Posted by Simon Misiewicz on 26th February 2014
Is Return on Investment important (ROI) to you?
Do you find that your maintenance costs are more than expected?
The harsh but much needed reality check is “you are not managing your ROI” if you are not managing your finances on a monthly basis.
You will incur maintenance costs for a verity of reasons:
• Washing machine breaks
• The bed breaks (I am not going into detail here)
• There is a flood in the bathroom
• Mould is growing like wildfire in the kitchen
• The kitchen cupboards fall apart.
Cheap products and value for money
It is good practice to save money on the refurbishment to ensue that you maximise ROI. Using companies such as LNPG (Landlords National Property Group) is a good way to get discounts. Using a process whereby you ask 2-3 trades people to submit quotes to get the best deal. These are all ways that you can save money, wisely.
But, do not be fooled, there are also ways of where money can be saved with a keen eye on ROI but inevitably are a false economy. Here are a few examples:
• Buying a cheap mattress and expecting people not to complain because they cannot sleep. This results in lost rent because of voids or a replacement mattress.
• The boiler breaks down because you opted for a cheap boiler that needs to be used in a HMO (containing 2-3 bathrooms / toilets).
• Kitchen cupboard doors continue to fall off because you used a relative who said that would help you with the refurbishment work, this saving you money. In the end you get in a quality joiner to tighten things up.
• The curtain rail in the bathroom was great value at £15 but now there are leaks because tenants inevitably do not ensure that the curtain is inside the bath. You therefore need to get someone in to make good the damage caused by water and to fit a more suitable shower screen.
You can now see the obvious issues that could have been avoided with more considered planning and invest properly, rather than trying to save pennies that will always cost you pounds in the future. If the numbers do not stack up on your due diligence spreadsheet then they will not work in reality. We all change the numbers in our favour so that we can have the romance of owning one more property.
Here is a quick tip. If it sounds too good to be true then it often is. Buy in products and services that have been recommended by other successful property investors. Ask people what they have used in their properties and ask why they chose those products and services. Other property investors are willing to share their experiences and it will often be for free as we like to help one another.
Here is another quick tip. Learn from your experiences. Write down what is causing you maintenance costs. Put these learning points into your journal / planning documents when buying the next property. Not using past experiences that have equipped you with great knowledge is a waste.
If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please contact Selina on firstname.lastname@example.org to book in your free “Property Finance & Tax Mastery” free one to one consultancy slot.
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