If you are a property manager, a rental property owner, or a property owner that is self managing, how are you adding value to your property? What is value in a home or apartment rental?
- Rental rates
- Quality of the asset or condition of the property
- Expense management
- Liability exposure
Most of these items are connected and positively or negatively correlated. For example, raising rent above market will increase value, but the expense of increased vacancy may out-weight the potential benefit. Another example: reducing maintenance expenses will increase value, but could potentially reduce the quality of the asset and potentially reduce market rent. There are a few philosophies owners and managers can do to create a plan based on the property.
Are you shopping competitors? Are you researching area vacancies and rental prices? What is vacancy? Are there any curb appeal items or maintenance items that can be completed to raise rent?
Quality of Asset
Full property assessment should include rating the life on all of the systems of the building. For example, how long will the siding, roof, windows, cement, etc. last before replacement. Are any exterior items driving the value of the property down. Examples include excessive satellite dishes, personal property, quality of landscaping, and personal property. Do you have an improvement plan to update these systems over the life of your investment. If items are to be deferred, what is the cash return on the deferment?
Do you have a preventative maintenance plan? Do you have a plan for updating? Lack of planning can be the greatest factor in unforeseen and many times unnecessary expenses on a rental property. Does your turnover process lift expectations for tenants maintaining the property or reduce expectations. Are you holding the tenant responsible for expenses such as screen replacement and light bulb updating. These seem like small expenses but tend to add up.
What is the likelihood for a loss related to a lawsuit? Can that likelihood be reduced? What is the cost/benefit of reducing the exposure? Liability can be found in many different arenas of managing rental properties. A few examples include: risk of Fair Housing complaint, property risks such as uneven sidewalks, liability exposure with vendors. Training programs for leasing staff, sidewalk replacement, and being listed as an “additional insured” on vendor policies are all examples of reducing risk. The costs could include paying more for vendors, cement replacement cost, and training expense.
Approaching property management as a value adding procedure begins with a philosophical approach. The philosophy you build can lead decision making. Using value add principals and thinking about and measuring value additions can greatly improve property values and rents especially over longer periods of time.