As a landlord it is important to be alert to these costs that can drain your property maintenance budget…
Each income property opportunity is only truly as profitable as the management. That includes efficiency in management, maintenance practices, and accurate budgeting. Get your numbers wrong upfront, miscalculate repairs, or incur unexpected expenses, and your cash flow could dip into the negative, taking your returns into the red.
Here are five factors to watch out for.
- Property Taxes
Overlook the property tax factor, and it can hit your bottom line, hard. Property taxes are always in flux. Landlords must anticipate increasing property taxes. They rarely go down by themselves, and typically get more expensive every year. In some places, like Chicago, they have jumped up by double digits in a single year. There are two main components to property tax bills. The tax rate and the tax assessed value of your property. When properties appreciate they are assessed higher. Investors can also inflict higher tax assessments on themselves through improvements. Make sure you know how expanding square footage or bedroom counts could impact your property tax bills. Few may also realize that they have the right to challenge and appeal their property tax bills. That’s one reason that around half of all property tax bills in areas like Dallas and Long Island can be over-inflated each year. If you don’t appeal you are just throwing away returns.
If not constantly in check, utilities can be a big drain on property maintenance resources. Water leaks and stolen electricity can bleed you dry. This can get extreme on multifamily properties that have many units and common amenities. Inefficient energy draining devices can be a major problem too. That includes air conditioning, in unit appliances, and community spaces. If you are the one paying the bills you have to be extremely diligent in watching for waste. Technology can help with that. If tenants are paying the bills, then bringing in greener and more efficient appliances can help make your offerings more attractive.
Home Owner Associations can be one of the biggest threats to profitability when operating income properties. Today, condominium associations and HOAs have a lot of power. They can have multiple layers of fees. All of which dig into the net profits. In addition to dues, special assessments can be levied at any time and can bankrupt unsuspecting property investors. Without control of the board there is no control over the expenses. If the association isn’t good at money management, they can fail and amenities can be neglected.
- Negligent Tenants
Negligent or just careless tenants can really blow your property maintenance budget too. They can freeze out the AC on a regular basis, cause fires, wreck the landscaping, burn through garbage disposals, and soak up a lot of time in maintenance calls. More investors should perhaps be prioritizing the care tenants will take of the unit in the application process. Falling behind a couple weeks on the rent may be annoying, but you’ll actually make more profit on the late fees.
- Tenant Turnover
When tenants leave, units have to be put back into rentable condition. Sometimes that may just be a quick clean up by a maid service. In other cases, it can be replacing appliances, flooring, windows, and even bathtubs. That is all in addition to remarketing for new tenants. That gets really expensive. If you are turning over tenants a couple times a year, and haven’t created a budget for that, it can get ugly for your finances. With this in mind savvy landlords choose renters correctly, not only based on their finances, but how they care for their homes, and how long they are likely to stay.