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15 Ways to Reduce your Property Management Costs

January 20, 2023

Manage Property Management Cost

Costs are a growing concern for landlords and property managers as inflation eats more of their profit margin.

As landlords search for property managers and new software, cost and fee reduction is part of the value proposition they’re seeking.

The fact is, costs and expenses are rising. Operating margins are shrinking, and 2 or 3 cost unexpected events could bring their business down. Losses for owners (not our responsibility) eventually result in less business for property managers so issues eventually land back on your desk.

There’s a lot of status quo managing going on, yet rising costs mean status quo isn’t possible going forward.

Discover 15 great ways to reduce your exposure to costs and expenses below.

 

Rental operating expenses are typically 35% to 80% of the gross operating income (GOI) depending on the type of rental property — Zillow report.

 

NAR’s most recent exploration of rental property costs didn’t take property management company’s fees into account. Yet the total then was over $12,000 per year per unit. In 2023, these costs could jump significantly.

Average total operating expenses per unit.

Total value of expenses per Unit. Screenshot courtesy of NAR.

 

Cost Management in 2023

Now in 2023, property managers aren’t seeing labor and material costs fall much, and fears on the revenue/budget side are growing. Churn is a factor.  Managers who manage single family rentals especially, will need to get granular about finding cost reductions.

And inflation remains elevated at 7% which is like an extra tax on your operating budget.  The Fed is predicting higher interest rates in the US which simply means higher financing costs, higher operating costs, and higher churn and vacancies. The situation in Canada, UK, Germany and Australia is very similar if not worse.

Everyone’s NOI is headed downward yet more work orders will land on property manager’s desks.

Unexpected Costs and Budgets are Key Issue in 2023

If unexpected costs and budget management are the big challenge of 2023, you’re smart to get a handle on it if your rental portfolio is single family homes. Rental house management poses many more risks.  2 things to do now:

  1. Find and list those key threats (aging appliances, roofing, HVAC, evictions, utility pipes bursting, and other risks where you will be using staff time).
  2. Creating a new/revised cost reduction and spending control plan will help keep your business sustainable. Many property management service startups could be taken down by this wave of unanticipated costs in 2023.

Your current tracking of expenses is great, however, are the big cost threats not even showing up yet? What if you had to lay off one staff member? What if a vehicle or piece of equipment fails and it’s expensive to replace?

 

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You might want to ask is “what could go really wrong this year?” Not to be pessimistic, but rather to encourage you to use your software tools for total awareness and control of cost threats.

Property Management Software Helps

ManageCasa helps you find all the cost trends and those unexpected costs that happened then (migrate all your data over to our system) years ago. Because they’ll happen again.

Of course, your property management software is central to your capacity for avoiding costly errors and reducing expenses intelligently. Your real awareness of your tenants and assets will be put to the test in 2023.

ManageCasa provides plenty of professional level accounting and reporting capabilities so you can see the real numbers affecting your budget.

Where to Reduce Your Budget Expense Items

Improved budget management is simply another reminder of your value proposition and how lucky your clients are to have you.  On a practical basis, you have your own unique list of items you’re spending too much on.

Your overspend might arise via:

  1. staffing (your biggest expense is solved only through layoffs)
  2. inspections (anything in the field is costly now)
  3. appliance repairs (using repair contractors can leak out significant funds)
  4. servicing too many unit turnovers (hands on cleaning/maintenance costs with a time window)
  5. paying repair/maintenance contractors too much (not having in-house staff with the right certifications)
  6. office costs (going virtual never looked so good)
  7. service fleets and insurance (vehicle maintenance, leasing, fuel, and insurance premiums)
  8. fuel/heating bills (high and predicted to rise this year)
  9. taxes (certain to rise for most property management firms)
  10. new equipment (avoiding having to buy anything new)

NAR Rental Property Costs Report

In 2017, the average annual operating expenses per unit was $ 5,270. The average annual capital expenditure was $3,856, or a total of $9,126 per unit per year, or $760/month. If that is inflation to 3% inflation cost per year, that is equivalent to $830 in 2020 dollars. — from NAR landlord expenses report.

