23 Ways to Cut your Overhead in Real Estate Investing
Is your cash flow a bit tight? Here are some ways you can make things a bit easier. Written by Michaela Ryan for the API Magazine May 2007 issue.
Many beginner investors in real estate put a high proportion of their income towards their mortgages. Eventually rents rise and cash flow becomes a lot easier. But in the meantime, there could be a few years when you’re strapped for cash. So here are some suggestions for cuttng your living and property expenses, to free up some cash flow and make life a little easier for real estate investors.
Karen Novak, a certified financial planner with Westpac, says the first thing you need to do is work out where you’re spending your money. There are a lot of pro forma budgets available online or through financial advisers. You could use one of these or simply go through al your bills and work out what you’re spending each month. According to Novak, the problem areas for most people isn’t their bills, it’s their discretionary spending. Most real estate investors underestimate the amount they spend on items such as groceries, entertainment, takeaway and clothes. That’s why Novak recommends tracking your expenditure for a month and copmaring it to your initial estimates. Once you know how much you’re really spending you’ll be in a good position to establish a realistic weekly limit.
All real estate investment professionals and beginners have weaknesses. As you track your spending, you’ll see where your greatest weaknesses are. For example, Novak says some people regularly go to the supermarket for one thing and end up coming home with six additional items. Another person’s weakness might be shouting rounds at the pub on their keycard once their cash runs out. Once you’re aware of your weakness, you’ll be able to change your behaviour.
Do you own a number of properties, managed by different property managers? If you offer several properties to one manager, you’re in a strong position to ask for a discount. These days there are a number of property management real estate companies that service an entire city rather than one suburb. Tenant enquiry tends to come largely from the internet these days, so it isn’t as important to have a local manager as it once was.
If you need to spend a handyman around to a property it can set you back $60 or more. If you employ a gardener to attend a property regularly, it can cost you several hundred dollars a year. Are you capable of doing these jobs yourself?
Do you know how competitive your insurance premium is? Not just landloards’ insurance. What about your health, car, and home and contents insurance? It sounds like tedious work shopping around for a better deal. But it’s just a matter of making a few calls that might save you hundreds of dollars each year. Alternatively you can ask an insurance broker to shop around for you. Or you could try an online service such as www.iselect.com.au to compare a wide range of health insurance premiums.
While we’re on the topic of shopping around, there are huge savings to be made on your home phone, mobile and internet bills. When your contracts expire, it’s a good time to consider your options. Or if the cost of breaking an existing contract is small compared to the savings you’ll receive from a different service provider, it could be worth while making the switch even earlier. There are attractive deals in each of these areas individually. Or you could bundle the three services with one provider to attractive discounts. You just need to set aside a hour to go online and consider the packages that various companies offer.
Bank fess and charges can take a nasty bit out of your savings each month. If you shop around, you might be able to swap to a bank or building society with much lower fees. In some cases you can be stung withfees even though your account is closed.
For beginner real estate investors in Australia, do you know how much you pay every time you use the ATM of another bank? If you’re regularly incurring fees of two or three dollars, you might want to think about locating the nearest ATM or branch belonging to your bank, and doing your withdrawals so you don’t have to find an ATM so often. Check your bank’s terms and conditions to find out whether you’re charged a fee for getting cash out via EFTPOS. It might be that you can get your weekly pocket money when you do your grocery shopping.
Beware of late payment fees and over-limit fees on your credit card, which can be up to $40 a pop. According to the ACA, if you don’t make a payment by the due date, some credit unions even charge $15 every seven days until a payment is received. By shopping around you might be able to change to a credit card which offers a much lower interest rate and perhaps no annual fee. The market is becoming much more competitive.
Novak says you can save money by consolidating the debt that you have. Novak suggest you could settle your other credit card debts using the new card, and then pay of the debt on the new card in a focused period to time so that there’s no debt remaining by the end of the honeymoon period. This strategy could get you out of the cycle of making costly ongoing interest payments – so long as you have the discipline to carry it out properly. Alternatively you can speak to your mortgage broker or banker about consolidating personal loans and credit car debts by refinancing your home loan on your residence property.
in some cases you will be able to reduce your monthly mortgage commitment if you refinance to a new lender or negotiate with your current lender to get a reduced rate. This is extremely great for first time real estate investors and investment professionals who can lower their monthly costs by a lot.
