In case you haven’t heard about the $100 Expense Reduction Challenge, let me bring you up to speed. In March 2013, I dared BiggerPockets Nation to reduce their rental property expenses by $100 per month. If anyone was successful, I’d send them a $20 Home Depot gift card.
Deborah B. crushed the challenge saving $261.78 per month by adjusting her rental insurance and now I get to join her in the winner’s circle!
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
A Journey to Finding $100 in Monthly Savings
It’s a hodgepodge of methods, but here’s how I finally pieced my savings together:
$30 per month by asking tenants to voluntarily contribute $10 each month towards the complimentary Wi-Fi I was providing. Three tenants began adding $10 onto their rent payments. I plan to make a donation request once a year.
$22 per month by having Ambit Energy credit monthly referral bonuses. I referred 15 customers to Ambit’s less expensive natural gas service so now Ambit credits my natural gas bill each month. How cool is that?! My official results are pending, but I’ll post a copy of my bill once it comes in.
$50 per month by buying deeply discounted Home Depot store credits from people on Craigslist. Once I noticed I was spending over $150 each month at Home Depot, I decided to take advantage of the secondary market for gift cards and store credits. I have enough contacts now that I can consistently buy store credits at 30% + discounts and I maintain a reserve of discounted cards so I never run out. Farwell Home Depot financing!
$70 per month by reducing my vacancy rate. Just because I’ve been a landlord since 1996 doesn’t mean I do everything well. One of my biggest mistakes was waiting for a tenant to move out before marketing their unit. Now I start marketing as soon as I get a 30-day move out notice. I conservatively predict that this practice (plus the waiting list I’m forming) will reduce my vacancy rate by at least 25% which saves $70 per month in lost rent.
That’s $172 worth of savings; definitely enough to win the $100 Expense Reduction Challenge.
How much can you save? It’s not easy but it is a worthy quest. A lot of my BiggerPockets mentors consider saving $100 to be equivalent to owning profitable rental unit. But since $100 worth of savings can be realized without investing any money, your return on investment can be off the charts!
Create Your Own Success Story
Here’s a battle plan to get you started:
Step 1: Park Your Ego
There is no way around it; a serious effort to cut cost involves self-confrontation. And that’s not fun! Egos have their place, but not when it comes to reducing expenses. You can either save face or money, but you can’t do both at the same time.
- Think of areas where you can be more diligent with your property management practices
- Examine yourself for areas where you’ve been complacent
Step 2: Confront the Brutal Facts
- Make a bar graph of your annual expenses by vendor
- Sort expenses from greatest to least
- Repeat for multiple years. Five years of trends would be ideal
- Look for trends. What’s been a reoccurring theme?
- Look for “perfect storms” that have occurred more than once
- Quantify the cost of your less than ideal management practices
Step 3: Challenge Every “Fixed” Expense (They Really Don’t Exist)
Just like a schoolyard bully, fixed expenses start to crumble once you fight back. Be irreverent – you get what you negotiate.
- Ask if there’s a crazy way or a silly way to reduce this expense
- Ask for contributions from everyone who benefits from an expenditure (even non-tenants)
- Figure out how to get the same result in a different, less expensive way – there are many ways to the top of this mountain
- Refuse to accept a vendor’s annual rate increase
Step 4: Be Courageous – Be Ruthless – Take Action
- Try out your expense reducing ideas on a small scale and measure the results
- Attempt to negotiate concessions on your top expenses.
- Be bold! Ask for help. Ask for donations.
- Be unreasonable and make the world adjust to you.
Get Into the Corridor
I love T. Harv Eker’s saying, “get into the corridor.” Get into the corridor and start moving toward your goal. Only then will you be able to see inside rooms that contain previously obscured opportunities.
It’s normal to be scared and dismiss this as a cute idea. After all, who wants to risk looking foolish or facing possible failure?
I understand those reactions. I’ve wrestled with them all year. If it weren’t for public accountability, I might have given up.
You Can Do This!
Wring out your full potential. The benefits can go far beyond real estate investing and possibly make you a more disciplined person.
I’ll look for you in the Expense Reduction winner’s circle, but until then, let me leave you with these words:
“Whether you think you can or think you can’t – you’re right.” – Henry Ford