Need ideas on how to cut expenses

30 Replies

hi all, 

I have 2 small multi family (4 units) and I am getting killed on expenses each month. They are averaging $3500 each month and that's before the bills are paid. Most of the tenants are section 8 and call for repairs to be made literally daily. I'm thinking about asking the property mgmt company to use American Shield or another type of warranty company to get a handle on expenses. Does anyone have any ideas on how to better control expenses under these circumstances?? All ideas welcome 

Can you explain the $3500 a  little bit more?  Are you saying that you paying that in expenses each month on all four units?

The $3500 is for both buildings combined so for all 8 units. It includes the management fee and all these other misc repairs each month such as plumbing, broken locks you name it. These are the expenses from Property mgmt and then I still have to pay the mortgage, trash and water so I really need to get this under control. Thanks for the quick reply, BTW!

Would you break out the expenses and the income.  Insyrance, Vacancy Utilities, Garbage water Mortgage (princial and Interess) Managment fee etc etc so we can get a better handle on what is being paid for what.     How much are the rents one ach apartment.  Where is the property and where do you live etc

hello Barbara,

All units are fully rented with income ranging from $8500-$9000 for both buildings. The expenses are as follows:

Water- $500

Mortgages- $3064

Trash -$550 (trying to find new company)

Utilities- $400

Management Fees 10%/repairs/ Landscaping music - $3200-$$3500

I am in Washington DC

@Lisa S. Where in DC are the properties?  I think there could be two factors here that are completely out of your control. Quite a bit of DC is properties that are very old.  With that comes huger repair costs.  Also since all your tenants are section 8, there is a good chance that they are subpar tenants.  However in DC, source of income is a protected class under fair housing laws.  Also if they are section 8, it is likely you are in a c or d class neighborhood. 

I wouldnt invest in anything on the east/south side of the Anacostia river (Well maybe the neighborhood River Terrace).  That does not mean Id invest in everything on the other side of the river, just that there are neighborhoods that I would.

Even if you go to sell the properties to get out of them you are going to run into TOPA issues.

youve identified the problem (management)....do you really believe that you would have (on top of 900 monthly) 2500 in repairs on a recurring basis??...that's completely ridiculous. why??? 1. section 8 has already done a thorough inspection on these properties pre move-in, and now they need more??....doubt it.

fire current property manager, hire new property manager. current manager is either A. overcharging you significantly for repairs or B. just making it up. 

don't trust anybody. investigate i bet youll find im right...to whatever extent.

@Lisa S. Are your tenants really making service calls? You need to determine if it is really the tenants or the property management company that claims "the service calls"...this is how they make their money.  Some...Property managers view property owners as a cash cow,  so just a different angle that you "should" consider as well.

I predict you are literally being robbed by an unscrupulous company. You say you are averaging $450 in repairs per unit, every month. There's not enough stuff to repair in an apartment for that kind of money on a monthly basis that wouldn't be direct vandalism by the tenants. 

Fire the management company and self-manage for one month and see what happens. When was the last time you did an inspection of all the units? Having a PM company doesn't mean you collect your money and wipe your hands of the enterprise - it's just like having a manager of any other kind of business - you have to trust but verify. 

Originally posted by @JD Martin :

I predict you are literally being robbed by an unscrupulous company. You say you are averaging $450 in repairs per unit, every month. There's not enough stuff to repair in an apartment for that kind of money on a monthly basis that wouldn't be direct vandalism by the tenants. 

Fire the management company and self-manage for one month and see what happens.

Jd Martin is right on the money.  Take time off  from your job and move into your property.  Hopefully you are in commuting distance.  If not either move to that area for as long as you can arrange.  Fire the managment company and do it your self . Do it until you can figure out what is wrong and what you have to do to change this scene.  Maybe you can just go and take a desk in the Managment  office for the frst week.  You can do this  before you fire them. Get the lay of the land and the 2nd week fire them  Tell them you are broke and  have to manage it yourself until you get back on your feet.

 Just figure the whole thing out.  If you can't do it by yourself  (and I don't know why not)  just get yourself a virtual assistant,  or a book Keeper or a friend or a mentor or whatever to walk you thru this.   

Does the managment company send you copy of the work orders?
For example do they itimize the details with the apartment number and the tenant name?  For Example "Tenant Adam called Aug 16, 2015 and said Toilet is running  Plumber repair  bill $120.00"

And who writes the checks to these Plumbers etc, and who audits these payments ??

You have to reign in the property management company and see how legitimate these fees are and what they are exactly billing you for.  You should get an itemized break down of everything that company is doing, cleared checks, receipts, etc.  Also, if these tenants are breaking things that consistently, get rid of them.  They can be violated to Section 8 and can be in danger of losing their vouchers.   

Start setting a threshold with your property manager that clearly outlines above what dollar amount they have to get permission to do repairs.  Make the tenants put their request in writing and submit it to a maintenance box or something of that nature.

Going forward every work order that the PM requests needs to be accompanied by a request.  Maybe this will help curtail the PM and the tenants taking advantage of a kind hearted landlord.  It is important to be fair and responsive as a landlord, but everyone involved here is clearly taking advantage of the landlord.

