Does It Make Sense To Spend Thousands of Dollars On Your Apartment Turnover? | Nexus Property Management® Franchise

16 April 2024

HOW BEST TO RESPOND WHEN YOU’RE TOLD YOUR PROPERTY IS NOWHERE NEAR RENT READY

As a rental property owner you understand that your rental income, like all markets, is cyclical. There are times when the engine is humming and you’ve got money coming in without issue. There are times when maintenance issues increase where your profits naturally decrease. And there are those toughest of times when you face vacancies and the potential costs of eviction. These are naturally part of the cycle of rental property ownership and there’s one best way to insulate yourself from these drawn out and costly downturns: maximize value added during the turnover process.

Now, depending on your property, a proper turnover could cost upwards of $5,000 to $10,000 to even $20,000! Cost cutting in the past (whether by you or a previous owner) inevitably catches up and like the car owner whose vehicle needs to get towed to a mechanic, you’re often left trying to figure out what your least-bad option is. So let’s go back to the beginning and dive into why you got involved in real estate investment in the first place.

LEARN MORE: 4 EASY STEPS TO FOLLOW TO GET YOUR APARTMENT RENT READY

THE MOST COMMON ANSWER: “PASSIVE INCOME”

More often than not, when we talk to our clients, they tell us they bought their first rental property because they were looking to benefit from “passive income”. The same holds true for single family owners who opted to rent their properties rather than sell them. The idea of having someone else paying your housing costs is a great way to add value to your assets and portfolio. People who own rental property for the “passive income” are correct to do so…but there’s more to tease out.

And it’s the owners who haven’t properly taken that next step who have the biggest issues when it comes to expensive rent ready turnovers. So let’s dive in a little further so we can better rationalize why these expenses are necessary and important.

LEARN MORE: MAXIMIZE RETURNS AND ATTRACT QUALITY TENANTS BY DOING TURNOVER RIGHT

WHAT ARE YOUR GOALS???

Rental property income is not the same as labor/work generated income. It is taxed differently and it can be broken down into four subcategories to help you better tease out your main goals.

What are your goals?

Most popularly, owners are hoping for: 1) CASH FLOW. This is the profit they can collect right off the top at the end of the month after other bills are paid. You collect the rent, you pay the house’s expenses, and the rest goes in your pocket. This is what initially attracts most investors to real estate. They like the idea of a monthly “dividend”.

The problem is that focusing on this more immediate dopamine hit is also the most impactful when the cycle turns. When maintenance needs, or a vacancy, dig into that profit, people feel it more. This is the response that generates the most resentment toward high cost turnover quotes.

Second, is the fact that renters are paying to 2) REDUCE THE PRINCIPLE YOU OWE. Nationally, more people are buying with cash than ever before, but the vast majority of owners still rely on financing. The value of having someone else pay for your mortgage CANNOT BE OVERSTATED. Even if you make no money at the end of the month in cash flow, the fact that tenants are ultimately paying your mortgage so you can more fully own this property is an unbeatable perk. You might invest $80,000 as a downpayment on a $300,000 home and someone else is paying the remaining 73% for you!!! That’s unbelievable.

Using that example, you just made $220,000 over the life of your 20 year mortgage. But on top of that,

3) HOUSING APPRECIATES. So it’s true you’ve paid off a loan in value of $300,000 and there’s a good chance that your home is now worth closer to $450,000 by the end of that term. So now you’ve paid $80,000 and made $370,000!!! Does that money in your pocket at the end of each month, quarter, or year seem as critical now???

And finally, there are additional 4) TAX ADVANTAGES along the way that allow you to shelter some of these profits along the way. Although your asset is ultimately appreciating, you can claim depreciation and write off all expenses that go toward your rental property (including hiring a reputable property management company).

LEARN MORE: THE QUICK AND EASY MATH OF WHY YOU WIN WHEN YOU OWN RENTAL PROPERTY

THINKING LONG TERM VS. SHORT TERM

Smart investors are always thinking long term. When clients get stuck on the sticker price of major maintenance items like rent ready turnovers, it shows that their focus is not where it needs to be. You can’t invest successfully if your financial mindset is stuck in the here and now. When you are told that turnover costs are going to be $10,000 it naturally hits like a ton of bricks. But when you consider the fact that that full $10,000 is deductible (whether fully Capitalizing over time or Deducting some of it for the given year) and it’s ultimately about 2% of the value of your property at the end of your term, you can more fully appreciate why these costs are well worth the additional investment.

LEARN MORE: HOW BEST TO WRITE-OFF MY MAINTENANCE EXPENSES

CONCLUSION AND NEXT STEPS:

If you don’t fully examine why you’re involved with real estate investment you’ll never get over the hump of seeing turnover costs as an unnecessary nuisance. This is not a get rich quick game and while monthly and even annual profits are a nice perk, they’re simply the crumbs of the pie.

It’s most difficult to keep a long term focus when you’re investing alone. Having a trusted professional in your corner alone can do wonders for decreasing the stresses that come with the downturns in your property’s cycle. At Nexus Property Management® we take pride in making money with our clients, not from them. We model a long term focus and take pride in forming long lasting relationships so we can all grow together.

If you’re interested in learning more about Nexus’ services and you’re in one of our many territories, contact any of our teams across Arizona, Connecticut, Massachusetts, and Rhode Island.

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Mick Lefort is the General Manager of Nexus’ New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

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