Here’s something I’ve learned after acquiring over 6,000 apartment units: there is always somewhere between 3% – 10% fat in your operating expenses. Always. Every portfolio, every property, every operator — including me.
The question isn’t whether you’re overspending somewhere. You are. The question is where, and what you’re going to do about it.
Here are seven places to look.
1. Tenant Screening
The single largest expense in owning rental property isn’t insurance or taxes or maintenance. It’s tenant turnover. And the most effective way to reduce turnover is to put the right people in your units from the start.
Our screening process hits four points. First, income verification — we want to see take-home income of at least three times the monthly rent. Second, eviction history — zero evictions in the past five years. Third, background check — no violent criminal history. Fourth, credit review — no current delinquencies.
I learned this the hard way. When I was starting out, anyone who showed up with first month’s rent and a security deposit was in. The horror stories I collected from that approach were expensive and entirely avoidable. Screen your tenants. It’s the cheapest underwriting you’ll ever do.
2. Paying Attention to Your Property
Screening gets the right tenant in the door. What happens after that is on you.
Even a well-qualified tenant will leave if the property is neglected, maintenance requests go unanswered, and management is unresponsive. That’s a turnover you caused, and it costs just as much as one caused by a bad tenant.
A few things we do to reduce this: renovate units thoroughly on the front end so there aren’t a backlog of maintenance issues once someone moves in, respond to maintenance requests quickly, and be proactive about lease renewals. That last one gets overlooked constantly. We’re reaching out 90 days before a lease expires, then 60 days, then 30 days. We put incentives on the table for tenants who sign early. The sooner you get a renewal signed, the less exposure you have to vacancy, and the less stress everyone is operating under as the expiration date approaches.
3. Property Taxes
A lot of operators set it and forget it on property taxes. That’s a mistake, especially in markets where values have shifted significantly in either direction.
Go into your county directory and look at your assessed value. If you’re being taxed on a valuation that’s higher than what you paid, or higher than what the property is actually worth in its current condition, you have grounds to appeal. There are firms that specialize in exactly this — you hire them, they appeal on your behalf, and they typically take a percentage of what they save you.
I hired a law firm to appeal property taxes on a 600-unit building in Houston. The assessed value came down from $55 million to $50 million — a $5 million reduction. The tax bill dropped by $100,000 per year. At a 6% cap rate, that single move added $1.7 million in property value. One phone call, one law firm, one appeal.
Make this an annual habit. Assessments change. Your grounds for appeal change. Check every year.
4. Insurance
I’ve covered this in depth in a separate post, but the short version is: don’t just shop your insurance around and accept whatever quote comes back. Ask your insurance provider where the real risks are in your property, and then make capital improvements that address those risks directly.
We’ve saved tens of thousands of dollars annually on specific properties by making targeted improvements (updating electrical panels, addressing roof drainage, replacing aging mechanicals) that the insurance company flagged as their primary concerns. The improvement costs money once. The premium savings recur every year.
Also worth exploring for larger portfolios: captive insurance. I moved one property to a captive policy and took the annual premium from $1.1 million down to $536,000. That’s a $564,000 annual reduction — nearly $10 million in added property value at a 6% cap rate from one line item. Captive insurance requires a certain portfolio size and operational track record to qualify, but if you’re at scale, it’s worth understanding.
5. Utilities
Utility costs are one of the most controllable expense lines in a rental portfolio, and most operators don’t pay enough attention to them.
A few things we’ve implemented across our properties with measurable results:
LED lighting in common areas reduces electric bills by around 25%. It’s a straightforward capital improvement with a fast payback and no ongoing maintenance headaches.
Low flow toilets, showerheads, and faucets in every unit reduces water bills by up to 40% annually. In buildings where the landlord covers water and sewer, this is significant real money.
Energy-efficient HVAC mechanicals cost more upfront but reduce ongoing utility expense and — critically — last longer when maintained properly. We change filters on a set schedule and service mechanical systems regularly. Doing that extends equipment life by 30% to 50%, which pushes out the capital replacement cost and keeps the units more comfortable for tenants.
If you’re in a deregulated state, you can also shop your electric and gas providers. Same goes for trash — get competing quotes from multiple haulers. None of this is complicated. It just requires someone paying attention.
6. Maintenance
The best maintenance strategy is reducing how much maintenance you need in the first place. We call it hardening the property, and it happens at renovation time.
Instead of carpet, we put in LVP or laminate flooring. Easier to clean, faster to turn over between tenants, cheaper to replace when it does eventually wear out. Instead of ceiling fans, we use flush-mount globe lights — fewer moving parts, less to break, less to clean. We plant low-maintenance landscaping that doesn’t need constant trimming or replacement.
None of these are dramatic decisions. But multiplied across 50 or 100 or 500 units, the reduction in ongoing maintenance calls, turn time, and repair costs is substantial and very predictable. You know before you renovate roughly what your ongoing maintenance cost is going to look like because you made deliberate choices about what goes in the unit.
7. Management
Management isn’t just another line item. It’s the multiplier on everything else. Good management reduces turnover, catches maintenance issues before they become expensive, keeps occupancy up, and gives you accurate information to make decisions with. Bad management does the opposite on all counts.
A couple of things here. First, if you’re using a third-party management company, interview several before you commit to one — and recognize that a company that performs well in one market may be mediocre in another. Local knowledge and local relationships matter more than brand name.
Second, and more importantly: the sooner you can bring management in-house, the better. Every major landlord I’ve ever met — the ones with serious balance sheets and portfolios that perform through market cycles — manages their own properties. This is not a coincidence. In-house management means real-time information, real accountability, and real control over every other expense line on this list.
It feels like a big lift to build an internal management operation. It is, at first. But it’s also the most important operational decision you can make for the long-term performance of your portfolio.
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Smart Management is built for operators who are ready to bring management in-house — or who already have and want better visibility across their portfolio. One platform for leasing, maintenance, accounting, and real-time financial performance. See how it works.