There are pros and cons if you pay interest only on your mortgages (as opposed to principal and interest on your real estate investment properties). For example, sometimes it can hold back you borrowing capacity (i.e. next time you apply for a loan the bank might not be willing to lend you as much money as it otherwise would.) However, paying interest only on loans is a common strategy for reducing the overheads of property investment.
Points 13 through 23 are coming soon! Stay tuned.
Many beginner investors in real estate put a high proportion of their income towards their mortgages. Eventually rents rise and cash flow becomes a lot easier. But in the meantime, there could be a few years when you’re strapped for cash. So here are some suggestions for cuttng your living and property expenses, to free up some cash flow and make life a little easier for real estate investors.
1 | Stick to a real estate investment budget
Karen Novak, a certified financial planner with Westpac, says the first thing you need to do is work out where you’re spending your money. There are a lot of pro forma budgets available online or through financial advisers. You could use one of these or simply go through al your bills and work out what you’re spending each month. According to Novak, the problem areas for most people isn’t their bills, it’s their discretionary spending. Most real estate investors underestimate the amount they spend on items such as groceries, entertainment, takeaway and clothes. That’s why Novak recommends tracking your expenditure for a month and copmaring it to your initial estimates. Once you know how much you’re really spending you’ll be in a good position to establish a realistic weekly limit.
2 | Identify your weaknesses
All real estate investment professionals and beginners have weaknesses. As you track your spending, you’ll see where your greatest weaknesses are. For example, Novak says some people regularly go to the supermarket for one thing and end up coming home with six additional items. Another person’s weakness might be shouting rounds at the pub on their keycard once their cash runs out. Once you’re aware of your weakness, you’ll be able to change your behaviour.
3 | Negotiate with a property manager
Do you own a number of properties, managed by different property managers? If you offer several properties to one manager, you’re in a strong position to ask for a discount. These days there are a number of property management real estate companies that service an entire city rather than one suburb. Tenant enquiry tends to come largely from the internet these days, so it isn’t as important to have a local manager as it once was.
4 | Do real estate property repairs yourself
If you need to spend a handyman around to a property it can set you back $60 or more. If you employ a gardener to attend a property regularly, it can cost you several hundred dollars a year. Are you capable of doing these jobs yourself?
5 | Shop around for insurance on property
Do you know how competitive your insurance premium is? Not just landloards’ insurance. What about your health, car, and home and contents insurance? It sounds like tedious work shopping around for a better deal. But it’s just a matter of making a few calls that might save you hundreds of dollars each year. Alternatively you can ask an insurance broker to shop around for you. Or you could try an online service such as www.iselect.com.au to compare a wide range of health insurance premiums.
6 | Shop around for phone and internet services
While we’re on the topic of shopping around, there are huge savings to be made on your home phone, mobile and internet bills. When your contracts expire, it’s a good time to consider your options. Or if the cost of breaking an existing contract is small compared to the savings you’ll receive from a different service provider, it could be worth while making the switch even earlier. There are attractive deals in each of these areas individually. Or you could bundle the three services with one provider to attractive discounts. You just need to set aside a hour to go online and consider the packages that various companies offer.
7 | Reduce bank fees
Bank fess and charges can take a nasty bit out of your savings each month. If you shop around, you might be able to swap to a bank or building society with much lower fees. In some cases you can be stung withfees even though your account is closed.
8 | Use your own ATMs
For beginner real estate investors in Australia, do you know how much you pay every time you use the ATM of another bank? If you’re regularly incurring fees of two or three dollars, you might want to think about locating the nearest ATM or branch belonging to your bank, and doing your withdrawals so you don’t have to find an ATM so often. Check your bank’s terms and conditions to find out whether you’re charged a fee for getting cash out via EFTPOS. It might be that you can get your weekly pocket money when you do your grocery shopping.
9 | Reduce credit card costs
Beware of late payment fees and over-limit fees on your credit card, which can be up to $40 a pop. According to the ACA, if you don’t make a payment by the due date, some credit unions even charge $15 every seven days until a payment is received. By shopping around you might be able to change to a credit card which offers a much lower interest rate and perhaps no annual fee. The market is becoming much more competitive.
10 | Consolidate Debt
Novak says you can save money by consolidating the debt that you have. Novak suggest you could settle your other credit card debts using the new card, and then pay of the debt on the new card in a focused period to time so that there’s no debt remaining by the end of the honeymoon period. This strategy could get you out of the cycle of making costly ongoing interest payments – so long as you have the discipline to carry it out properly. Alternatively you can speak to your mortgage broker or banker about consolidating personal loans and credit car debts by refinancing your home loan on your residence property.
