It’s tempting to cut your expenses by deferring maintenance costs like landscaping, painting, carpeting and the like. However, preferred tenants, attracted to well maintained properties, pay higher rent, stay longer, and take better care of the property — all of which equate to higher income and increased value for you, the owner. If you don’t have top quality tenants now, and deferred maintenance isn’t repelling them, it might be time to trade those units into a higher quality location. After dealing with even slightly less than quality tenants for awhile, trading to a superior area might make sense to you.
Let’s look at each issue mentioned above.
Deferred maintenance, especially when visible from the street, will often result in the same behavior home buyers exhibit — they keep driving. Even if the outside is nice enough to get them inside, a poor paint job combined with carpet that should have been replaced two tenants ago, will not impress the potential applicant. If you’re asking top rent for the area and your kitchen screams ‘I Love Lucy’ the women will be looking for the exit. Even if the kitchen is so small two people have to really love each other to be in it at the same time, if the appliances are spiffy and relatively modern, the ladies will hang around. All plumbing must be absolutely reliable. Period.
The few thousand you’ve save by deferring these expenses lowers your long term Net Operating Income (NOI) because of the resulting lower rents. Big deal you say? I’ll let you decide.
Let’s take a fourplex with an NOI of $20K. If by curing all the deferred maintenance your NOI is increased by a mere $50 a unit, you’ve now created more value. If the capitalization rate in your area is about 6%, you’ve just raised the value of your property by about $40,000 or so. 50 X 4 X 12 = $2,400. $2,400/.06 = $40,000. That figure is the real cost of deferring a few thousand dollars of maintenance.
If you manage the units yourself you’ll probably cut down the number of visits to the property significantly. Quality tenants pay their rent, and they pay it on time. Your ‘trouble’ calls will be reduced radically too. It’s possible you’ll be reminded why your units are called income property.
If you’ve been Johnny-On-The-Spot with maintenance, and your tenants are still less than you’d hoped for, you might consider trading into a superior area — or a superior region. If growth is your goal, you might as well benefit from it while you’re shelling out spendable income for roof shingles. This is one part of your life where maintaining a stiff upper lip won’t help much. There’s a fine line between doing your best, and knowing when your best just won’t make a descernible difference. That sometimes means it’s time to get outa Dodge and move on to bigger and better things.
Next: Is “Pride of Ownership” costing you growth in income and value?