You may have noticed that the overall outlook for 2023 has a lot of negative financial implications with recession fears, ongoing inflation, and consistent supply chain issues.
The negative macro view of the US economy is hard to miss whenever you turn on the news, check your stock portfolio or go to a grocery store. What should we do as landlords to navigate what could be a bumpy year? I’ve got the 3 important tips to help make 2023 a successful year as a landlord.
3 tips for being a successful landlord in 2023
Tip #1 – Organize your Finances
Accounting is not the most glamourous aspect of owning rental property and is definitely not the reason landlords get into real estate. However, managing your money well leads to bigger tax savings, increased income, and better ROI and should be a priority for all landlords in 2023. Let this be the year you get organized and run your properties like a business.
The first step is to create a budget for each of your properties. The budget should clearly outline the projected operating expenses, income generated per property, and the mortgage (debt service). This process should include planning for any necessary rent increases and noting increases in fixed expenses (for example a lot of property tax bills went up this year).
Once a budget is in place, you should track your income and expenses on a monthly basis. There are several ways to do this, some of the most popular options are Quickbooks, Microsoft Excel or an online platform like Avail.co. All of these options work well so choose what you works best for you and can start using right away.
I personally do this at the end of each month. In Quickbooks, I input the collected rent and record any outgoing expenses we had for a property. It takes me around ten minutes most months and then I’m able to account for every bill and expense that shows up on my credit card or bank account. Once you have multiple properties, it’s easy to forget why you spent $53.99 at Home Depot and which property it was for. So it’s best to record an expense when it’s still fresh in your mind.
At the end of 2023, you can compare the actual income and expenses with your projected budget. You can ask yourself a few important questions: How’d you do for the year? Did you have higher outgoings than you anticipated and why? Which property is the most profitable and which is not? This analysis is crucial to maintaining a profitable real estate business, especially in a time of recession.
Tip #2 – Increase emergency fund & cut unnecessary spending
With a possible recession looming, it’s a good idea for landlords to increase their emergency funds, typically referred to as “reserves”. A good rule of thumb is to hold enough cash to cover at least six months of operating expenses plus mortgage payments. Recession often means layoffs, which could mean unexpected vacancies for you. Holding cash to cover expenses will help during turnover, possible evictions, or surprise repairs.
This year we had an unexpected repair in one of our single-family rentals: a pipe burst underneath ten feet of concrete in the bathroom. We had to pay a company to find the leak ($350), a plumber to repairs the leak ($2700) and another company to pour concrete ($500) over the huge hole in the bathroom left behind by the plumber. My husband replaced the tile in the bathroom floor himself, or else we would have needed to pay a handyman to do that. Overall, we spent around $3550 for a surprise repair. This could happen any time at any one of your properties and reserves provide peace of mind. We weren’t worried about being able to pay for the expense because we keep a sizable amount of cash in reserves.
While increasing your reserves, it’s also a good idea to cut any unnecessary spending. Look through your budget and see if there are expenses that can wait for a later time or next year. I’ve found two main places to cut expenses so far this year:
1. Non-essential purchases. Last year we planned to put up a fence at two of our properties, both single family homes. Recently, we decided to put up a fence at only one of the properties and put off the other fence 1-2 more years. The second non-essential spending we cut was travel. We had planned to take a trip to one of our out-of-state markets, but have decided to do everything long distance.
2. Fixed expenses (bills). I called my insurance broker and lowered my homeowners insurance on two of the properties saving up $800 this year.
As a quick side note: I also did this with my personal residence and my car insurance.
When you carefully track expenses, it is easy to identify areas where you can cut spending.
Tip #3 – Focus on Tenants
As many landlords know, turnover is expensive. I want to keep as many tenants as possible this year and hoping most of them resign their lease. I spend a lot of time on tenant screening to help cut down on turnover costs and vacancy.
My plan this year to limit vacancy is maintaining regular communication with my tenants, responding quickly to any maintenance issues, and solving any problems they may have. We can’t always help tenant turnover. Some tenants just need to move or have found somewhere else to live. However, I can do my part in providing the best living experience for the tenant to encourage them to stay as long as it suits them.
I am hoping to have very few tenant changes in 2023.
It’s important for landlords to plan for each new year. In 2023, it’s especially important to be conservative with your numbers to help weather any kind of economic storm we may be facing. The ultimate goal is to have a profitable year while also providing the best housing possible for our tenants. Making smart financial decisions and streamlining the way you run your real estate business will help make this year a success.
All the best,
Mary | Rentals to Freedom (@GetMoneySmarter) / Twitter — twitter.com
I teach how to invest in real estate & achieve financial freedom | Tips on spending less & making more | Get my free guide to buying your first rental👇