Home Maintenance on Rentals

For residential rental property owners, maintenance costs can be a frustrating and scary proposition. The majority of rental property owners I know are very astute when it comes to understanding investment potential, return on investment (ROI), appreciation, equity, and all of the other analytics that can be applied to residential property investment. The one variable that they struggle with is maintenance costs. The analytical mind sometimes cannot reason with an unknown variable.

Sometimes the first reaction for an investor is to get a Home Warranty Plan. They think this will eliminate the “black hole” of maintenance costs. Home Warranties actually work to the contrary on rental properties. There is a high frustration level for your residents because of the long delays you will experience when trying to pursue a claim. When residents become upset, they start looking for a new place to live, and that is more destructive to your bottom line than any maintenance cost will be.

This video explains more on Home Warranties: Click here

The next thing an investor will try to do is set an arbitrary number for maintenance costs. This looks great on a Pro Forma, but it is often based on something far from reality. Your property may go months without a maintenance need, or it may need ten things repaired in one month. It is impossible to predict unless it is a brand new home with a builders warranty. Even then, some items can fall outside of the warranty. So how can a residential investor minimize this maintenance “black hole”? More importantly, how do investors minimize the dreaded “cash call” to fund repairs on their properties

These are the five proactive steps that you can, and should, take. It starts from the minute you decide to purchase an investment property.

1. Inspection: Get a professional inspection report, and read it. Then send it to your property manager so they can read it and help you separate the negligible items from the serious concerns. This may also help you with negotiating the price, as well as anticipating future costs and planning for them. Your property manager can work with you to set aside additional funds from the cash flow each month to hold on account in the event of a major repair (AC, water heater, etc).
2. Vendors: Trust your vendors (or the vendors your PM uses). We don’t go to the first vendor on Google to find a repair contractor. We are constantly updating and evaluating our trusted vendors based on a number of criteria. This will result in savings long-term and short-term. Our vendors will stand behind their work or we will not rehire them. We spend a tremendous amount of time fostering relationships with quality vendors, and it is rewarded with premium pricing and service.
3. Resident retention: This may seem off topic here, but in fact it is very much on topic. The greatest expense an investor will incur over the life of an investment is typically turnover. It is critical to hire a company that understands this and tries to keep the residents happy and feeling at home. Ignoring basic maintenance requests has a direct impact on turnover (make-ready costs, marketing, vacancy, rental loss, etc.).
4. Deferred Maintenance: This can be a tricky phrase, it sounds good, but it must be evaluated on a case-by-case basis. Deferred maintenance falls into two categories. The first category is items cosmetic or negligible in nature that do not need immediate attention. These include a cracked floor tile or a torn window screen. The second category is items that will have a detrimental effect on the property if not fixed immediately. This could be a leaking roof or leaking water heater. I often suggest to property owners that this is equivalent to charging the repair on a high interest credit card. The cost to defer could greatly increase the total cost when the time comes to address it. Don't ignore the signs.
5. Maintenance limit: A good property manager should have a spending limit based on your authorization for maintenance needs (TRĒ Homes does). We will respect that in non-emergency situations and we will contact you for authorization before we exceed that limit on a single repair. While owners want this mechanism in place, it has no bearing on what will ultimately be the solution to the problem. What it does is keeps an investor apprised of a maintenance situation that will have a substantial impact on the monthly financial statement and allow for input on solutions.