11 | Pay less interest
in some cases you will be able to reduce your monthly mortgage commitment if you refinance to a new lender or negotiate with your current lender to get a reduced rate. This is extremely great for first time real estate investors and investment professionals who can lower their monthly costs by a lot.
12 | Pay interest only
There are pros and cons if you pay interest only on your mortgages (as opposed to principal and interest on your real estate investment properties). For example, sometimes it can hold back you borrowing capacity (i.e. next time you apply for a loan the bank might not be willing to lend you as much money as it otherwise would.) However, paying interest only on loans is a common strategy for reducing the overheads of property investment.
Points 13 through 23 are coming soon! Stay tuned.
Labels: Checklists, condominum tips, real estate investing
posted by hattrick @ 4:28 PM
1 Comments:
At August 20, 2007 8:26 AM ,
hattrick said...
13 | Make your mortgage payments more often
Do you have a principal and interest loan on your own home or real estate investment property? Every time you make a repayment, the principal is reduced. That means the interest is calculated on a lower amount of debt- which means you pay less interest. So without paying so much as an extra cent in your repayments, you can redue your financial commitment just by making repayments more often. For example, instead of paying $2000 monthly, you could pay $1000 twice a month or $500 four times a month. Novak says with an interest rate of 8 per cent, you’ll pay off a 25 year mortgage five years earlier if you make repayments twice a month rather than once.
14 | Tight Tuesdays
On Tuesdays, cinema tickets and DVD hire are often half price. If you love your weekly DVDs, itsaves a lot of cash if you swap them over each Tuesday.
15 | Save on food and alcohol
For all real estate investors, some restaurants offer “happy hour” meals before 6:30 pm. That’s dinner for under $10, or a half priced menu. If you love eating out but you’re strapped for cash, this is a great option. If you don’t order alcohol with your meal, you’ll walk away paying a hell of a lot less.
16 | Save your bills
If you ever have a bill that offers a discount for prompt payment, that’s a pretty good reason to pay it before the deadline. IN some localities this is the case with council rates, for example. Some companies also offer discounts to customers who pay bills online, or who opt to receive statements online rather than in the mail.
17 | Reduce body corporate fees
Do you own strata-titled property real estate? If you’re an active member of your body corporate you might be able to negotiate a reduction in your body corporate strata fees.
18 | Review your home ownership structure
Before buying real estate property, consider the most cost-effective ownership structure from a tax perspective. It’s extremely valuable to get professional advice on this topic from an adviser who has a thorough knowledge with property investing in real estate. In some cases it might make sense for one spouse to have the property in their name only, rather than joint names. In other cases it might be advantageous to setup a trust.
19 | Save on cars
If you are a two-car household, do you think you could manage with just one car? Or if you live alone, could you survive without your car for a few years? The potential savings on rego, petrol, insurance and repairs are huge.
20 | Save on furniture
If you have to buy furniture, secondhand stores and online auction house eBay can save you a lot of dough.
21 | Save on energy bills
Cut our electricity bill at home buy using energy-saving globes and opting or energy efficient appliances. It also saves energy if you set your air conditioner to 24 degrees
22 | Save on water
Are you being charged for water usage on your home and investment properties? Check your rates to see how it works in your city. It’s very cheap to fit water-saving devices that can reduce your tenant’s water usage significantly. Government rebates are often available for these products too.
23 | Salary sacrifice
If you need a new computer or PDA you might be able to salary sacrifice or salary package the purchase. That means your employer buys the item for you and reduces your salary by the amount of the item. The advantage is that you’re receiving an item worth $2000 from your before tax income. Not all employers are willing to offer this to their employees but it’s always worth asking. However, there’s no point spending money on a computer, or anything else, in order to save money.
Keep your eye on the goal
This kind of discipline and innovation is a fantastic way to get you through your early years of real estate investing. Provided you’re making good investment decisions while you’re counting your pennies, in time, you’ll be rewarded with wealth and financial freedom.
However, if freedom and a better lifestyle are your long-term goals, its’ pretty ironic if you’re making your life frugal, living hell in the short or medium term. “It’s about creating a balance between what’s financially beneficial and your lifestyle as well,” Novak says. “there’s no point putting all your money away if you’re completely miserable an dyou don’t have the lifestyle that you want either.”
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