#1    Everyone is agreed.  Get rid of the Managment company 

#2    Get in there and find out what they have done to you

#3    Gather your documentation on the last year of your charges

#4     If you find that they defrauded you do something about it

#5     Don't ever do this again.  Demand accountability as Michel Noto              has outlined  

#6     Your job is to monitor the managment company.  Look at every                 order.  Check with the tenants frequently.  Look up the vendors               they are writing checks to

what are the damages you are paying for? A broken lock and some pipes should not equal that amount per month. Give us a list of the report.

I was going to suggest most of what everyone else suggested after reading your description of the situation. I think you already have all of the answers you need.

Since you pay water, one other thing you can do is replace all of the toilet guts with leak preventers. I've used the Fluidmaster Leak Sentry fill valve before and it works great. What it does is stops the fill valve from running without an active flush. So if there is a leak in the flapper, the tank drains but does not fill. You don't have water constantly running down the drain from a leaking flapper. And you get notified by your residents quickly because their toilet doesn't have any water in the tank. 

Everybody is on this request for input except Lisa S who is the peron asking for help.

I think Lisa has to weigh in on what she wants and what she thinks about the suggestions that have been offerred.

agreeing with everyone. WOW. 2500 a month in extra PM cost.  Bye bye.

If the water is 500 a month...that is a lot too.  I have 10 units that is costing 1K, but for a 3 months (average 350 a month). Another example, I have a 2 family and it runs 80 a month x 4 to get your 8 units and its 320...still same average.  Like Ronald mention, check the plumbing. 

What other utility is 400 ?  can't be just lighting for the hallways/exteriors for two buildings.

Thanks to everyone for for all your responses and suggestions. This is a very sobering reality. I have tried some of the suggestions I. E. Putting a cap on expenses but last month for example an expense popped up after the fact to repair the HVAC fir $700 and I was told it could have been more.  Is been incredibly frustrating and especially since I am in no position to self manage right now with the nature of my job. I self managed once before for about 8 months and I went crawling to a PM. Many of you have confirmed what I have felt in my gut but I just feel like I have so few options given its hard to find good help. If anyone has any leads in my area that would help to.

My suggestion: sell the units and invest in something that's a little more passive. Rental income has the reputation of being "passive", but that's only really true for people who have enough knowledge in the endeavor that it takes very little work for them to manage the investment, or they have an excellent PM that manages the investment and they accept a lower return. You have neither, and that is a recipe for taking a financial beating. There are a lot of other investment options out there that can earn reasonable return rates that will also not have you worrying about whether or not the PM was skimming the cream. 

Tenants that don't identify with an owner of the property as a live human being tend to call PMs more often. Tenants that are home more often dreaming up things to get fixed call more often still.  People that feel entitled to free stuff are more likely to feel like victims and call even more.  PMs that look at owner's as cash cows over-bill.   Got a little perfect storm of a mess here @Lisa S. !

I would send a personalized letter with my picture to each of my tenants.  Let them know that all their requests aren't free.  The expenses are killing you. Each little 'check out' is a hundred freaking dollars! Relate to them and they should be more considerate. Let it be known if payments can't be made because expenses remain too high, things go away. Water stops, foreclosure and evictions from banks come next.  

However you want to say it, you have to endear these people to you.  Implore them to begin giving a care about where they live!

You say  "It's been incredibly frustrating and especially since I am in no position to self manage right now with the nature of my job. I self managed once before for about 8 months and I went crawling to a PM."

You should at a minimun give this PM  notice that you are teminating them.  

Hire another company. Another one can not be this bad. 

Go to a local Real Estate Club and get referrals for a new PM cmpany

 When you  Hire another PM company tell them what kind of accountability you need.     Use some of the suggestions that you have been given  on this blog with your new PM

Accountability like:

"Going forward every work order that the PM requests needs to be accompanied by a request"

Decide what your next step is and do it.  If you take No action that is your  decision to continue with the status quo,   No action is saying you want to continue as is.

Your job must be to at a minimun to monitor the PM company

That is good advice.  Barbara- I need to take action and start the ball rolling now. Selling is not an option at this time. I got one of my  properties so cheap it's unlikely a deal like that could ever be replicated. Thanks all this helps

Everyone is correct that the PM needs to be fired. I would also bring some attention back to the Section 8 tenants... which are also a big part of the problem.  Without seeing your specific invoices, it is difficult to tell, but I would imagine that at least 25% of the "issues" are being caused by your tenants. One way to stop that? Start billing them.

"My door fell off its hinges" - highly unlikely that the door fell off of its own volition. Bill for a new door and installation.

Will you actually get paid for these things? Highly improbable. But enough billing and follow up can a) reduce the number of calls for service and b) help you build a case for eviction. Of course you will need to refer to your lease to ensure that you have the grounds to actually bill them.

@Lisa S. You definitely need to better document all repairs and stress it to your PM (current and new PM once this one is replaced) to follow this protocol. You have to document which units are claiming these damages, what the specific damages are and what's the cost & date of each claim. Invoices can be purchased at Staples, Office Depot or the likes of and be sure to have copies faxed to you immediately by the PM so that you can have them for your records in a separate location( from the PM). Also find out the contact information of the contractor that's doing all of this work, if its someone other than the PM. 

HUD will provide reimbursements for damages by section 8 tenants under certain circumstances. Here is a link to further explain. http://portal.hud.gov/hudportal/documents/huddoc?i...

Kudos,

Mary

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