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.