“Ask Kari” is a monthly, Question & Answer feature from Kari Negri. Kari has two decades of property management experience, is a featured speaker at many industry trade shows, such as AAGLA’s annual trade show, and is the CEO of SKY Properties, Inc. in Los Angeles.
It’s the New Year! It’s a good time to review a few operations and financial performance items at your building.
Out With the Old, In with the New Year
- Rent rolls
Review your building rents and look at all 2014 unpaid balances – try to collect these balances. For rent controlled buildings, if you cannot collect the money, then you have a few options: for rent only, you can serve a Three Day Notice to Pay or Quit, you can deduct the balance from deposit and notify tenant that this has been done and ask them to reimburse their deposit on hand, or you can send the balance to a collection company. I don’t usually send to collection until they move out, but you can do it and may want to if the amount is big enough. In non- rent control, this may be a decent time to consider purging bad tenants by giving them proper notice to move – those who do not adhere to the lease they signed and agreed to. In a rent controlled building, you can evict for non-payment of rent. In all other cases, you must have a well-documented history of any and all tenant issues and should consult with an attorney or have a letter written on your behalf to let them know where they stand.
- Budgeting and Vender Service
Look at expenses and see where you can make improvements. Bid out all services fresh to compare current vendor price and well as service. That gardener, pool, or other vendor you’ve had for years – call a few new vendors and get new, current bids to make certain you’re getting the right price and full service. As always, only hire legitimate vendors who have a proper license, insurance, workers’ comp if needed, and fill out a W-9 for tax purposes so you can write off the expense. I know a lot of owners who try to save money by hiring vendors off the street who don’t have insurance, but are great people, who work really hard but when something terrible happens, and they don’t have insurance, then all the money you have saved is not worth it. I have heard many horror stories, so don’t let this happen to you, and start the new year with great vendors.
- Rental market survey
Review your market rents. I always say, the best way to see the market is to put on a pair of sneakers and walk your building’s neighborhood. Look at other vacancies that are within a block or so. If you are not at market, and rent control allows it, serve rent increases. Make sure to stagger the rent increases over a number of months to avoid a mass exodus or rebellion at your building. Start with late paying tenants or tenants that don’t follow their lease and then go forward each month – have a plan. Keep in mind that different cities and rent control will sometimes limit amount and frequency of any increase so know when you can raise, and do not raise above market without a really good reason.
- Consider something new like RUBS
Ratio Utility Billing Systems (RUBS) describes sub-metering: charging tenants directly for their individual utilities rather than the owner paying for them, building wide. Sub-metering options include water meters, gas meters and electric meters, as well as, specialty meters that can measure a variety of heating and cooling systems. The primary reason to consider sub-metering is conservation – buildings that switch from owner-paid water to tenant paid see a large drop in water usage. Again, you will need to see if local city allows it, but many do, and during a drought, all of them should allow it frankly.
- Curb appeal
When doing your walk around the block for your market survey, look at how your building’s curb appeal compares. Easy things to look for and repair include: cracked paint, dead or unsightly plants, or lack of greenery (consider planting California native succulents), window clarity, clutter and condition, balcony clutter and condition. You want to keep up your building’s ascetics to draw in good tenants who respect and take care of where they live. You want current tenants to know that they live in a place that is cared for. The #1 reason a tenant will move is lack of maintenance – this includes outside of the building – because tenants care what other people think when they come to visit. Wouldn’t you?
- Capital improvements fund
Consider or review any capital improvement plans, which might benefit the building, or be completely necessary at some point in the length of time you intend to own the building. Start a reserve fund to start saving for capital improvements. For example, I always know how long each of my roofs will last, and have at least 1 bid to replace them, then I start a fund where I set aside money each month to accomplish what I know will need to be done. I recommend this if you have bad pipes or any major improvement that will need to be done within 10 years. Have a financial plan – this is the year to get started and be organized about what you want or need to do over time.
As always, please remember, I am not an attorney. Seek clarification through your attorney. All articles are simply an opinion. Stay in touch at www.GetSky.net
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