Property Management Blog

Rental Property Reverse Piggy Bank = Bad Planning

Friday, September 18, 2020

Hello again! In this installment of "as the rental property turns," we’re going to cover the topic of deferred maintenance, once again, but from a slightly different perspective. You all know what a piggy bank is, right? Well, deferring maintenance can be sort of a reverse piggy bank.

Not terribly long ago our CEO wrote a great article titled: Are You Robbing Your Piggy Bank on your Rental Property? This article had to do with applying your rental income to a separate account than your personal banking account, and why this is a stellar idea. You can read that article here: Piggy Bank Article

Well, I liked the article and title so much that I'm, um, borrowing it. A little. I'll give it right back. I promise.

A Different Take

So, your rental property sits there and hopefully accumulates value, year after year. You do all the necessary things like utilizing the property against your taxes. You know, writing off repairs, taking 3.636% depreciation, that kind of stuff. Your renter pays the rent, you make the mortgage payment, all well. That property of yours pays for itself, in monthly income, and it gains value, all good so far, right? Oh sure, property taxes are a little bit of a downer, and maybe you have to pay an HOA. However, all in all, your property ought to be making sort of a clanking sound like coins dropping into a piggy bank every month.

Until...

Then one day you get an email from your friendly neighborhood property management property inspector telling you there is an item that needs repair. That is where the Piggy Bank article I mentioned above comes into play. But let's pan out for a second, like those films where the camera starts on a bug and pans out to where you can see the curvature of the earth.

Each Day Counts

Each day that items which need doing, correcting, fixing, are left undone, you run the risk of devaluing your property. Also, as a result, you will have more work that needs doing at the next property rehab. Do you think I am overstating this? Maybe just a wee bit. However, that peeling paint? That aging kitchen? That worn flooring? Each deferred item is like taking your beloved piggy bank and shaking the coins you have accumulated over time right out that little slot on top. It takes time to get that money out, but it does come out, and then those coins are gone.

The Good - The Bad and The Ugly

On each annual inspection we look at the entire house over, top to bottom, and room by room. We note the current condition, commensurate with what would be normal wear and tear of an occupied property. Sometimes I'm absolutely surprised at the level of care I see. It's like a property has never even been lived in. Other times, well, not so much. We will look at it all, the roofing, the concrete, the siding, the windows, the flooring, the sinks, etc. In overview, we are looking at the current condition of the property and gathering any pertinent data from the resident as to anything that needs attention. We're not moving couches. We're not checking the freshness of vegetables in the fridge crisper drawer. That would be weird. "That guy's here again squeezing the rhubarb!"
 Oh, how I miss those words...

A great example I worked on today:

I have done 5 annual inspections at a property that is about 30 years old. In the last few years, I have noted the deterioration of the fascia boards. Peeling paint, earlywood rot. Now, in our system, we would normally recommend mitigating such items and estimating out a cost. If, however, it was a danger, we would step that up for immediate attention.

A few days ago, we heard that a roofing tile slid off and shattered on the ground. Thank goodness no one was standing where it fell.

We sent out a roofer who stated that wood rot to the fascia boards (on the backside, I might add) due to improper run off of rainwater had compromised that area of the roof, leading to this, and soon more tiles slipping off.

plumber

Costs Rise Yearly

Have you ever been walking through the grocery store and been stunned to find yourself staring at a price, say, like milk, and realizing the last time you really looked that the price was significantly less? We buy milk every week, so I rarely actually look at the price. But you know what, I have never seen the price of milk fall. Everything goes up, every year, cars, fuel, homes, rents, Cracker Jacks, and Gummy Bears. Home repairs do too, however, this has as much to do with damage worsening over time as it does market forces. In other words, waiting can cost you more. On the other hand, sometimes waiting is the best course of action, like on...

