I know what you’re thinking: “Hey DJ, how did you get to be so cool?”
The answer, of course, is asset management—because asset management is soooo glamorous!
You didn’t know? I mean, what could be more glamorous than negotiating property management contracts, haggling with contractors, and—my most recent glamorous task—auditing utility bills.
Recently I noticed the utility expense for one of our properties was about 30 percent higher than originally projected. Let me share with you the two exciting hours I spent getting to the bottom of this, as I documented every step.
Related: Home Energy Audits Explained
How to Audit Utility Expenses
Following is a step-by-step explanation of how to perform an audit of a property’s utility expenses.
- Download all bills from the utility company’s web site (which looks like it was created in 1997).
- There are three utility accounts, so download all three.
- Open them as spreadsheets. (It will look like this.)
- Be confused for a while, then realize they’re all the same file. (I downloaded the same file three times!)
- Swear at computer, then delete two of the files.
- Sort by date.
- Highlight in yellow the months in which there are three payments (because we expected there would only be two).
- Sort by account number and date.
- See that only one account number is completely highlighted, meaning it is a newer account.
- Sum the total paid, then calculate the average.
- Think to yourself that you paid much more than you should have.
- Look at bills again, especially if you think a few are really high.
- Realize the bills indicate a cumulative total. That is, if we missed a bill, the next month’s bill was for the total—not just the amount in that month.
(We missed some payments because our former property manager did not pay them for a few months. We did not discover this until after we fired her for other reasons.)
- Curse at the electric company for having such a terrible system.
- Now compare the totals from your bookkeeping (i.e., QuickBooks) to see how the downloaded total compares with the actual payments.
- Calculate monthly consolidated payments. (In ours, see that Dec. 28 is much higher than other months.)
- Check statements from months with higher than normal balances (for us, this meant statements from December).
- Dig deep. (When we did, we found that our books matched the statements, and there were no unreasonable charges.)
- Note any discrepancies. Were you due any credits that were never awarded to you? (It turns out the local housing assistance authority had not been paying us the cost-of-living adjustment they agreed to for one of our tenants.)
- Start the process of calling this to the attention of the appropriate party to be resolved.
Glamour level: 1,000!
The Bottom Line
Okay, I’ll admit asset management is roughly as glamorous as a root canal. No one will ever mistake me for Chris Hemsworth.
But one thing I can guarantee you is that behind every glamorous asset—be it real estate or a multimillion dollar career—there is someone whose job it is to make sure they’re not getting ripped off. Even glamorous movie stars and pro athletes make catastrophic financial mistakes, and the simple reason behind it is they are not managing their assets well.
Details matter. I spent two hours on this problem, but it will end up saving us approximately $250 per month! Over the course of a year, that’s $3,000 on the bottom line. If I sell this property at an 8 percent cap rate, we’re talking about $37,500 in additional equity value.
So maybe asset management isn’t the most glamorous thing in the world, but who needs red carpets? Unless it means extra zeros in the bank account, Netflix and chill is all the glamour I need.
Do you have any additional questions for me about the auditing process?
Ask me in the comment section below!