Improving ROI Through Proactive Cost Management
With rents rising more slowly and the cost of materials and construction still high, watching operating costs can have a real impact on the bottom line.
There seems to be an adage for everything. So many, in fact, that sometimes they contradict each other. Two that come to mind as applicable to operating property are “An ounce of prevention is worth a pound of cure” and “If it ain’t broke, don’t fix it.”
Which is better? My initial thought is, definitely the first one. Aside from the fact that the second one vaguely suggests neglect, if you keep things working well, you won’t have to replace them as soon, and repairs may ultimately prove much less extensive. But the second adage doesn’t have to be viewed negatively. After all, you can lose money by replacing things too early (say, an appliance), when they’re still working just fine. So maybe a mix of both is the best approach. If something’s getting to the end of its useful life or showing too much wear and tear, replacing it proactively rather than under emergency conditions is usually less expensive (which brings us to another adage, the one about being penny wise and pound foolish).
With rents rising more slowly and the cost of materials and construction leveling off but still high, watching operating costs can have a real impact on the bottom line. One way to do that is to proactively manage maintenance and repairs, advises writer Robyn Friedman in “6 Ways to Lower Resident Turnover Time, Costs,” perhaps on a schedule. Having materials on hand also helps. A less obvious benefit comes from keeping residents happy, reducing turnover, which creates “a lot of costs, which often get buried in the P&L,” Convolo Capital managing principal Jeremy Thomason told Friedman. Those costs are going up, too: The time it takes to re-rent is now at 46 days, according to data from RentCafe.
Developers of single-family rental communities are also seeking new strategies to keep costs down as a means to maximize ROI, especially those building for the middle-income price point. Effective methods include standardizing design to benefit from economies of scale and incorporating prefabricated elements, Jordan Mann discusses in “Creating BTR Communities for the Workforce.”
That focus on cost cutting will continue to be critical. While demand for build-to-rent product remains strong, rents in some markets are slowing or even falling in response to significant new supply, according to the Yardi Matrix monthly Single-Family Build-to-Rent Report. (Though Matrix is predicting a slowdown in new supply following this year’s peak of more than 35,000 unit deliveries.)
So back to the adages and the best application for real estate. How about: An ounce of prevention regularly, and if something’s likely to break, fix it. Not catchy, but practical.
