CUTTING PROPERTY EXPENSES
Wow! Is this ever a common conversation topic amongst real estate investors! Insurance is UPPP! Renovation/repair and appliance replacement costs are up. House prices are up, cash flow is down, etc…. And that doesn’t even consider the expected tax increases over the next few years.
Phew, panic is rising! … Did I lose you yet? Ok, take a breath.
Our yearly phrase is “keeping it positive, but keeping it real.” So yes, there are a lot of costs that seem to be increasing all at the same time. That’s a reality.
Let’s look at the bigger picture. First, the positives that are also a reality. Our Alberta properties have some appreciation! You heard it right! After years of flat to negative, we are seeing some equity gains in our properties—bring out the party hats!
Second, our properties have enough cashflow to handle the increase in expenses. We always start with a reserve fund on each property, then we add monthly cashflow to the reserve fund. Those houses are still paying all of their own bills.
Third, and most important, we are working hard to stay focused on what we CAN control. At this time of year, we control our property maintenance expenses with a Spring Inspection. We always start with the previous inspection report—often there will be a note to follow up on something (a squeak, a question, something that needed to be repaired soon, but not immediately). If this is a first inspection after a purchase, we also go back to the Home Inspection; you know, all those items that “may need attention” at some future date.
So for our current inspection, we’ll make sure to ask the tenants, and look for ourselves (how many times have you noticed that your standards are different than your tenants’?!?). Of course, we’re testing smoke and CO detectors. And we’re looking for every possible sneaky way that water can wreak havoc on our property. We look up at a roof/eaves, we look down at grading/sewer and sump/backflow. We check under every kitchen and bathroom sink, and we’re even looking at windows if they’re older. Everyone has their list, and you can easily search home inspection checklists online.
How do inspections relate to cutting costs? If we can catch something early, we can usually prevent a bigger problem—and we can usually prevent a bigger bill. How many investors have bought a property because “deferred maintenance” became too much for a homeowner? Putting off those minor repairs today, can seem like you’re cutting costs—but we would much rather stay on top of maintenance issues, and prevent bigger bills in the future. Even in our short investing career, we have noticed that tenants stay longer when maintenance issues are dealt with promptly.
In this third wave, inspections can be a challenge. We wear masks and gloves these days, to make sure everyone feels safe. So far, we have worked closely with our tenants to find ways to conduct inspections that respect everyone’s personal safety preferences.
It takes some self-discipline these days to “keep it positive AND keep it real.” We are monitoring our expenses closely, reviewing utility bills, comparing insurance quotes, etc… But we are not cutting corners just to keep expenses down. We are providing customer service for our tenants, and we are protecting our investment properties.
As we power through this third wave, we are wishing all of our colleagues, trades, partners and tenants good health and strong resilience—we’re getting so close “to the other side!”
