pays for utilities so I don’t care about the insulation. Well, the landlord might not pay for the gas or electric, but they do pay for the furnace and AC that is having to work twice as hard to keep your tenant cozy. These machines are rated for the average square footage they have to cool. Now, if you have windows that don’t shut, no insulation in the attic, and doors that you can feel the breeze through, then you can expect to be swapping out out HVAC systems much sooner than needed.

3. Exhaust Fan in Bathrooms

I worked for a rental property company as their handyman prior to investing myself. It seemed like the tenants always had mold in their bathrooms from excess moisture in the air, splashing out of tubs or showers. They were willing to call and complain about the mold, but never to turn the exhaust fan switch on when needed.

In all 20 of my units, I have installed an exhaust fan on the same switch as the light and outlet in the bathroom. Pretty much, if they want to have the light on, then the exhaust fan is on as well. Problem solved! I have never had mold in a bathroom. Even if they splash water out of a tub, there is enough air flow from frequent use of the bathroom (fan being on) that it dries out before mold can grow.

4. Grading

During due diligence, investors may check for signs of a leaking basement, and it could be completely dry. However, that doesn’t mean improper grading or slope of the earth can ever be ignored! If you notice water puddling in the yard, sitting against the house, or simply not draining quickly enough away from the house, it should immediately be taken care of!

Related: How to Accurately Estimate Expenses on a Rental Property in 3 Easy Steps

Improper grading can cause foundations to shift, basements to leak, and thousands of dollars of damage. All you have to do is get the ground to slop away from the house. In extreme cases, french drains or sump pumps may be needed, but the point is, take care of ground water so it doesn’t hit you with a huge capital expense.

5. Seal Concrete

This is so simple, but most investors never do it. Driveways, sidewalks, steps, porches, and patios can cost thousands of dollars to replace. If you have them in good condition rather than letting the elements eat away at them, add spraying them with sealer to your annual maintenance checklist. Doing this each year can make these things last 10 times as long and prevent a huge concrete job in the future.

Let me hear some of your tricks for eliminating/slowing expenses in your rentals!

Don’t forget to leave a comment below! 

Jered Sturm is co-founder and director of sales and marketing at SNS Capital Group. Jered began in the real estate industry in 2006, working for a successful real estate investment company as a handyman. From 2009-2012, Jered co-founded the construction company Sturm Properties. Using his background in contracting and construction, he began investing in “Value Add” real estate. Now, after co-founding SNS Capital Group, Jered has conducted over 10 million dollars in real estate transactions. He currently co-owns and operates a portfolio worth over 3.7 million dollars in investment real estate.

