Preparing for vacancies & repairs when building a property portfolio

Whether you are buying a mansion next door to Tiger Woods in Windermere or a modest condo in Dr Philips, a person building a portfolio will experience all sorts of expenses relating to repairs and vacancies. 

For that reason, rosy income and expenditure predictions in promotional materials should always be taken with a pinch of salt as they are probably based on zero vacancies and zero repairs.  

Inspection reports & repairs 

Having a professional property inspection carried out after you´ve made a deposit but before you have signed the closing documents is the best way to identify any major potential repairs.

A competent inspection company will quickly identify issues a layman would not notice relating to wiring, plumbing, insulation, infestations, heating, air conditioning, damp and much more besides. Inspection reports usually cost less than $300 and could save you a fortune. For example, an unexpected purchase of a new air conditioner ($2000) and boiler ($8000) could wipe out an entire years net income.

While major expenses can be identified in advance, minor repairs will always occur during the lifetime of a property in Florida. Windows can break, fridges and washing machines eventually need to be replaced, leaks sometimes occur, air conditioning filters need to be cleaned etc.

These are all typical wear and tear issues that you should be prepared to pay for when buying investment property. As you would expect, some years will be more expensive than others.

Management companies and vacancies 

Vacancies are part and parcel of being a residential property landlord. While there is always an element of good or bad luck involved, this is an area where a investors can take considerable steps to minimize disruption and costs. 

The amount of time you put into researching the location of your property and the track record of your management company will be saved tenfold in future problems avoided. 

There are a number of questions you must be able to answer before renting out a property:

• 1. Is there a strong rental market in this area?
• 2. Is it zoned for long term or short term rentals?
• 3. Is demand from locals or foreigners?
• 4. If foreign demand dries up, can locals afford to rent this property?
• 5. Is it easy to evict problem tenants?
• 6. Have you verified the qualifications and rental estimates of your management company? (if you aren´t doing it yourself)
• 7. Are they offering good value?
• 8. Will they ensure the property is well maintained and that it adheres to local legislation?

The best property managers are those who know how to keep tenants happy and nip problems in the bud. Property management is a very labour intensive business and it´s important to realise and accept that before taking on the management of multiple properties yourself. If you are outsourcing, it is  worth paying a little extra for the best. 

In my experience, owners who delay or refuse to make repairs risk disrupting their own income stream. Slack management and inflexible landlords are frequently the cause of unnecessary vacancies and tenant disputes. 

Conclusion

Avoid major surprises by getting a professional property inspection done during your due diligence period and be prepared to pay for minor repairs and other wear and tear issues. 

To minimise vacancies, make sure your management company has a track record of keeping both tenants and landlords happy. Get some references from them! 

If a request is made by a well behaved tenant, make sure they get a polite reply and that action is quickly taken to solve their problem.

It makes sense to create a contingency fund equal to 3 months gross rental income to cover unexpected vacancy and repair costs. Leave this money in your local bank account so it can be easily disbursed to the management company to cover additional expenses.

Have a great day!

Colin Murphy