Efficient Expense Management for Real Estate
Today there is a lot of talk about how rents are going up each quarter like they normally do over the course of an entire year. We have seen those kinds of rent hikes in real-time. We feel that what is going on with expenses due to inflation is not discussed enough. Yes, rents are rising higher than expenses, but they are still rising faster than usual and offsetting a good portion of those rent rises. It is our feeling that people are not taking that into account enough.
4 Ways Real Estate Expenses are Rising
So here is where we see expenses rising:
1. Maintenance
It’s challenging to get good maintenance staff, so usually, the new people need to be paid more. If we are ever without maintenance, we have to vend out more work which ultimately costs us more. There are also labor shortages which means it takes them longer to get to us. Ultimately, this means our turn (cost of work on the unit after a tenant moves) and maintenance is going up. We have also started to implement security deposit insurance. The reason for this is that deposits in Oklahoma are around $300. With this new program, they either pay a monthly fee of $15 to $30 which gets 1,000 dollars covered, or they have the option to do a full months’ rent. This will cover a lot more turn damage or any back rent left. Eventually, help with some of the increased maintenance costs.
2. Insurance
Oklahoma has had some major weather issues lately, translating to some carriers leaving the market and those that stay increasing their rates by 15-20 %. On a $50,000 policy on one of our buildings, that can be significant.
3. Materials
The lead time for materials increases drastically because of supply chain issues. For example, we are putting new windows on our Meridian property, and it took almost six months to get the windows. This also contributes to the increased cost of these items.
4. COVID
Residents are still struggling with the effects of COVID. Luckily there is a lot of assistance through the state, churches, tribes, etc. that are helping these people.
Mitigating the Real Estate Expense Hike
We do many things to mitigate the above. We are right now in the process of finalizing our 2022 budget, and we are adjusting to taking these changes into account. We also monitor these budgets closely, so we understand how we are doing and what things can be done to improve certain costs.
For example, we discussed with our manager to share our maintenance person with other properties so that some of that cost can get passed along to those properties. We plan around move-outs to either get them pre-leased or already have a game plan of what work needs to be done with the tenant moved. In conjunction with this ordering appliances ahead of time, to make sure to have them on hand when needed to help counteract the anticipation of supply chain issues.
We are also implementing a bonus to our managers every quarter that will be mathematically linked to the property's performance. So, our property managers are incentivized to watch the budget like we are. Creating an atmosphere that we are in it together.
When it comes to insurance, we work with our broker long before our renewals to get in front of most carriers. Then, we work with the broker closely to adjust policies where appropriate to bring down the cost while at the same time making sure we have adequate coverage. Additionally, we make sure these carriers know when we make improvements because at times it can affect pricing.
For any tenants that have been affected by COVID; our managers help them to get assistance. They help by assisting the tenants with applications and having good contacts with the assistance organizations. Luckily, the government in Oklahoma has been very helpful as have been several other charitable organizations.
Ultimately the significant rent increases have been outweighing these increases in expenses.
Confidence
Our ability to be cognizant of all this has allowed us to beat our projections in 2021 by 51%. We are confident we will continue to beat those projections in 2022 with our processes and procedures.