Property
Maintenance Can Be the Achilles Heel of Real Estate Investments
In the realm of
real estate investment, property maintenance can be the weak point where
profits are eaten up and headaches abound. Thus, proper property maintenance is a necessary evil in the business of
property management. Necessary because
naturally things may break, get old, worn, or require repair or
replacement. Walls may need to be
painted, carpets may need to be replaced, appliances can break down, and
systems need occasional maintenance. Evil
because all these cost money, and no one wants to spend more than he has to.
Property managers
know there is a delicate balance between when to repair and replace and when to
leave things as they are, postponing the inevitable for another season. A good property manager with a good property
management company will make every effort to maximize the highest returns on
the property.
A wall may be a
bit spotted or an appliance may show some wear and age, but when these factors
will not negatively impact the anticipated rents a property will produce, then
there may be no need to invest the funds now. On the other hand, when these issues become so pronounced as to have a
negative impact on the appeal of the property, to the point where tenants are
not willing to pay market rate, it's time to invest in some maintenance/repair.
Some landlords
think that when they hand over their property to tenants in impeccable condition,
then that is the way it should look when the tenants move out three years
later. They want to forget that if they
themselves had been living there for three years, they could not have kept it
in the same condition either. Things
will happen. Carpets can get dirty and spotted even in the family where there
is a standing policy to take off shoes. Walls get dirty by dust and dirt adhering to them, not
to mention children's sticky hands. Ovens used for cooking will get
used and dirty. Heavy duty appliances like washers, dryers, dishwashers
and refrigerators will sometimes break down.
What can
be done?
In spite of the
above reality, there are things a good property manager can do to save on
expenses. This begins with a thorough walkthrough
of the property with tenants at the time they move in, noting any items that
are not perfect. It should be explained
clearly to the tenants that they will be held responsible for anything not
listed on the walkthrough document. That
is, everything except normal wear and tear. For example, tenants would not be held responsible for worn areas in the
carpet in high traffic areas but would be held responsible for spotting and
stains.
The property
should be inspected at least once or twice a year during the tenancy to make
sure the tenants are taking good care of the property. Then at the end of the lease term, once the tenants have
moved out, the property should be inspected again, comparing the notes when the
tenants moved in with the notes when they moved out. Any issues not attributed to normal wear and tear should be
charged to the tenants and subtracted from the security deposit.
Another thing to
help mitigate the expenses associated with property maintenance is to have in
place a home warranty for plumbing, electrical and major system failures. Some home warranties are better than others.
See my previous blog on home warranties for more information on this topic.
Last, it also
very important to have a good vendor list of inexpensive handymen, painters,
appliance repair persons and other vendors who can be called upon occasionally to
help maintain a property. Good property
managers will surely keep an updated list of such providers to support their property
management company.
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