When Rental Prices Drop: 10 Tips for Property Managers
We don’t mean to sound alarmist (seriously, we’re usually in very good spirits), but today’s economic downturn has us wondering what challenges the apartment industry is going to be facing in the weeks, months, and years ahead.
April 30, 2020
If we look to history for clues, the 2008 financial crisis saw rental prices drop, followed by a rise in renting (read: not great news, followed by pretty great news).
Now is the moment for property managers to really work on lowering their operating costs. They need to brace for lower rental prices while also getting better positioned for growth (a tricky situation, no?).
Our team of expert accountants works with property managers all over the US, and we’ve gained some invaluable insights into cost-cutting strategies. Pair that with our entrepreneurial spirit and love of being helpful, and it’s no wonder we collected these ten cost-cutting tips to share with you.
Without further ado, here are ten ways to cut costs for property managers:
1. Review Your Contracts
Recurring Expenses: Look at your recurring monthly expenses. Could you be getting a lower rate for similar service or coverage? Have your rates quietly gone up for any of your automatically renewing contracts? Have your insurance premiums gone up? Doing your homework on any major recurring costs can help you save big over time.
Renegotiate Contracts: Take a look at your vendor contracts, too, and work to negotiate more favorable payment terms wherever possible.
Payment Schedules: Can you negotiate a payment schedule that works best for you, given your other expenditures? Spacing out your payments is a good way to keep your cash flow more steady.
2. Don’t Overspend on Accounting Services
Find An Ideal Payment Structure: All too often, property managers in need of scalable accounting support end up looking for less expensive (and often less qualified) solutions. Or, they’ll create their own in-house team, a cost that adds up quickly.
So you don’t have to worry about being overcharged, or incurring any extra unexpected expenses, find an option that operates with a monthly service fee so you know exactly what you’ll be paying every month.
Full disclosure: We’re a bit biased on this one because we provide accounting and bookkeeping services to property managers on a monthly basis, working with each property manager on an individual level to figure out the pricing structure that’s right for them.
3. Decrease Common Area Utility Costs
Check For Efficiency: Especially if you have 20 units or more, you might find a lot of room for cash flow improvements in your common areas! For example: Do you have underground parking with lights? Think about electro retrofitting the lighting ballasts with new LED bulbs to significantly decrease your energy spend and don’t forget to set your timers when daylight savings comes into play. Think about capping water spigots, too (especially in the summer) if tenants are using more than usual. Also, take a look at your water boilers! Are they energy efficient? These might feel like little costs, but it all adds up.
4. Ditch Underperforming Properties
Know When To Walk Away: It can be tough when we become invested (literally and emotionally!) in a property. Perhaps we jumped on what we thought would be a good deal, but it’s turning out to be more problems than it’s worth. There’s no shame in walking away when something isn’t working out as planned. Are there properties that are taking too much time, without making you enough money? Sit down and have a hard look at the health of your portfolio. What problem properties can you try to let go?
5. Pursue Great Tenants
Smart Screening: Develop a solid system for screening tenants (within the legal confines of your state, of course). Perform thorough background checks, look at their credit scores, and talk to their previous landlords or property managers to find out if they paid on time, or caused any damage.
Learn From The Past: When looking back on tenants, try to do some root cause analysis! Was it us, or them? Is something broken in our screening process, or did we just get unlucky? Ask yourself what makes a good tenant? When you start to look towards the past, you can begin building a framework for better evaluating and analyzing tenants.
6. Expand The Services You Offer
Provide More Options: To add a bit more potential income to your monthly cash flow, think about offering additional value-added items to your properties. Perhaps you could build out a small storage space, or offer reserved parking. Perhaps you can start allowing some small pets onto the property for a monthly fee. Maybe you can offer guests the chance to reserve the common areas for events. Take a look at potential offerings, and test them out with your residents!
7. Mitigate the Impact of Vacancies
Budget For Turnover: Vacancies happen, but you can mitigate their impact by including at least a marginal vacancy rate in your annual budget – around 5-8% can account for annual turnover. Plus, if you know that specific months are popular times for tenants to move out, work this in, too! That way, you can plan to have extra funds on hand to get you through the difficult season. *If you handle student housing or a college market, this is especially important for you!
Stagger Lease Dates: Fiddle with the dates in your leases to ensure that you don’t have vacancies hit all at once. For example, if you know you have two leases up for renewal in 12 months, then try to secure a 14-month lease with a new tenant to stagger potential vacancies. Typically, you’ll have a standard length deal, but if there’s room for adjustment here, take the opportunity!
Gather Data: By looking at the past year or two, you can begin to analyze trends and start to make predictions. Figure out what you can actually control (incentives, term lengths, rent amounts). Work to understand why there’s turnover and see if you can get to the root cause. It could be seasonal (college towns), but what if people are moving out due to maintenance issues? Or perhaps you’ve raised the rent too much? Yes, sometimes, people just move on! But try to figure out what aspects you can control to bifurcate natural turnover.
8. Improve Planning and Communication Around Maintenance
Set Your Team Up For Success: Contractors are thrilled when property managers give clear requirements and parameters for jobs. When contractors know enough in advance, they don’t need to waste any time searching for the correct materials or tools, needing to make an extra trip, or maybe even bring additional help! This type of back and forth could end up doubling their time – and their invoice. By working to share relevant details before your tech arrives, you can prevent such losses.
Preventative Maintenance: Similarly, getting on a preventative maintenance schedule can help curb maintenance issues and save yourself thousands in repair costs each year. Your seasonal repair schedule might include things like weatherproofing, pest services, and gutter cleanings — and make sure to check for expiring appliance warranties!
Prioritize Repairs: Not sure where to start? Don’t overspend by trying to do everything all at once. Prioritize repairs that will impact the quality of life for tenants, and issues that can create bigger problems in the future (leaks, pest control, etc). If you’re doing major repairs while turning a unit, you might want to add in other repairs to take advantage of the time when tenants are not there.
Finally, see what capital expenditures (CapEx) you can work into your annual budget: these are rare but recurring large expenses like new roofs, new furnaces, and new appliances.
9. Don’t Forget Marketing Costs
Strategic Marketing: How can you plan ahead and budget for marketing costs? What has worked in the past, and when? During certain seasons you might want to hit your marketing efforts more than others, and there are a lot of different ways to market. Can you perform some ROI analysis? What channels have performed for you in the past? What are the different cost profiles? Can you ask potential renters to tell you how they found your listing? When it comes to your marketing efforts, the more feedback you’re able to get, the better!
10. Keep Your Renters Paying On Time
Keep It Simple: Rent payments are your most important cash flow consideration! What systems can you put in place to make sure your renters are paying on time? Make it super easy for renters! If you don’t already have these systems set up, think about setting up online payments, or (and this is the big one) give tenants the option to set up automatic payments. Sure, you can set a steep penalty for late payments, bounced payments, and non-payment, but it’s better to set up easy systems where tenants don’t have to think about it.
While we’re experts in accounting and bookkeeping for property, we’re not experts in your unique business (yet!) – but we’d love to chat with you to learn more, and tell you how we can help you save.
Give us a call today, and let’s get you ready for whatever tomorrow may bring.