Watching Your Local Government Matters

At a recent gathering of fellow real estate investors, a Proposed Ordinance that was introduced in the city of Newark, NJ was discussed. Specifically, it is Ordinance 18-0804; Amending Title 18, Chapter 5, Security, Article 1, Housing Guards - Armed Security.

The existing Ordinance requires, as I understand it, 1 armed security guard over night and an unarmed security guard during the day. This requirement is for apartment buildings or complexes that have over 100 units. The proposed amendment would reduce the requirement to 50 units.

Why is this important? A quick Google search for the cost of armed and unarmed security guards revealed the average cost is $25.00 and $15.00 per hour respectively. Over a year’s time, this can add a total cost of $160,000 to your operating expenses, reducing your Net Operating Income (NOI) thus affecting the value of your asset.  The cap rate to absorb a cost like this on a 50 unit community does not exist in today's frothy market.

Further, this is an additional cost already on top of the property taxes we pay that, in part, are allocated to the police department for staffing and community protection. In another town several years ago, I personally argued against a proposed ordinance to have a special fee (tax) for multi-family buildings because of garbage disposal costs. My point was apartment building owners already pay higher taxes, in line with a higher assessment that is meant to cover the additional services such as garbage collection, EMS and police activity.

While it’s easy to get focused on managing our assets, it’s imperative to keep a watchful eye on local municipal activities and discussions. The consequences of not doing so may significantly affect your expenses and asset value. I’m sure there are plenty of similar discussions in other communities around the country.  While this is about providing armed security, additional costs have come through rental license fees, inspection fees, sales tax etc. Please comment below your experiences.