You may think you are a tight fisted miser because you aren’t playing the lottery or gambling away a lot of money in Vegas. You may not fall for those late night infomercials touting the latest get rich quick scheme in real estate or forex.
As a result, you may not view yourself as all that greedy. But there may be some instances of what seem like reasonable business decisions that in a quest for greater profits may actually be costing you money. Allow me to share with you two examples.
Pricing Rent at Below Market
I own a few rental houses which I plan on being able to provide a retirement income someday. When I was a new landlord, I read several books on the subject of investing in real estate and managing property. One of the best pieces of advice I read was to price the rent at the lower end of the market.
For example, if most houses are renting for $1000 per month in your area, price yours at $950. “But that means less profit to me!” Not really. There are several reasons why it will actually mean more profit.
1. Greater tenant selection: There will be many prospective tenants who see your ad and want to fill out an application. It is much easier to find a decent tenant if you have 20 from which to choose instead of just 2.
2. Quicker turn around: Assume it takes one week to find a tenant for your empty place at $950 versus one month at $1000. That 3 week difference equates to $750 in revenue. At an extra $50 per month, it takes 15 months to make that back. If the tenant moves after one year and you repeat the process, you just lost money, which leads to number 3….
3. Tenant Stability: Tenants are always looking for cheaper rent. If they can’t find it elsewhere, they have no reason to move and you will have little turnover with the costs associated with advertising a vacancy, making repairs, cleaning for the next tenant, etc. I have had several tenants in place for almost 5 years now so I can collect rent consistently month after month.
Making Money with a Blog
Here is another example from my personal experience. I run two blogs, Cash Flow Mantra and Grand Per Month and will be starting a third in April. I do all the writing for Cash Flow Mantra myself but would have no way of doing it for both. So, I have hired some writers to help with about half the content for Grand Per Month.
Even though it cost me money in January, I was able to make a profit with Grand Per Month in only the second month of its existence despite paying for some of the content. That is because of the help that I get managing my private advertising.
I had been using this service and paying a commission for Cash Flow Mantra realizing that I didn’t have the skills or the contacts to bring in any real ad revenue on my own. So rather than be greedy and balk at paying the commission, I figured that 75% of something was more than 100% of nothing. You see, greed could have cost me in the guise of making a business decision. But it didn’t and I have much more profit than I might otherwise.
Do you have examples from your own life that looking back were influenced by your desire for money which may have actually cost you in the end? Any instances where you should have sold that stock but didn’t because you wanted more? Feel free to share in the comments below.
This isn’t from my own life, but from a relative’s. His greed actually cost him his life! He was not only frugal, but extremely greedy to the point of being a total jerk. He loved getting something for nothing and/or getting the better end of the deal. He often bragged about how he’d gotten this or that for nothing or almost nothing — but, sad to say, he’d often conned or cheated people to get it. He had served in the military, and often laughed about all the free medical care and freebies he got from the Veterans Administation. He had gotten off a Navy ship in Vietnam and spent 20 minutes smoking a cigarette on the dock, and later got benefits for being “exposed to Agent Orange.” Outrageous! Even worse, the government was in effect subsidizing his sex life because he got free Viagra (possibly because of prostate cancer, but they might be giving this to all the male veterans, I’m not sure). He met women through online dating sites, and then when each successive girlfriend got tired of his tightwad habits, he’d find someone else. Like I said, he was a total jerk! He eventually got a brain tumor. He had undergone radiation treatments (and would probably have lived another 5 years) when his VA doctors suggested chemo. His (grown) daughter tried to tell him no, she had a bad feeling about that, but he just laughed and told her it was free. He was gleeful about ripping off the government for more free treatments. Long story short, the treatment backfired. The chemo wiped out his immune system and within a week, he’d died.
I would be very interested in knowing more about the service you are using.
If I want to expand, I would need to hire writers too. It’s too difficult for me to crank out posts. Good advice about the rental.
Great points. My parents had a rental property in which they paid a property management company to handle. It was worth the 5% commission per month they paid.
In most cases, I think it is a “business decision” as my dad liked to say. Basically, is the business or individual getting good value for the cost. If the answer is yes, everyone wins, I think.
I much prefer a slowly but surely attitude in most cases. Greed can be responsible for the worst of personal finance blunders. If only more landlords given your example had the same attitude 🙂