While many are talking about the money they’re saving during the COVID-19 lockdown, others are finding their property expenses rising.
When the first shelter-in-place orders came down in markets across the country, many homeowners and renters looked forward to the opportunity to save money on their monthly budget. After all, with no commute, no new work clothes, no restaurants, and no nights out on the town, how could they fail to save money? Ironically, however, for many homeowners, residential investors, and even renters are seeing expenses go up instead of down.
Factors contributing to higher expenses overall
How could home expenses be rising if everyone is busy baking bread and planting vegetable gardens from home? As it happens, the very circumstances that everyone thought would save them money have instead resulted in higher costs.
Property Upkeep and Repair
With residents working from home, attending school from home, and transferring all of the kids’ activities to the home, there’s more wear and tear on structures, lawns, furniture, appliances, and systems than before. People are spending both night and day indoors, creating summer staycations, and turning their homes into the focus for all of their activities.
In addition, many families who previously downsized are having to accommodate returning adult children, either because of university closures or job loss. That means more pressure on systems that were never designed to accommodate more than one or two full-time residents.
While homeowners shelter in place throughout much of the country, they have decided to tackle long overdue home improvement projects. Home Depot reports that sales were up 23.45% in the company’s second fiscal quarter. Moreover, the cost of supplies, specifically paint and lumber, has increased. Lumberyards and paint manufacturers are reporting record sales, even as prices soar.
While part of the increased interest is due to additional home repairs, much is also due to families experiencing their home 24/7 for the first time ever and realizing they need more — more space, more upgrades, more recreational options, and more separation. Open-concept floorplans are beautiful but problematic when two parents are working from home and multiple children in different grades are attending school, all in that same, open space.
Factors contributing to higher expenses for investors
For investors, these rising costs represent a double-whammy. Due to the pandemic and economic retraction, rental rates are generally stagnating and even going down in some areas, while property expenses are going up. In addition, job loss has resulted in late or non-payment of rents while government intervention prevents late payment penalties and evictions.
Prudent Property Management took over a portfolio of 50 rental properties just prior to the pandemic and originally predicted that we could cut maintenance and upkeep costs by at least 10% and possibly as much as 20%. Now, however, it looks like expenses may be 10-15% higher than the baseline.
Increased tenant requests
Increased time in the home means that maintenance requests and associated expenses have also increased. Plumbing work is the most frequent repair request – clogged garbage disposals, slow-draining toilets, and dripping faucets. We know that one of the most popular quarantine-related hobbies has been an increase in baking and cooking, no doubt leading to this added pressure on plumbing systems and kitchen appliances.
In many ways, the same desire to improve living spaces that homeowners have experienced has also held true for tenants. These residents have more time at their rental unit and have taken notice of items they would love to have replaced. Requests have been made for new stoves, faster-flushing toilets, new carpets, and more. While most of these requests are not in the budget, the requests continue to roll in.
Increased tenant turnover
An increase in tenant turnover has also resulted in higher costs. This added turnover was due in part to job loss and economic conditions as well as a desire for young adults to return home and shelter in place with their families rather than alone. In addition, property owners in college towns saw university closures and a mass exodus of tenants make marketing of vacant units and tenant replacement difficult.
Each time a unit turns over, there are significant costs, especially if the tenant has been in place for a number of years: new paint, new carpet, updated door hardware, updated light fixtures, and in some cases, replacement of appliances are necessary. Added to longer vacancies and increased costs for materials, this creates overwhelming expenditures added to too little cash flow.
Increased health and safety measures
Property managers are scrutinizing health and safety matters as both new and existing tenants explore their properties more closely inside and out. Owners are experiencing added expenditures for anti-slip stair treads, lighted pathways, and other outdoor upgrades while clearing dead brush and trees and conducting seasonal exterior maintenance. At the same time, property managers are having to upgrade their cleaning standards and implement virtual home tour and marketing platforms in order to conduct safer, healthier open houses, walkthroughs, and onboarding.
Property expenses will no doubt remain higher than pre-pandemic levels until a vaccine or cure results in people working from dedicated workplaces and offices again. With some companies implementing additional work-from-home policies, some of the current shift may be permanent, requiring landlords and property managers to re-think their policies, processes, and budgets for the foreseeable future.
To discuss strategies to minimize the uptick of expenses at your property, give our team a call.