If you have a financial planner you probably meet with them at least once a year to review your portfolio and make adjustments if necessary. Most people don’t think of their rental properties as part of their investment portfolio but you should. Owning rental properties as an investment is wonderful but it is an investment that takes investment; not only of time but money. It is an excellent idea to have an annual planning meeting with your property manager. Here are some things you should be discussing:
- Income – does the rent need to be adjusted? There are some owners who like to raise the rent annually while others never raise the rent thinking they don’t want to have a turnover. Yet costs to maintain the property increase annually and so the rent should be evaluated to see if a reasonable increase can be made.
- Expenses – what were the expenses for last year? Insurance, property taxes, recurring costs such as a gardener, HOA fees, management fees, and possible utility costs. Many of these costs are fixed and you can budget for the coming year but how do you deal with the unexpected expenses that come up?
- Reserves – how much is necessary? Reserves are a great way to build up slowly over time a pool of money to cover the unexpected or planned expenses. Your property manager can get estimates for a turnover, a new roof, new windows or a new water heater. Determine the time frame for the improvement and the property manager can hold back monthly a set amount of money to build the reserve. This is a great way to get major improvements done or deal with emergencies without panicking over how to pay for it. We all know that big ticket items will eventually need to be replaced but often people keep kicking the can down the road and when the roof fails for example the cost to replace always seems to come at the wrong time. This is how properties start to go down in value because the deferred maintenance starts to accumulate and the property owner never seems to have the money to do the necessary repair.
- Vacancy Factor – is there a chance there will be a vacancy in 2017? If so, this is a great time to talk about rent adjustments, maintenance, mini-remodel etc. and start building the reserves that will be needed.
- Long-term capital improvements – what is the status of the roof, siding, furnace, AC, windows, plumbing, appliances, water heater, garage door, fences, deck, landscaping etc.
- Other planning that needs to be considered and the cost associated such as: Estate planning, Tax Planning, Mortgage Refinancing, Job relocation or retirement, kids attending college, caring for aging parents.
By working with your Property Manager you can budget for the coming year as well as prepare for future expenses in a deliberate way that will allow you to be proactive versus reactive in owning rental property. Setting aside money towards your reserves allows for predictable income each month. The annual meeting is an opportunity to clarify goals and establish a plan so that the property manager is able to support and assist you in achieving your short-term and long-term goals.