 

What are the costs of owning and managing rental properties? NAR put together an interesting view of landlord costs in 2018 with the 2017 year report on expenses and expenditures. This provides a reliable look at where landlords might be suffering lost profits.

Today, tax, payroll, fuel, heating and utilities are much higher.

Operating Expenses per Unit.

Operating Expenses per Unit. Screenshot courtesy of NAR.

ManageCasa Can Help you Cut Costs

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If you have drilled down to determine where revenue, profit and value exist in your portfolio, it’s easier to identify what is causing your losses.

15 Key Ways to Control Your Costs Forever

  1. use your platform’s expense reporting feature – identify units/buildings with the highest cost per unit vs lowest revenue and identify specifically what expenses/costs are creating work and costs
  2. identify all of your expenses most likely to rise with coming inflationary pressure – plumbing, HVAC, electricity, natural gas, payroll, marketing, tenant acquisition, leasing, property management fees, etc.
  3. automate your maintenance using property management software – ensure you don’t have to manage things with spreadsheets and paper tickler files – that’s too old school and your time is too valuable and costly. Consider installing smart sensors to warn of issues that may rise
  4. inspect properties well as the route to discovering building/home issues most likely to cause big losses (frozen pipes, floods, leaks, fires, and tenants leaving)
  5. encourage landlord to drop high cost/maintenance properties – old, dilapidated buildings or units spell trouble if you don’t have a reliable contractor to handle constant repairs and do proper maintenance schedules.
  6. buy higher quality water heaters – a bad thermocouple or thermostat are the usual culprits when water heaters break down. Take a good look at gas-fired, tankless water heaters. These save energy, make tenants happier (and lucky) and if there are breakdowns, they’re easier to fix.
  7. buy high quality HVAC units – they breakdown much less, which means fewer costly repairs and time spent. Shop for reliable equipment.
  8. hire a property manager if you’re a multifamily housing investor – the cost of a property management company is prohibitive however, the management of high volume properties and tenants will stress you out. Find out more about good property managers.
  9. screen your tenants more carefully – the best tenants are low cost tenants who don’t create costly events. See how to screen tenants effectively.
  10. screen contractors more cautiously with a view on to their ability/willingness to fix/maintain time efficiently
  11. keep on top of your expenses, repairs, contractors, and maintenance – significant losses occur between the lines so to speak (unneeded repairs, poor repair service, overcharging)
  12. simplify your accounting – definitely use a good property management software with a functionality to record your expenses with more detail so you can pinpoint issues in your reports.
  13. ensure you educate tenants on equipment operation so they don’t damage anything or create conditions in the unit that lead to water damage, mold, insects, etc. Discuss the lease agreement and remind them of how to care for the lawn, driveway, and wood flooring and how illegal pets can damage flooring and carpeting. A little communication will help tenants be more respectful of the home.
  14. use property management software’s communication power to keep tenants connected, able to pay easily, and ask you questions. Ultimately, this leads to lower tenant turnover, calm and focused tenants, and a progressive reduction in issues you have to deal with.
  15. Review your rental property tax management strategy to ensure you don’t over pay tax.  Increasing taxes and fees will erode everyone’s financial results.

A Top Down, Executive Approach

A top down approach to property management executed through top notch property management software is the best way to reduce costs.

Now you’re mindful of reducing costs and know there is a way to get control.  It’s your key to managing multifamily units and growing your rental property yields.

 

Property Management Software

Try ManageCasa and discover how effective it is in reducing property management costs.

 

More Blogs: Learn, Review, Rate Trial Software | Landlord App | Property Management Apps | Rental Market Outlook| Rental Property AccountingSwitch Property Management Software | Simple Landlord Software | Tax Strategies | Start Property Management Company | Atlanta Housing MarketManagement Financials | Property Management Mistakes | Lower Property Management Expenses

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