Preventative Maintenance – The Key To Good Property Management

Repairs and maintenance costs are the single largest variable property owners experience when owning investment property. Preventative maintenance can help keep those costs down while preserving the properties value. Ultimately, investment property values are determined by a multiple of the net income, which is calculated by subtracting all operating expenses from the gross rental income. The Sherman and Hemstreet Real Estate Company are property management professionals. Our tips and information below will come in handy for you throughout your investment and property management journey.

Higher Rents

Properties that are in good repair experience higher rents. Good property management companies tend to stay on top of maintenance issues. Assessing potential maintenance issues that could be a future problem is a key part of managing a property. By identifying potential repair issues, managers can repair items at much cheaper costs before problems, and tension, can escalate.

Tenants will sometimes rent a property at a discount because it has deferred maintenance. This is a bad strategy for value creation but can be a tenable strategy if short term cash flow is the objective. 

Reduced Expenses

Preventative maintenance might result in a slightly higher operating expense budge item early on in an ownership of a property. In the long run, though, expenses will be lower. 

Maintenance issues that are ignored will always lead to worse issues. Those repairs will ultimately cost much more once the landlord is forced to make the repair. The landlord could have experienced higher rents instead had they made the repair upfront.

Property Value

Buyers will view deferred maintenance as a capital improvement that is needed at time of purchase. Purchase prices will almost always be reduced by the cost of all needed capital improvements.

Sometimes investors will draft a proforma analysis showing what the market rents would be if the property was in good condition. The net income from the proforma will show the investor what the property is worth. Savvy investors will discount that number by the total cost of deferred maintenance.

Since investors typically look at a proforma for the last one to three years of operating income, making the improvements early is important. If an owner owns a property for 5 years, it makes more sense for the large capital improvements to be done in the first 2 years. This assures that the operating expenses are lower and rents higher the last 3 years. This is a savvy strategy for maximizing a sales price.

Perform Preventative Maintenance Regularly

Property managers should evaluate the value of a property annually. Also, make recommendations on preventative maintenance in order to help the owner maximize both cash flow and disposition price. Doing these tasks and taking the information in this article in for consideration will set you up for a seamless property management journey. Also, and arguably most importantly, you will not create any unwanted tension within anyone involved in your investment property. For more information or if you are in search of a good property manager, contact Sherman and Hemstreet today.