    Andrew Cordle from Alpharetta, Georgia
    Replied over 4 years ago
    Attic ventalation is a great idea! Loved the post!
    Tina Kempa
    Replied over 4 years ago
    Great article! Clean and check furnace and a/C seasonally, seal asphalt every other year, clean gutters and keep an eye on trees that are close to plumbing lines. 🙂
    Tina Kempa
    Replied over 4 years ago
    Great article! Clean and check furnace and a/C seasonally, seal asphalt every other year, clean gutters and keep an eye on trees that are close to plumbing lines. 🙂 Reply Report comment
    Kyle Hipp Investor from Appleton, Wisconsin
    Replied over 4 years ago
    Great article!! Taking energy efficiency into consideration is huge in my opinion. As you said it lowers wear and tear on mechanicals, but also lowers utility costs which can allow you to raise rent and still have the tenant saving money. Above that they are also more comfortable. Another one to add is to waterseal decks and other outdoor wooden structures.
    David Roberson from San Jose, California
    Replied over 4 years ago
    Nice article. Preventative maintenance is always important.
    Tommy DeSalvo Real Estate Agent from Cincinnati, Ohio
    Replied over 4 years ago
    This article came at a great time. I’m just buying my first four Plex and I’m looking for ways to do smart preventative Maintenance during the rehab. Thanks!
    Jered Sturm Investor/Syndicator from Cincinnati, Ohio
    Replied over 4 years ago
    Tommy, Great to hear. In not 100% on this but I believe we met at the bp meet up I put together about a year ago. Good to hear you’re making It happen!
    Tommy DeSalvo Real Estate Agent from Cincinnati, Ohio
    Replied over 4 years ago
    Jered, Yes, we definitely did! It’s been a crazy year sir, and I’m glad to finally be able to get the ball rolling. Hope you and your brother are still rocking the SFH!
    John Yanko Investor from Clarendon Hills, Illinois
    Replied over 4 years ago
    Really good ideas!
    Alex Craig Real Estate Professional from Memphis, TN
    Replied over 4 years ago
    These are all really good tips that will drive up ROI that most people do not consider. Thrown in vinyl plank flooring instead of carpet in the home and ceramic tile instead of vinyl, then you really reduce your long term expense. I still get amazed at the corners that are cut by landlords and individuals who buying investment properties in pursuit of a better # on their Pro Forma when the reality is there property will never perform to the expectation if there home does not have the necessary upgrades.
    Nate T. Investor from Tempe, Arizona
    Replied over 4 years ago
    I’ve never thought of sealing concrete. What is the best way and/or product for that?
    Candice Gielda from Feeding Hills, Massachusetts
    Replied over 4 years ago
    Thank you so much for the useful tips.
    Jeremy Jones Musician & Real Estate Investor from Edmonds, Washington
    Replied over 4 years ago
    Thanks for the great tips. Going “beyond the minimum” is definitely something I want to adopt for maintaining my rental portfolio. Often we’re just keeping up with the existing maintenance requests, but I want to get ahead of the curve and do stuff before it becomes a necessity.
    Dennis Legaspi from Jacksonville, FL
    Replied over 4 years ago
    Great tips, Jered. You captured some simingly common sense ideas that can easily be overlooked that provide practical preventive measures for a better ROI.
    Mike Taylor from Anchorage, Alaska
    Replied over 4 years ago
    I agree with Alex above. I put very little carpet in rentals and stay mostly with hardwood laminate. It reduces smells, cleanup, lasts longer than carpet and looks high end. Feedback from my tenants is they love it.
    Jason
    Replied over 4 years ago
    Jered thanks for the tips on the exhaust fan and sidewalks. My Colorado properties don’t have mold issues, but the fan could certainly help on my MN and MO properties. It’s very backwards thinking not to put in solid insulation. The more your tenant pays, the harder it is for them to keep up on other bills like rent. The financial health of your tenant can be directly related to the financial health of that property. Its not just about rent raises either. Often times the stress of debt can led to other problems within the home. Do not just go with any insulation company. Back of the truck insulators do not understand attic air flow, sealing and heat gaps. I recommend going through a home performance company. They look at the whole home envelope. WIndows, rim joists, air sealing, thermal imaging. Any reputable company will perform before and after blower tests. Check with your utility company for rebates as well.
    Sean Williams from Louisville, KY
    Replied over 4 years ago
    Love your thoughts on the insulation and attic, soo important for extending the life of a roof!
    Matt Slakey Investor from Salem, Oregon
    Replied over 4 years ago
    You described me to a T in the intro! This topic/idea has been on my mind a lot since getting ready to rent out my current house. I’ve got a 1950s house that needs repairs in every category you mentioned. Thanks for the information.
    Michael Modesto Investor from Chino, California
    Replied over 4 years ago
    “an ounce of prevention is worth a pound of cure” Great article! Reply Report comment
    Michael Modesto Investor from Chino, California
    Replied over 4 years ago
    “an ounce of prevention is worth a pound of cure” Great article!
    Michael Modesto Investor from Chino, California
    Replied over 4 years ago
    “an ounce of prevention is worth a pound of cure” Great article!
    Darren Sager Realtor from Summit, NJ
    Replied over 4 years ago
    Great article Jered. Just goes to show that being “penny wise” will cause you to be “pound foolish” with much larger expenses down the road.