I guess the first disclosure I should make is there is no way to make any rental bulletproof. There are however a number of things that an owner can to maximize the financial performance of their rental properties.
1: Start with the basics! Perhaps the most overlooked items by rental owners are some of the very basics of any property ownership.
Insurance: Is your coverage adequate. Many property owners, like home owners, pick their insurance carrier by the cost quoted to them. CAREFULLY review your policy and make sure that the coverage is adequate in case of a major problem. Some agents or management companies will “underinsure” a property so they can quote a lower price. If the property suffers major damage, the insurance company will NOT pay the claim in full if they decide it was not insured for its appropriate value. Today we are using a $ 200 per S/F cost to rebuild standard multi-family units. If you are insured for less, you may be in danger of being underinsured. Other areas to carefully review in the Property Portion of your insurance policy are Business Income Loss Limits, Ordinance & Law, and Backup of Sewers & Drains. Under the General Liability portion pay attention to the Personal and Advertising Injury, Damage to Rented Premises, Medical Expense, Employee Benefits, and Non-Owned/Hired Auto. Make sure that you have the appropriate coverage.
2: Review all safety and fire issues. Have you provided the tenants with exit maps to use in case of an emergency? (Are there smoke monitors and alarms installed in the common areas? Most properties do not have hard wired alarm systems however it’s still a good idea to place battery operated equipment in the common areas of a rental property and it can save lives. Are the fire extinguishers serviced and in good condition?
3: Take a slow walk around the outside of the property. Are the gutters clean? Is the roof in need of repair? Are the window seals well caulked? Is the property in need of paint or repair? These types of maintenance items can save thousands of dollars in future repairs if they are kept in good condition. If appropriate, inspect all the inside common areas of the building. Are the fire exit signs installed and operating? Are the carpets or floors in good condition? If there is a common area laundry room, is it swept clean and neat? Clean common areas make for happy residents. Happy residents make for lower turnover.
4: Complete a through unit by unit inspection. Take detailed notes regarding the interior condition of each unit. Items to be noted are the condition of the carpets, vinyl, appliances, blinds, kitchen cabinets, and especially water heaters. Typically, water heaters have a 10 year life. Replace them at 8 years. If sensors are not installed (alarm that detects moisture leakage), install them. Check out the caulking around the tub surrounds and look under every cabinet that has water (bathroom & kitchen). You will be surprised how many times tenants do not inform the owner or manager about water leaks. Often times they are afraid that if they ask for any maintenance, their rent will be increased. Water leaks are not only expensive to pay for, they can create tremendous and costly damage. It’s always a good idea to ask the resident, if they are present, if everything is in satisfactory working order.
A unit by unit inspection may also give you advanced warning if a tenant has any issues within the unit that require action. Is the fire detection equipment installed and operational? Is there any mold growth issues that require treatment? (While on this subject, I highly recommend that you issue residents detailed information about mold, mold issues, and instruct them to notify you immediately if they notice it within the unit or complex. This can save you costly litigation and it’s not a big issue if caught and treated. It’s always a good idea to ask the resident, if they are present, if everything is in satisfactory working order.
Bruce Kahn is a Managing Director of The Foundation Group Real Estate Services, a full service brokerage and property management company. He has earned the designation of CCIM (Ceretified Commercial Investment Member) issued by the CCIM Institute and is a CPM(Certified Property Manager Candidate) with the Institute of Real Estate Management. For further information or for a free property analysis, please contact him at 206.324.9424 – email@example.com.