Whether you're scouting for the lowest property management fee, cheapest quote for construction, repair, or lawn service; buying appliances or parts, the wise rule of thumb is this:  The cheapest price may end up costing you a lot more.  Why? Because there can be hidden costs to consider.

Over the years we've known owners with a range of approaches to setting up and maintaining their rental properties, and for a variety of reasons. 

For example, there are those who believe that some upfront investment in good or better construction and repair, copper piping, and newer appliances will result in two things:  More reliable tenants and fewer and less costly repairs later.  Then there are other owners who are only looking to hold onto properties long enough to reap the return on the land itself, generate cash flow right away, and therefore only want to make very superficial improvements.  In this case they are likely not as concerned about the quality of tenants either.

In any case, be advised that the cheapest price, in particular for repair and maintenance services, let alone property management support, or appliances (particularly used) can end up costing you up to twice the price, if not more.

Here are a couple of scenarios where owners have a choice of solutions and ramifications:

SCENARIO 1
You bought a dishwasher off of craigslist for cheapest price found, installed it.  Then over the next couple of weeks it required a couple of repair visits.  Within a month it broke down entirely and now needs to be replaced.

• Option A:  Replace this unit with another cheap used unit.
  • Cross your fingers it won't also have to be replaced any time soon.
  • Not only are you spending additional money for another unit, you also incur labor installation costs and time, or you spend your own additional time installing it. Or perhaps you have a property management company that can take care of it for you.
    • If you have multiple units and have purchased like items, you can compound your pain and expense.
• Option B:  Replace this unit with a new but inexpensive model with a warranty.
  • While you just spent additional money on this new unit, delivery and installation likely comes with the purchase.  And at least for the length of the warranty, repairs and/or replacements can be handled by the vendor from which you bought it.
  • The odds are higher you won't have to spend more money and repairs or replacements for some time and with luck you will have nothing to do with the installation process, allowing you time to devote to pursuing other investments or interests.

SCENARIO 2
You just bought a small complex for a steal at a fire sale.  While a deal, it is dilapidated and due to the tenant base being of low income, it changes often and rents are labor intensive to collect.  Meanwhile, you want to make minimum improvements and generate cash flow quickly.

• Option A:  Make a bit more of an investment in some key improvements so that you can attract higher income tenants, raise rents, and reduce time/money/effort with rent collection and maintenance issues. 
  • Hire a qualified property management firm with reasonable rates to field day-to-day and monthly activities.
  • Done wisely, you should be able to recoup your additional investment while increasing your monthly cash flow by ten to twenty percent.
• Option B:  Stay your course and hire a freelance property manager, assuming you can find one, with experience managing low income rental properties, one located nearby who is used to the time and effort it takes to collect rents.
  • This approach could work for you, assuming the property manager does their rent collection job, and assuming there is such a person in proximity.  Or, you may wish to handle this activity yourself. 
    • If you take this latter approach, you will definitely be devoting some serious time frequenting the property to resolve maintenance and complaint issues, and rent collection.

While there are certainly exceptions for both scenarios, the point is that you can save and make money with smart decisions about where to spend.  The point is to be shrewd.  Recognize when spending a bit more on improvements will help you generate more and steadier income.  Know what appliances and parts you’d be wise to spend more on now in order to spend less in the future.  Above all, carefully weigh all pros and cons of known approaches before choosing a particular course of action.