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The Landlord's Definitive Guide to Minimizing Operating Costs
David Schwartz Jun 2, 2016 9:00:00 AM
They say it takes a special kind of person to become an apartment landlord—business savvy, tough-minded, and optimistic are all words that come to mind.
Unlike "set and forget" business models, apartment ownership requires a large amount of personal involvement, business acumen, and interpersonal skills. Chances are, you were warned of the horror stories before becoming a landlord: Tenants who don't pay rent on time, occupants who abuse their surroundings, and people who just seem to enjoy complaining about everything!
Not to mention the surprise maintenance issues (aka"surprise profit-killers") that arise throughout the year, decreasing capital projections. While such generalizations are not unfounded, they are most definitely NOT the rule. As you know, apartment ownership can be enjoyable and profitable with the right systems in place.
One of the most important systems you can put in place is an operating cost minimization plan. Unfortunately, many landlords get so wrapped up in the day-to-day responsibilities of running a property they don't take the steps to cut unnecessary operating costs. Similar to an individual who suspects he's seriously overpaying on his car insurance premium who fails to research a better solution month after month.
Since we know you're busy, we decided to do the research for you. Below you'll find a comprehensive list of tips and resources for minimizing your apartment property operating costs and increasing your ROI. We encourage you to bookmark this article for your reference, come back, and tackle each savings opportunity one by one. Consistently implement these changes and your bank account will begin looking a lot fuller.
1. Hire Independent Contractors and Provide Incentives
Just like any other type of business owner, you must determine whether hiring full-time employees or independent contractors is to your best benefit. In many cases, hiring ICs makes more financial sense for apartment landlords. Not only are ICs great for weathering transitional periods (i.e. building renovations, internal restructuring, changes in ownership), they are also advantageous for "trying before buying."
Put simply, apartment staffs are small communities—one bad apple can spoil the whole bunch. Furthermore, ICs allow you to save funds on social security, taxes, and benefits. You may also want to provide employees with discounted rent to make up for lower salaries.
Negotiating On-Site Employee Residence Discounts
2. How to Reduce Your Building's Electric Bills
Unless you enjoy a fairly moderate climate, you likely either suffer from excessively hot summer months or excessively cold winter months. Both climates require extensive electricity use. Not to mention the year-round costs incurred from heating water for taking showers, washing dishes, and cleaning clothes which makes up approximately 39 percent of every energy bill. In the following article, you'll find some tips that can be applied to reducing the electric bills you are responsible for as a landlord. Consider passing on some of the tips in a tenant educational conservation program:
10 Easy Ways to Lower Your Electric Bill.
3. How to Significantly Reduce Water Usage
Did you know water costs have risen by 200 percent in New York City since 2000? Naturally, this steady increase has property owners looking for the best ways to cut down water bills. After all, water usage accounts for a third of utility spending among multi-unit buildings. In this article, we discuss why landlords actually have more control of water usage than they realize (and the tools that help them do it):
How to Reduce Water Usage Without Sacrificing Tenant Comfort
4. More Innovative Ways to Save On Utilities
As we've stated many times, the real utility savings opportunity for NYC landlords is reducing tenant water usage. With that said, both you and your tenants can reduce your electrical bills by following some simple advice:
6 Easy to Follow Steps to Save On Utilities
5. How to Find and Fix Water Leaks NOW
Worn toilet flappers, dripping faucets, and leaky valves are all small mechanisms that can easily go unseen or unreported by residents. If an estimated 10 percent of U.S. households remain unaware of conspicuous leaks that waste more than 90 gallons of water per day (according to the EPA), just imagine how much water you could be losing in a multi-family building. For many of our clients, such leaks have literally cost them thousands of dollars year in profits.
How Property Owners Can Identify and Fix Leaks Once and For All
6. How to Reduce Internal Lighting Expenses
Switch to LED lighting—it will save you money. We've all heard the claims. But do they match reality? And furthermore, do they really make a difference to the pocketbooks of multi-family building owners? Check out the facts in this article:
Should You Switch Your Multi-Family Building to LED Lighting
7. How to Reduce External Lighting Costs
Results have shown that increased facility visibility and positive curb appeal are a direct result of proper exterior lighting. Site illumination contributes greatly to user safety and patrons are more likely to select a storage facility that includes high illumination for parking, walkways, and building perimeters. It can also be expensive! Which is why switching to LED lights on timers is recommended:
How to Light Your Outdoor Area – Multi-Family Buildings
8. How to Save on Heating and Cooling
Space heating and cooling account for a whopping half of resident energy usage, on average. Both you and your tenants can reap significant financial savings by understanding how hot and cold air is transferred from outdoors inside buildings. Fortunately, there are several ways to minimize heating and cooling costs—from the simple (utilizing curtains and blinds to block the sun's rays) to the complex (ensuring living spaces are airtight with caulking, weather stripping, and insulation).
8 Ways to Save Money on Heating and AC Energy Costs
9. How to Save On Maintenance Costs
One of the largest responsibilities of landlords is keeping up with maintenance requests. As previously mentioned, hiring contract maintenance help is often more advantageous than hiring full-time. In addition to routinely price shopping maintenance workers in your area, you can pro-actively save on maintenance costs with some simple, routine actions:
Tips for Landlords to Save Money On Maintenance
10. How to Turn and Flip Units
Looking to flip an apartment building? Unlike flipping a single-family home, flipping an apartment building is centered around understanding Capitalization Rates (aka, cap rates). As such, separating an "actual good deal" from a "surface-level deal" can be challenging. Here's a guide to understanding the potential risks and rewards:
The Beginner's Guide to Flipping Apartment Buildings
11. How to Provide Unique Amenities
As the number of renters continues to rise, so do their expectations. Today's influx of Millennial renters often have “house-like” expectations of leased spaces, while seasoned renters are likely to view traditional amenities (i.e. pool areas, fitness areas, and business centers) as unappealing since they know they’ll never use them anyways. As such, landlords must dramatically shift their thought-processes regarding amenities in 2016.
7 Apartment Amenities Tenants Actually Care About In 2016
12. How to Accurately Assess Real Estate Value
The goal of every landlord is to get as close to market rents as possible while experiencing as little turnover as possible. In addition to the many factors involved in determining fair rent prices, you need to accurately assess the real estate value of your building. Interestingly, there is more than one way to do this:
4 Ways to Value a Real Estate Rental
13. Which Capital Improvements Are Tax Deductible?
Another major opportunity for savings is accurately claiming all repairs as tax deductions. The general rule of thumb is that the cost of repairs incurred may be deducted from each property's taxable income in a given year. However, knowing what constitutes "a repair" is key, as "improvements" are NOT considered tax-deductible by the IRS:
Repairs vs. Improvements - What Can I Deduct From My Taxes?