def. – to be extremely careful about small amounts of money and not careful enough about larger amounts of money
In America we might say a person is stepping over dollar bills to pick up a penny.
Landlords tend to be extremely conscience of the costs of managing a property, especially costs that go to repair and maintenance of their properties.
In general this is an excellent strategy and necessary to build wealth. However, at times it a landlord may be penny-wise and pound-foolish. Below are a few ways that a landlord might tell that they are falling into this trap.
1) Cut costs at the tenants’ expense.
Tenants that pay on time and don’t cause problems are one of a landlord’s greatest assets. If a landlord continuously sacrifices the comforts of his tenants to order cheaper parts or to find a cheaper solution, a landlord jeopardizes keeping these good tenants happy. They may migrate to a location with a landlord that makes keeping good tenants a priority.
2) Cut costs by always looking for the cheapest labor.
“You get what you pay for.” Sometimes this is very true when it comes to labor. Sometimes the cheapest labor does the cheapest work or takes longer to fix the problem because of a lack of experience. Knowing when to pay more for experience and skill is a fine art that a landlord develops with time.
3) Always do the work yourself.
This goes along with point #2 above. It is easiest to think that the cheapest labor is your own labor. However, business people always need to be reminded of the opportunity costs of the work that they are doing. While a landlord is fixing a pipe what other opportunities are they missing out on?
4a) Accept any warm-bodied tenant.
Oh no it’s vacant! In a mad rush to fill a vacancy, some landlords will take the first warm-bodied tenant. This process will likely give you an underqualified tenant that ends up being more of a liability than an asset. Taking the time to find a quality tenant with the ability and history to pay on time is important.
4b) Only accept A++ tenants, no matter the location.
This is the converse of the warning above. Some landlords hold out until the “perfect” tenant comes along. This can be detrimental to the overall cash flow. Sometimes a good, paying tenant is better than the “perfect” tenant that isn’t coming to your project.
It is important that landlords and business owners balance costs with wise spending.
What are some other ways that landlords can be penny-wise and pound-foolish?