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Despite your best efforts to plan, anticipate, and estimate, as a rental property investor, you recognize a little over-spending from time to time is to be expected. However, for some landlords and property owners, overspending can be happening right now, and with their knowledge. Expenses and costs will fluctuate, which you’ll be mindful to monitor. But keep these five costs in mind, too. They represent common areas in which inadvertent overspending tends to occur most. And they can cost you serious NOI potential and revenue if you’re not careful.
1. Maintenance Costs Sneak up the Most
Maintaining and repairing your Lehigh Valley rental property is an ongoing effort. And you’re mindful of those costs and expenses – usually. What can happen, however, and sneak up on your bottom line in a hurry, is under-planning for moderate and major maintenance. A small leak in a faucet isn’t going to hurt the bank to fix. But if you wait too long to address it or if you forgo the overall routine inspection to spot larger issues that may be at play, that leaky faucet could turn into a burst pipe, a flooded basement, or fungal growth. And all of those maintenance calls are going to cost you much more than a quick visit from the plumber.
To avoid overspending on property maintenance, be diligent about scheduling professional and contractor inspections routinely. Those inspections will turn up potential concerns early, allowing you time to be proactive about repairs, replacements, and budgeting for the big projects to come. Additionally, responding quickly to resident repair requests is critical, not only from a customer service standpoint but also from a position of property condition preservation.
2. Legal Fees
Having a legal partner in your corner, especially to help with evictions and lease contract language, is a great decision. However, if you’re partnered with the wrong legal professional, or if you’re experiencing a high volume of legal work, you’re going to be accruing higher invoices. In some cases, landlords don’t realize they’re accruing those billable hours until the invoice comes, too.
Talk with your legal professional regularly about services performed. Make sure you work with a lawyer or firm with real estate experience and expertise. And ask all the questions ahead of time, so you understand what fees and charges to expect. Are you being billed by the hour, paying a retainer fee, or accumulating charges for other filing fees? Secondly, if you’re having to engage a lawyer far too frequently, it might be a sign your resident pre-screening process might need improving, which brings us to our next cost to keep on your radar.
3. Poor Quality Residents
For some Lehigh Valley property investors, the pressure of having a vacancy for too long becomes overwhelming, and they sign residents that don’t pass all the pre-screening guidelines. In other instances, landlords become too busy with operations that they inadvertently cut a few corners in the vetting process. Unfortunately, poor-quality residents or bad-fit candidates will end up costing you far more than an extended vacancy.
Previous rental history, employment verification, and background checks are all necessary calls to make. Be diligent about checking the references and asking the right questions. If you become too lax with your pre-screening process, you could be accruing additional and unforeseen costs associated with property damage, late pay, evictions, and court-related expenses.
4. Vendors and Contractor Payables
Another cost you could be accruing without realizing it involves your contractors and vendors. As a rental Lehigh Valley property owner, you need to assemble a team of professionals to help. You’ll call on the roster of maintenance contractors, including general handypersons, inspectors, plumbers, HVAC technicians, roofers, and landscapers. On the business management side of your investment, you’ll need legal help, bookkeeping help, and maybe a few software partners. And because your time is limited and valuable, you might not be price shopping and getting estimates for work performed. What can sneak up on you are price hikes and rate increases. There could be hidden charges for work outside of normal business hours or phone conversations alone. Those fees could add up quickly. They’ll be even more painful to swallow if the work you hired isn’t done up to par either.
Vetting your vendors and partners is just as important as screening potential residents. Take the time to identify the great service providers and build strategic relationships with them. Consider negotiating better rates for ongoing work. And lay in additional protections with service audits when applicable. Don’t assume all your partners are working in your best interest. Instead, develop a precise strategy that allows you to have vetting processes as well as checks and balances in place, so fees don’t accrue without your knowledge.
5. Lengthy Vacancies
When your property sits vacant, you might not presume much is happening – good or bad. However, the longer the space goes unfilled, the more expenses you’re shelling out without rental revenue to offset it. Most of the veteran investors will advise you to build a financial safety net of savings to weather those vacancy periods without too much damage. Otherwise, you’ll be spending more than you’re making.
Consider breaking down the math. If you’re managing a multi-family property, you’ll want to determine your vacancy rate.
Number of vacant spaces x 100 / Total number of spaces = Vacancy Rate
As an example, if you operate a 300-unit property and 30 of those are unoccupied, you’d have a 30% vacancy rate.
On the single-family property, it’s important to recognize that vacancy costs are essentially a function of time passed. If you’re charging $1,000 each month for a paying resident, that daily rent is roughly $33.33. Every day that passes with a vacancy, you’re forgoing that daily revenue. Tracking into the monthly expenses, you could be paying utilities, HOA fees, and taxes from your reserves if the vacancy goes on for months.
If you’re experiencing lengthy vacancies, you may want to check your property's condition and make improvements to make it more attractive to residents. You might also need to revisit your rent amount to ensure it’s in line with the local economic real estate market. And if those elements are sound, you may need to get more aggressive and assertive with your property marketing strategies to attract residents and generate buzz about existing or upcoming vacancies.
Avoid Overspending with a Property Management Partner
One solution for avoiding these instances of overspending and inadvertent accruing of expenses is by having a property management partner in your corner overseeing everything. When you work with Axel Property Management, our team can help you stay on top of property maintenance efforts and rate negotiations. We can help you make connections with the right resources needed for effective resident pre-screening and placement. We’ll manage those various contractor invoices ongoing to avoid surprise fees. And when it comes to marketing Lehigh Valley rental properties, there’s no one more suited for the task. Our strategies are proven, and our methods are sound. The best part is, too, we work with you and with your bottom line in mind to preserve your assets and quickly spot NOI improvements every step of the way.
If you’re not sure about what expenses you might be accruing with your rental property, whether it’s related to these five common costs or others, like insurance, utilities, or property taxes, let Axel Property Management help. Connect with our team, and let’s stop those dollars from flowing out and back to your bottom line!