Fences and Gates

I wrote an article on fences you can check it out here. Your fence adds nearly nothing to the value of your home. If it is solid and functional, leave it alone. Do you want to put an ornate gate on the side of the house for $1200? Don't. I have seen this, mind you. I have a neighbor that just finished doing this. Never mind that the rest of the house is a train wreck, dog-gone-it, he has him a mighty fine gate. That doesn't mean you don't FIX a gate or fence that needs fixing. It just means you don't spend on these until, or unless, it is necessary.

Always ask yourself some key questions on a repair:

  1. Is this necessary?
  2. Is the repair going to raise the value of my house?
  3. Will the repair raise the potential value of the rent?
  4. Can the repair lessen the likelihood of injury or a lawsuit?
  5. How much more will this repair be in a year?
  6. Will this repair ensure the longevity of my property?
  7. Is my resident going to be inconvenienced to the point of incoherent babbling?

Necessary

Here we will use the example of painting the exterior. That blue exterior of your house appeals to very few people. You're going to spend about $2350 to paint the entire exterior of a 1600 square foot house, don't forget to add in the attached garage space. Does it need it? Or do you just not like the blue? If the house is coming up for rent, it is now necessary to PAINT IT. However, the paint is only 2 years old and in good shape. Well, it is probably going to stay on the market longer. How long? Well, say it's a month longer than if it were not a blue home. The rent is $2200 a month. That right there is a push. you lose $2200 in vacant property costs, or you pay $2350 and have a resident quicker. However, you're more likely to retain that resident longer.

Value

Changing out the old single-pane windows for dual pane vinyl will probably raise your property value but have a negligible impact on your rental rate. A new kitchen and flooring will certainly raise your property value, and almost certainly raises your rental rate.

Injuries and Lawsuits

Not fixing an item may result in having you dragged kicking and screaming into a courtroom because someone was injured, just do the thing. Enough said.

Time Is Money

Is the repair going to cost more later? Yep, it is. Currency is always being devalued. Remember 5¢ candy bars? Like $1.25 these days. $1,500 cars? That won't even buy you a Yugo these days.

However, the rise in cost is not only related to prices that naturally arise. For example, a roof that leaks is not going to get better, and water intrusion left alone, will create more cost to you. Yes, an oversimplification, but stick with me. Say that roof leak is a slipped tile at the edge of the roof, not over a living space, you have some time. Yes, the damage will worsen, but not in a critical area, so that buys you a little time, but not a lot. There is likely a structural reason for the slipped tile.

Preserve that Property!

Let's face it, owning a rental property is almost always a long-term investment. The longer the term, the greater the benefits. Did you know that during the financial meltdown of 2009 property preservation BOOMED? Banks understood that caretaking all those vacant properties was essential. Well, taking care of your investment rental property is just as important. Let's face it, it's a marathon, and you do not run a marathon if you're in poor shape. It's like that for your property too, minus the running part.

Inconveniencing the Resident

Some things you just don't do, like rip out the carpet and install tile in an occupied property. There has to be a really good reason to do that sort of thing because your resident is not going to be happy. On the other hand, some inconveniences are unavoidable. Say, like termite tenting. In that case, sorry resident, we need you out for a few days. You see, you have a right to stop bugs from gobbling up your home. Get a Vegas voucher for the resident, let them have a few days out maybe. Being out will be fun and they will remember you. 

Last Thoughts

Be good to your rental property and, more than likely, it will be good to you. When I started doing BPO (broker price opinion) inspections back in 2010 I noted a fair amount of deferred maintenance at some properties. But when I started doing insurance inspections, that was an eye-opener. I saw so many rental properties with so much deferred maintenance that, and I'm dead serious here, that it broke something inside me. Owners/landlords/property management companies who did nothing, or almost nothing, to preserve these investments.

That is one of many things that sets Management One apart. We genuinely care about keeping your property in good shape, and your residents happy.

And may that piggy bank of yours keep clanking away for many years to come.


Check out the difference for more information regarding Deferred Maintenance. 

maintenance