Are you a landlord who robs their piggy bank innocently on your rental property and struggles to have money for repairs or vacancies?
Have you ever had your property manager call and tell you they need $400 for a plumbing repair, or worse yet, they need $3000 for a new Air Conditioner Compressor? Or you manage your investment property, and you discover this; in any event, you look in your checking account and don’t have the money for it?
Well, if you are like many landlords, you are robbing the piggy bank of the rental income along the way.
(Rather watch a video about this topic instead of reading? Click the image below)
There is a secret to always having money for repairs and vacancies on your rental property when you need it. But I’ll get to that in a second.
Picture this for just a minute…You get a notice from your resident that they are vacating after six years. You know your rental property will have some hefty repairs anywhere from $4,000 to 6,000 to make the property rent ready for the next resident. You either have to pull from savings or put on a credit card at a crazy interest rate.
It’s at this point you’re thinking, why do I own this property? Maybe I should sell it.
My recommendation is you don’t do this either…
Let me explain. During the last 30+ years of owning and running a property management company, I have seen this scenario play out thousands of times in the 10,000+ properties we’ve rented. Landlords are caught off guard on a large repair and improvements after a resident moves out of their home after several years and even small repairs like a new stove for $600. They are just not prepared for these types of repairs.
What typically happens when a person rents out their first property, they use a personal checking account. Most think, hey, I only have one property; it’s not like I’m Warren Buffet I don’t need a separate checking account.
But in actuality, you do. As the management company raises the rents on your property, additional money keeps going into your personal checking account. Guess what happens?... It gets innocently squandered away a little at a time. It just gets eaten up for personal things, like groceries, family vacations, braces for the kids, etc.
It is then you begin to feel like you’re always robbing your personal checking account to pay for repairs on your rental property, right? When in actuality you’ve been robbing the rental money that should have gone to an account for those maintenance expenses that will come. Over time that starts to wear on you, and you begin to wonder why you have the rental property in the first place, right? How would I know this?
I know because I lived this for over 30 years personally and with thousands of our clients.
Here is the secret to always having the money you will need
You open and set up a separate checking account and name it “Rental Checking Account.” (If you have multiple properties, you can combine them all in one account) I recommend you deposit a minimum of $1000-$5000 from your personal savings account to fund your new “rental checking account.” If you must start with less, even $100, do it anyway because it’s essential, you begin immediately. As you receive in this account, deposit all the rental income and pay your mortgage or mortgages, taxes, insurance, and repairs from this account.
Now here is why it works
As rents increase slightly almost every year, extra rent will start to build this new rental checking account, like compounding interest. Let me give an example. When the rent increases just $50 a month each year for 6 years (which is only a 2.9% rise in rent on average) and is deposited into your rental checking account, in 6 years, you will have $12,600, and if the rent increases a $100 a month you will see $25,200 in your new rental checking account after 6 years. You will now have the money because you’re not using it for things in your daily life, and it’s not getting squandered away. By the way, independent studies have shown 80% of residents do not move because you raised their rent moderately. They move because landlords do not take care of needed repairs timely. In other words, most landlords do it when it’s convenient for them.
Also, ask your CPA or whoever does your income taxes to show how much you saved on Federal and State taxes because you own that rental property or properties. When you get your refund check each year deposit the savings into your rental checking account and the rest into your personal account. The average amount landlords save on single-family homes on their income taxes is about $1800 a year, which is another $10,800 over 6 years you will have in your new rental checking account. If you did not have that rental property, you would have paid the Feds and State $10,800 more in income taxes over 6 years.
So, you can see by merely managing your cash flow, raising rents moderately, and putting whatever you’re saving on income taxes on that rental property in your rental checking account, you will have over $20,000 to $35,000 in that account over 6 years.
Do I practice what I preach?
I have several properties today that I own free and clear. They are paying me today every single month, and what a great feeling it is. Not to mention the properties are worth, on average, 5-7 times what I paid for them 15 and 30 years ago. Plus, I still write off my management fees, repairs, taxes, insurance, etc., on my income taxes, offsetting the rental income I get each month. Using this strategy by having a rental checking account allows you to enjoy the journey while building towards your retirement. You will find yourself buying more rental properties because now it’s exciting, and paying for repairs becomes painless. It becomes your very own Monopoly game that not only you benefit from, but you can teach your kids as some of our current clients have. What a gift for them, right?
Your next step is to open up your rental checking account today and start enjoying owning rental properties.
Recently, I received a call from one of my clients, who I started doing business with back in 1977, 42 years ago, in Riverside, California. Believe it or not, I met them knocking on doors. They bought a home for $35,000. Gene and Betty now live in Georgia, and they were reviewing their financials while doing their taxes. Gene said he just wanted to call me to say, “thank you.” He said, “we are now worth over 1.7 million dollars primarily due to you, Ron, on all the investments we’ve done with you. We are set for life with all the income we have coming in. We are traveling and enjoying life.” Gene and Betty are great regular ordinary people, not big investors, who started small and ended up big. Gene went on to say, “all those people who didn’t believe in you and your strategy way back then Ron, are not having the life we have today, and that’s sad. I wish more people would have followed your strategy”.
In closing, I wish this all for each of you in that you, too, will end up big like Gene and Betty. There is still time to get started; it doesn’t matter if you recently purchased a rental property or have owned your rental properties for 20 years.