10 hidden costs of apartment investments
As an owner of an apartment investment you probably know your income and most of your major expenses.
There are those hidden costs that may not be so obvious you need to watch out for because they can affect your bottom line. Here are ten hidden costs you may not be aware of:
1. Deferred maintenance. Like having a toothache, not seeing a dentist and later needing a root canal on-going maintenance will pay for itself.
I have seen clients not implement a maintenance program for their property and later have to replace major building components because they preferred a distribution instead.
Plus, what does it say to your residents about the value you place on keeping the property in order as well as to prospective new residents when they see a "tired" property?
2. 100% occupancy. Having a fully occupied property could mean you are not charging enough rent.
Keeping the rents at market level even though this results in a turnover of units, in the long run, will increase your bottom line.
3. Choosing no-so-good tenants. It is always less costly to spend the time, effort and money to vet a prospective tenant before they become a resident.
4. Inexperienced on-site manager. There are many ways an inexperienced and might I add inattentive, unresponsive, lazy or dishonest on-site manager could cost you.
Not returning prospective residents' phone calls, not getting units ready quickly, not being flexible for showing times are all just a few reasons to take time in hiring and training the right on-site manager.
5. Time to turn units. Not preparing units quickly goes hand-in-hand with staffing issues, but the longer a unit sits, the more in lost rent. There is even the chance of losing prospective residents altogether.
6. Inadequate financial statements. If you are using spreadsheets to track your income and expenses or something even worse, you do not see the entire picture of your investment.
I have helped a handful of owners move to more comprehensive bookkeeping tools and by doing so helped them see the actual picture in their vacancies and cost overruns.
7. Shadow cost overrun. A shadow cost overrun is what I like to call an expense that is costing you more because of other indirect influences.
One influence could be for example your trash bin being used by the public.
Another example could also be a water leak going unnoticed.
8. Undercompensated employees. Good help is hard to find, and when you do, compensate them adequately. It is also good to provide incentives as well as hope for future growth.
Without good employees, your investment will suffer.
9. Expensive management company. Management companies are businesses as well and need to make a profit, but sometimes you may have a company who may be "nickel and diming" you or profiting excessively from things like maintenance overages.
10. Not knowing where to look. There are other ways to cut expenses of your property which may not be apparent.
For example, separately metering landscape irrigation to save on sewer charges, cost segregation of assets or property value reassessment for tax purposes.
Burt M. Polson, CCIM, is a local real estate broker specializing in commercial, luxury estates and wineries. Reach him at 707-254-8000, or firstname.lastname@example.org. Sign up for his email newsletter at BurtPolson.com.