Foreword: The following article is not a substitute for legal counsel. The information contained herein was current as of the time of writing. If you need immediate help with a pressing issue concerning your rentals, turn to a competent attorney or our Gulf Coast experts for real-time assistance.
We've talked a bit about understanding cash flow recently as a Sarasota property management expert. Now that you know the importance of assessing both cash flow and your cash-on-cash returns as an investor, it's worth taking a look at some rental property issues that can kill your cash flow—and your returns—with one shot.
You likely know by now that successful real estate investing is a numbers game—and a balancing act—between several different factors. The cost of rental property maintenance and repairs should always be accounted for as one of these factors when calculating your cash flow on a Sarasota rental property.
Let's say your property has a busted gutter after a severe downpour washed plenty of dead leaves and twigs off of your roof from an overhanging tree limb. You thought to yourself beforehand that you should probably have gotten that checked out (and trimmed) by an arborist—but it's too late now; the gutter is broken either way.
However, it's just one small section of your overall gutter system—it doesn't seem like it's impacting how water drains away from your property. It's probably not crucial to take care of it right now; it looks like you might be able to wait at least a couple of weeks, maybe even months. After a while, you forget about the gutter—until water begins backing up into your property and you're getting frantic calls from your renter.
It's easy for investors to assume with routine maintenance that 'a penny saved is a penny earned,' but this philosophy can seriously tank your potential cash-on-cash returns down the line. Putting off repairs now that seem small just to save a buck is a 'silent killer' for cash flow. Crucial maintenance issues that are put off until another day can become compacted—and costly.
Maintenance Matters, Regardless of Asset Class
Real estate investors who let rentals live and die by the concept of 'the squeaky wheel gets the grease' are setting themselves up for failure. You should be routinely inspecting your Sarasota rental properties to prevent any 'wheels' from squeaking in the first place—regardless of whether your property is an A, B, or C Class asset.
If your property has plumbing issues—even something as simple as a leaky faucet—it should be addressed in a luxury rental or a humble home. Your renters are all going to expect the same quality of service, whether they pay $6,500 per month in rent or $1,500.
Even if you have a potential replacement job coming down the line that you know would eat up an entire month's worth of rent, it may still end up costing you less than repeat repairs. The average cost for home maintenance in Florida is about $1,300 a month, so deferred maintenance costs can quickly add up to some unpleasant numbers.
Yes, there are smart calls to make when it comes to renovations and updates depending on your Sarasota rental home's market value. Overspending on upgrades that won't command increasing rental rates is never a sound investment. However, the same logic doesn't apply to necessary repairs.
Plan Accordingly for Rental Property Maintenance
If you know that routine maintenance is an expense you'll consistently need to face, you can prepare for it to avoid 'sticker shock' when you receive a bill for repairs or replacements. Budgeting for routine maintenance is an essential skill—and a hallmark of seasoned, experienced investors.
Some investors choose to budget according to the value of their property (the 1% rule) or budget for routine maintenance according to the total number of square feet the property has. That said, these are just general ideas; the effectiveness of these methods, when applied to your own portfolio, may vary.
As a Sarasota property management company, we recommend walking your property routinely to conduct inspections—move-in, mid-lease, and move-out (or, alternatively, during a lease renewal) are all great times to conduct a property inspection. This will give you an idea as a property owner and investor where the problem areas of your properties tend to lie. Drive-by inspections are another great way to keep an eye on the exterior of your property between visits.
If you have a property manager handling all of this for you, they can sit down with you to discuss a reserve to have on hand for rental property maintenance and repairs that can prevent costly maintenance issues in the future. Each Sarasota rental property is going to have different maintenance (and Capital Expenditure or CapEx) needs, so a 'one-plan-fits-all' approach isn't always going to apply.
Protect Your Cash Flow and Stay on Top of Maintenance
As a real estate investor, we know your resources available to tackle most problems are finite. Talking about routine maintenance—and even emergency maintenance—isn't a blame game. However, you do still have responsibilities as a property owner and investor to keep your investments in a habitable and safe condition. This often requires tackling the necessary maintenance and repairs that keep them that way.
If you need a little help keeping track of your maintenance, we've got you covered with some free resources. Working through our checklists can help you spot problem areas you may miss on a rental property before a new resident ever moves in. As always, if you need additional support, reach out to the full-service experts here at Gulf Coast Property Management—we'd be happy to help you work through your maintenance pain points.