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How can you manage unexpected costs in Property Management?

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Unexpected costs are inevitable in property management, whether they are due to repairs, maintenance, vacancies, or emergencies. They can affect your cash flow, profitability, and reputation as a property manager. However, you can manage them better by following some best practices and tips. In this article, we will discuss how to plan, monitor, and reduce unexpected costs in property management.

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1 Plan ahead

One of the best ways to manage unexpected costs is to plan ahead and create a realistic budget for your property management business. A budget should include your fixed and variable expenses, as well as a contingency fund for unforeseen events. You should also review your budget regularly and adjust it according to your actual income and expenses. A budget can help you track your cash flow, identify potential savings, and allocate resources wisely.

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Peter Lohmann

News & insights for property management business owners. Policy > Process > Tech
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The first step in preparing for unexpected expenses is to list all the components of a property. Take an inventory and account for everything from the roof to the plumbing, electrical, and all the way down to the drywall. Next, figure out the expected lifespan for each individual component and get a quote for an exact replacement. Then, look into what preventative maintenance you can do to extend the item’s lifespan. Once you do this for every component in your property, it is realistic to expect you to save 10-15% on your annual unexpected expenses (and if you don’t want to handle this, consider hiring a property management company to do it for you).

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Tiffany Hoke

Real Estate Accounting & Systems Consultant
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One way to plan ahead is by looking back. If one particular building system is requiring more repairs each year, that's a great indicator that it's time to start reserving and planning for a capital project. Nobody replaces a roof after the first leak, but if the cost of patching the roof is increasing each year, that's the time to be proactive about setting aside funds and procuring quotes. Establishing a reserve for expected capital projects can also be a cost-saving measure: not only can delaying repairs or improvements until there's a system failure lead to additional property damage, but unplanned work often has a more narrow choice of vendors and materials available.

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2 Monitor your properties

Another way to manage unexpected costs is to monitor your properties regularly and perform preventive maintenance. This can help you detect and fix minor issues before they become major problems that require costly repairs or replacements. You should also inspect your properties before and after each tenancy and document their condition. This can help you avoid disputes with tenants and recover damages from their security deposits if needed.

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3 Reduce your vacancies

Vacancies are one of the biggest sources of unexpected costs in property management, as they mean lost rental income and increased marketing and turnover expenses. To reduce your vacancies, you should strive to retain your existing tenants by providing excellent service, responding to their requests promptly, and offering incentives or discounts for renewals. You should also market your properties effectively, screen your applicants carefully, and set competitive rents that reflect the market value and demand.

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4 Negotiate with your vendors

Another way to manage unexpected costs is to negotiate with your vendors and contractors for better prices and terms. You should research the market rates and compare different quotes before hiring any service provider. You should also leverage your relationship with your vendors and contractors and ask for discounts, referrals, or loyalty programs. You should also review your contracts regularly and ensure that they are clear, fair, and beneficial for both parties.

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5 Have adequate insurance

One of the most important ways to manage unexpected costs is to have adequate insurance coverage for your property management business. Insurance can protect you from financial losses due to property damage, liability claims, lawsuits, or natural disasters. You should consult with an insurance agent and choose the right type and amount of insurance for your specific needs and risks. You should also review your insurance policies annually and update them as needed.

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John Burkhalter, CRIS, RCIP

Insurance Advisor at Higginbotham | Enterprise Risk Management
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Budgeting and Underwriting properly for insurance is critical to a profitable investment. Reach out to me anytime you’re unsure about your predictions or current program

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6 Educate your tenants

Finally, you can manage unexpected costs by educating your tenants and encouraging them to take care of your properties. You should provide them with clear and detailed guidelines on their rights and responsibilities, as well as the rules and regulations of your properties. You should also communicate with them regularly and inform them of any changes or updates. You should also solicit their feedback and suggestions and address any issues or complaints promptly.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Tiffany Hoke

Real Estate Accounting & Systems Consultant
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As with many business decisions, open communication with your clients or partners is critical. Some stakeholders prefer to maximize their annual cash flow from investments and have a capital call when necessary, while others prefer more conservative distributions in favor of larger reserves. If your stakeholders prefer to make contributions for unexpected costs, make sure your management or partnership agreement clearly defines how the capital call will be calculated, what support is required and how quickly the money will be remitted. If your stakeholders prefer to reserve funds, be sure there are clear expectations around what type of calculations and reporting will be required and what approvals are needed to spend reserve funds.

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How can you manage unexpected costs in Property Management?

1

2

3

4

5

6

7

1 Plan ahead

2 Monitor your properties

3 Reduce your vacancies

4 Negotiate with your vendors

5 Have adequate insurance

6 Educate your tenants

7 Here’s what else to consider

Property Management

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How can you manage unexpected costs in Property Management?

1

2

3

4

5

6

7

1 Plan ahead

2 Monitor your properties

3 Reduce your vacancies

4 Negotiate with your vendors

5 Have adequate insurance

6 Educate your tenants

7 Here’s what else to consider

Property Management

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