You may not even realize it, but something could be hurting the flow of money for your apartment building. It involves postponing a task in order to “save” money. Can you guess what it is? If you’re thinking deferred maintenance, you got it right.
Deferred maintenance is when you postpone maintenance tasks or repairs on your investment property to save costs or meet budget funding levels. At the moment, it may seem easier on your wallet to pay for a quick repair instead of a complete replacement, but when you have to repair five or six times, you aren’t saving money at all.
Deferred Maintenance Doesn’t Create Passive Income
If your strategic plan is to defer maintenance to save on expenses, then you need to go back to the drawing board. If you do that, you might as well place all that money in a box next to your fireplace to use as kindling for your next fire because your cash flow is going up in smoke.
Yes, there are different levels of property renovation. Some are better for new buyers or improving your revenue. Overspending on the wrong renovations can set your return back, but they should never dip into your monthly cash flow. We’re talking about big maintenance issues such as water heaters, plumbing, roofs, electric panels, or furnaces.
Some repair situations are easy to ignore or easy to convince yourself that a $250 repair bill is a better aly leaternative than a $2,000 replacement of a system. However, little repair bills like that can add up quickly, which can make an entire month’s cash flow disappear in smoke when you have to pay one. You should have replaced it to begin with; that’s when the true cost of deferred maintenance is seen. When you compare the expense to maintain and the price to replace, the maintenance costs could be twice as high. You could lose an entire year’s return. Deferring maintenance on any kind of property onlds to higher costs in the future.
Unknown Deferred Maintenance
Deferred maintenance can be a huge setback for investors who want to build a reliable monthly income. What is quite worrisome about deferred maintenance can be seen in the purchasing scenario. If an investor buys an investment property without knowing deferred maintenance is present, future cash flow will be at risk, and they’ll be none the wiser.
If you are purchasing an apartment building that has been previously renovated by the current or past owners, you absolutely need to pay attention to what items have been repaired, which ones have been replaced, and what hasn’t been looked after yet. If you can’t get your hands on any of that information, you need to take a step back, no matter how good the deal looks. You need to make a good investment decision. Don’t let the pressure of a “good deal” rush you.
If you are purchasing an investment property and looking for ways to make the deal stronger, ignoring needed repairs and deferring maintenance will make that deal much weaker, not stronger like you thought. At the end of it, these items you’ve ignored will eventually have to be addressed, repaired, or replaced. The truth of it is that it will cost a lot less to address them on the front end than it is on the back.
It’s really easy to defer maintenance, but that’s not great for you or your apartment building. To determine what the best avenue is for you to take, make sure you calculate what you could be spending one way versus the other. If you don’t and continue to make little repairs, you have a silent cash flow killer on your hands.