As an owner of an apartment investment, you probably know your income and most of your major expenses.
There are hidden costs that may not be so obvious that you need to watch out for because they can affect your bottom line.
Here are 10 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, ongoing 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 percent 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 not-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 it results 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.
For example, one influence could be 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 that may not be apparent.
Those include: separately metering landscape irrigation to save on sewer charges, cost segregation of assets or property value reassessment for tax purposes.