The Third Leg of B&H rental properties?

[Ken Latchers]

When purchasing a MFH to B&H, to me there are several main aspects:

-- Getting property in rentable shape/rehab

-- Tenant Selection & Management

-- Financial Management

As I just completed purchasing a 6 family 2 days ago that is already rented and needs little work, my attention is focused on Financial Management. Basically, I am attacking all recurring expenses possible without totally turning off tenants. I don't mind pissing esisting tenants some if I come out ahead overall.

First of all, property brings in $2100/month fully rented. However, out-of-country seller (no debt) paid $300/month to a property manager, $100/month taxes, $205/year insurance, $350/month water, $120 month for electric/heat (laundry shed), $35/month trash (dumpster shared with 2 other MFHs), $105/month mowing, $20/month pest spraying, $50/month for cleaning of laundry room, in addition to any maintenance required. Additional expense is that MFH is in flood plain, so I need to spend $375/year for flood insurance.

THIS WEEK
INSURANCE - I purchased similar insurance coverage for $1700/year, compared to prior $2050 year. Savings $350/year, which will go towards Flood insurance. Note this includes $1M liability.

--- PLANS ---
PM - On June 20, I intend to reduce greatly the PM role, from $300/month. I ive 55 miles away, but will screen and do background checks for my own tenants by phone/online and visit 1-2X a month. My goal is to drive down expense (counting car costs), saving $200/month.

WATER - I will be installing six 1.5gpm showerheads, twelve 0.5gpm faucet aerators and ibvestigating whether the 1987 toilets use 1.6 or about 3.5gpm each. Our coop buys water at $7/1000 gallons from next city, but is supposedly opening their own water supply in Sept. for about $2.10/1000 gallons. Planning to close laundry room also. I believe savings at the new lower rate would be $50/month or higher.

ELECTRIC/HEAT - all used to power a laundry room (shed). I am planning to close laundry room and redirect tenants to nearby laundromats. I may subsidize this for 3 months to transition them. Savings $120/month.

LAUNDRY ROOM CLEANING - planning to close laundry room, so would save $50/month

MOWING - I am going to investigate whether anyone will do it cheaper. I think I could save $10/mowing for about $30/month savings.

PEST CONTROL. I am planning to go to every other month. I never did this much spraying - this is slab construction, no basement. About $10/month savings.

OVERALL
If everything implements, I would drive down annual expenses about $350+$2400+$600+$1440+$360+$60 ---> About $5200 savings from $25,000 gross rent. I anticipate some short term unhappiness, but that is equivalent to adding about 1.5 1BR units to a 6plex. And of course, raise Cap rate and building value significantly.

Thoughts?