Surviving a Recession in Real Estate (Part 5)

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Reducing cost on maintenance is accomplish by planning major repairs.  If the property needs a roof, plan and budget for that repair.

Each month that you receive the rental payment the money should be divided by expense then the remaining would be considered profit.  For example, if the annual property taxes are $1200 then the monthly property taxes are $100 a month.   If the annual insurance premium is $850, then the monthly insurance premium is $70.83 month.  If there is a mortgage, the principal and interest payment maybe $250 a month.  The real estate investor needs to account for maintenance, as well.  Most real estate investors that I spoke with and including myself use $75.00 each month for maintenance.  The investor may want to consider setting aside some money for accounting and legal fees from the monthly rental amount, as well.  Fifty dollars for both should be sufficient.  This amount will give you more than enough to cover the additional income tax preparation fees when filing income taxes.

To recap, the monthly expenses are:

$50.00 accounting/legal

$75.00 maintenance

$250.00 principal and interest (mortgage)

$100.00 property taxes

$70.83 insurance

$545.83

This example has a three bedroom home that currently rents for $750.00 a month, after expenses, the investor has a profit of $204.17 a month or $2450.04 annually.   Pretty good, huh.

Well, this too may need to be evaluated for cost reduction so that your profit margin can be increased.  You may want to consider refinancing for a lower rate this one change alone may save you hundreds monthly,  and thousands in interest payments, annually.  You may want to consider an area where the rental values are higher when purchasing your investment property.

You may want to increase your insurance deductible, thereby reducing your annual insurance premium.  An important note here, unlike your auto or health insurance, the deductible for landlord insurance or home insurance is taking out of the claim payment.

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