How Long Can You Afford a Maintenance Delay to Cost Your Rental Property?

For landlords of small properties – the landlord of a single dwelling house, the couple who own two rental properties, the individual who owns four but is not around to fix and maintain them – there is a tendency to neglect the little things. They may seem minor now, but by the time they become a real problem, the cost – in money and inconvenience – will be far greater than if they’d been caught early. A slow draining kitchen sink, a faulty light fitting in a hallway, a creaky door that swells in humid weather and sticks – things like these are classic examples.

Maintenance and repairs in rental properties do not follow linear economics. An $10 fix up, which is recorded in the log book, can turn into a $300 repair, which in turn turns into tenant move out and a string of vacancy loss and repair associated with turning a unit over to a new tenant. Only after the property has been vacated will you find the additional wear and tear costs associated with the previous tenant’s occupation in your bottom line. What had seemed a simple fix could literally make or break your bottom line for a quarter of the year.

Repeat Yourself

You’ve probably read recent articles fretting about the dangers of one single undermaintained item in the maintenance back log. But today’s article examines the greater risks posed to facilities by numerous undermaintained items. And also takes a peek into the tenant’s perspective when it comes to determining maintenance quality.

Most complaints about a rental property are minor annoyances, such as: “The water pressure in the master bath is terrible”. The landlord goes to great lengths to address the problem (in this case calling a plumber within a week) but for reasons beyond his control, the appointment gets pushed back a day. A week goes by and the tenant follows up with the landlord only to apologize that the appointment has been rescheduled for the next day and the plumber will show up on time the following day. But the second entry in the tenant’s mental ledger is worth 5 times the first.

A new report from Harvard’s Joint Center for Housing Studies finds that the most important single factor for rental property investors in terms of long-term profitability is tenant retention. The process of turning over a rental property can cost more than two months of rent in lost time during which the property sits vacant. A lot can go wrong in that period of time, from cleaning to repairs to advertising the empty space, but at the root of all these problems is often the landlord’s failure to take communication with tenants seriously. Suddenly, what was supposed to be a minor fix for a heating emergency turns into a series of calls to a plumber while you are waiting for the tenant to be home to let you into the unit to fix a leaky faucet.

What is the Unseen Coordination Gap?

Most self-managing landlords manage their properties on an ad-hoc basis using whatever methods they find easiest, be it text messages and scribbled notes, hand written spreadsheets or numerous scraps of paper tucked away in kitchen drawers or buried in cupboards. Some have lists of emergency numbers written on sticky notes or scrawled on the back of old business cards. Others rely on handymen and maintenance staff from local letting companies that answer their phone most of the time. Such systems can take a while to collapse, but they tend not to collapse spectacularly.

The landlord was contacted on Monday for maintenance assistance in responding to a quick request for service. The vendor was confirmed on Wednesday and then a visit was scheduled for Thursday. However, the accepted time for part acceptance was delayed by 24 hours due to the landlord not being available to check the scope of work.

On Tuesday of the following week the tenant was not in to release the part and the repair was 10 days old for work that should have taken 2 days. The tenant had to request the repair several times already and the issue was never successfully resolved. The way the tenant is dealing with the landlord is evolving.

Having a process for property management, whether it is managed in-house or out-sourced to a highly reputable company like Earnest Homes is half the battle. Those who take maintenance requests seriously and use dedicated software, vetted contractors, and have a general knowledge of response and repair timeframes typically outperform those without a system in place.

What Tenant Frustration Actually Costs

Tenant frustration is not just a ‘soft’ issue, decent homes matter greatly. Small landlords often learn this lesson the hard way, before they realise the importance of keeping their homes in good repair.

In addition to being an ethical matter for landlords, standards of habitability and response times in which to make repairs also happen to be the law. The U.S. Department of Housing and Urban Development warns of serious consequences for landlords who do not promptly address necessary repairs including that tenants may withhold rent, attempt to repair items themselves and deduct the cost from the rent, or contact local housing codes.

In Florida, landlords of both single family residences and multi-unit properties must maintain their rental properties in safe and sanitary habitable conditions. Landlords who fail to address documented repair requests could find themselves on the losing end of expensive legal action – often costing more than the repair itself.

Most landlords are aware of the financial costs of inaction but may not be aware of the less visible costs to their reputation. With tenants increasingly researching the landlord before signing a lease landlords must be responsive to maintenance needs. For each slowly fixed leaky faucet, broken light or non-functioning appliance that was reported to a potential tenant a few qualified, long-term tenants are precluded from renting a landlord’s properties. The landlord will have to start from scratch and the market conditions at that time will not be as favorable as they would have been had the landlord successfully rented the property to a qualified tenant.

The Compounding Effect of Turnover

Turnover refers to the true cost of deferred maintenance for a rental property. What looks to be an empty, clean house ready for renters may actually have hidden damages or repairs caused by tenants over the course of their lease. Managing multiple rental properties with various tenants requires consistent communication with both the property owners and tenants. It requires a high level of follow through in order to have a positive rental property management experience.

According to Zillow Research, the costs of turning a property over to ready new renters can be as little as a few hundred dollars for things such as cleaning, and repair of broken items, or it could be as much as $1,000 or more for additional expenses such as new paint or flooring, especially after just a few years of deferring repairs of small problems that can quickly become big, costly issues.

For the landlord with thin margins, the single avoidable turn over can cost months of net operating income. There is always a truer cost of a maintenance action than what the contractor or maintenance manager will tell you, and from the landlord’s perspective, preventative maintenance is always less expensive than repairs. This article will attempt to identify the various maintenance actions required prior to turnover and estimate their cost. These tasks are generally broken down into three categories: Carpentry and Painting, Apartment Turnover Cleaning, and Move In/Out Inspections.

It is real estate properties that hold value, hold tenants and achieve returns over the cycles that create the most value. These are not necessarily the most high-end or impressive looking properties and they don’t necessarily cost the most to purchase. What they require is a focus on the property as an operating entity and addressing issues before they become larger problems.

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