Craig Trbovich Commercial Real Estate –
Recently I wrote 5 Ways to Increase the Value of Your Commercial Real Estate Investments, which included ideas to: increase rents, make improvements, change property use, decrease expenses, and approve tenants. This week I am going to expand on the fourth idea, controlling (decreasing) expenses to improve the NOI of your property and increase value.
The ability to control and reduce costs often requires significant effort and forethought. To help organize your cost control efforts, I’ve listed a few key strategies that every investor should implement or work to improve:
1. Create a budget. You can’t control what you don’t measure and monitor. An annual budget and a monthly review of your results is probably the single most important process you can implement to control your expenses.
2. Protest property taxes. Often the largest line items in operating expenses, property taxes often are thought of as uncontrollable expenses. However, you can protest the valuation of your property and you should. And also be aware of your property classification, which can have a significant impact on your tax levy. Not sure how to analyze your property taxes and your local government’s process? There are companies that will perform this service for you on a contingency basis.
3. Lease analysis. Do your leases adequately protect you against increasing costs? Gross leases should include a base year or expense stop mechanism to reduce your exposure to increasing operating expenses. Do you require a certificate of insurance naming you as an additional insured? Also, repairs and replacements, zoning issues and legal disputes are examples of areas where you can protect yourself from excessive or unanticipated expenses in your lease. A skilled real estate attorney is a must in developing a lease agreement that meets your needs and protects your investment.
4. Shop Around. It’s a good idea to have a handful of different vendors to get pricing on services to ensure you are getting the best value for your money. Some services you may get pricing on every time, like construction of tenant improvements; others, like janitorial services for example, you may want to obtain bids annually. Another way to save is to shop online for Items typically needed for maintenance and repairs like air filters, light ballasts, cleaning supplies, paint, etc., are items that you know you will need. They can often be purchased online at 50% or more discounts. Keep a small inventory and you will not only save money, you will save time by having them on hand when needed.
5. Property Management. Speaking of time – how much is your time worth? If you manage your own properties you should consider the benefit of professional property manager. Although you will pay for the service, the cost is maybe less than the value of your time. And a good property manger will often pay for themselves in other savings or added value they can bring to your investment.
6. Go Green. From installing programmable thermostats, to solar power, to obtaining LEED Certification, there are an ever-increasing number of ways and new technologies to improve the efficiency of your buildings utility systems. This can become an expensive proposition and therefore you must prepare a cost-benefit analysis. Also, contact your local utility providers for programs that may help making improvements economically feasible.
7. Preventive Maintenance. While not a direct reduction of expenses, a proper long-term maintenance plan will protect your assets by making them operate more efficiently and lasting longer which will help reduce expenses over the long-term and improve the accuracy of budgeting.
If you have other ideas that have been successful for you, please email me or post on my blog at www.craigtrbovich.com. And for a no obligation analysis of your property, please call me at (408) 522-2799 and “TrboCharge” your investment real estate today.