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The Landlording Show Episode 08: Cost-Cutting to Increase Your Profit

Hello everyone and welcome back to the Landlording Show. This is the podcast where we show you how to make the most out of your property investments. I'm your host, Tim Harstead. For those of you who don't know me, a quick introduction: I run a property management company on the South Side of Chicago, dealing with a lot of C and D class properties, helping owners maximize their investments. I'm here to share our experiences and the experiences of our guests to help you manage your property wherever you are, in a way that makes it less stressful and more profitable for you.

Today’s Theme: Maximizing Profits Through Cost-Cutting 

Since today’s episode coincides with Black Friday, it’s fitting that we talk about savings. In any business, including real estate, there are two main ways to increase profit: you can either increase prices, i.e., increase the rents, which are capped by market rates, or you can cut costs, which is our focus today. This is our cost-cutting episode, and we're going to give you some good tips on how to save money effectively.

Strategies for Cost Reduction

  1. Reducing Mortgage Costs Many of you are house hacking or have mortgages with just 5% or 10% down. While this is a great way to get into property ownership, it comes with Private Mortgage Insurance (PMI). PMI ensures the bank can recover its funds if you default, costing you a monthly premium until you've paid off 25% of your mortgage. However, banks won't drop this automatically—you need to request its removal, either by paying down your principal faster or proving property appreciation through a BPO. For instance, if your home value increases from $350,000 to $450,000, you might meet the equity threshold to eliminate PMI, saving you a substantial monthly amount.

  2. Refinancing Opportunities With interest rates hopefully declining in the near future, keep an eye on refinancing opportunities. Refinancing can significantly reduce your mortgage payments, enhancing your cash flow. This is especially potent if you can combine it with PMI removal; together, these strategies can free up a lot of cash monthly, making your investment much more profitable.

Operational Cost Savings

  • Trash Removal: If you have the option, shop around for your trash removal services. Regularly comparing rates and negotiating can save you significant amounts each month.

  • Water Bill Management: Conduct annual inspections to ensure there are no leaks or running toilets that can drive up water bills. Monitoring and maintaining your plumbing system can prevent minor issues from turning into costly problems.

Avoid False Economies 

Cutting costs should never mean cutting corners. Opting for the cheapest services or delaying necessary maintenance can lead to greater expenses down the line. Quality property management and maintenance are investments that preserve the value of your property and ensure its profitability over the long term.

Final Thoughts on Real Estate Investment Cycles

Effective financial management is key to navigating the cyclical nature of real estate. Like the 'fat squirrel' preparing for winter, smart investors build reserves during profitable periods to sustain through tougher times. This foresight prevents forced sales or refinancing when conditions are unfavorable.

Thank you for tuning into today’s episode on cost-cutting strategies in real estate. Remember, managing expenses wisely is crucial to maintaining and increasing your property's profitability. Please subscribe to our channel on Spotify or YouTube to get updated with our latest episodes, and don't hesitate to reach out with questions or topics you’d like us to discuss. Join us in two weeks for more insights into real estate investing. We're here to help you achieve your financial goals, whether they involve a comfortable retirement or luxury living.