9 Hidden Costs Managing Apartments That Can Cost You Big Time!
october 12, 2016 by doug marshall, marshall commercial funding
When managing apartments, there are several categories of operating expenses necessary to maintain and manage them. We all know these expenses: property taxes, insurance, utility charges, maintenance and turnover costs, on-site and off-site management costs, etc. But less well known are potential hidden costs of maintaining and managing an apartment that in large part can determine the profitability of your investment. They are, in no particular order:
1. Poorly configured operating statements
Operating statements that only show rent received, not gross potential rent do a disservice to their owners. An owner once told me that his property didn’t have a vacancy problem. He was shocked when I informed him that his property for the past year averaged 12 percent vacancy in a market whose average vacancy rate was less than 5 percent. He didn’t know he had a vacancy & bad debt problem because it wasn’t explicitly shown on the property’s operating statement, only the rent received. Those primitive operating statements were hiding the cost of vacancy and bad debt.
2. The time it takes to get a unit market-ready
In a tight rental market, like we are experiencing now, every day it takes to get a unit ready for occupancy takes money out of the pocket of the owner. For example, let’s say a vacant unit has a monthly rent of $1,000. If it takes two weeks to turn the unit it’s costing the owner $467 in lost rent ($1,000 ÷ 30 days x 14 days). If it takes only a week to make the unit market-ready, the shorter time to turn the unit saves the owner $234 compared to a two week turn. I have seen vacant units stay dirty and unrentable for several weeks because the onsite staff have been focused on other issues that are not nearly as important to the property’s bottom line.
3. Mediocre (or worse) on-site manager
The older I get the more I realize that common sense is not common. I shudder to think the impact of an on-site manager that lacks common sense. Sometimes a vacant unit will remain vacant for weeks because the manager is waiting for their favorite vendor to do one small part of the turn instead of hiring one of the vendor’s competitors. I’ve seen where the on-site manager is slow to return a prospect’s call about a vacant unit resulting in the prospect going elsewhere. Sometimes a manager limits the time when a prospect can view a vacant unit so that it’s convenient for the manager not the prospect resulting in the prospect giving up on renting the unit. There are many ways an on-site manager can do significant damage to the property’s profitability. Those examples are just a few.
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