Magazine article Journal of Property Management

Carving out Value

Magazine article Journal of Property Management

Carving out Value

Article excerpt

At our management company, we are always looking for ways to maximize the return to owners on the properties we manage. By pursuing an entrepreneurial approach, we utilize what we call the "value-added" approach to property management. The goal of valueadded management is more than smooth day-to-day operations. It is to enhance the market value of a given property by significantly reducing overall operating costs and improving the property's appearance, often with little or no additional capital investment.

To achieve this goal, we review every aspect of the day-to-day operations, then apply a variety of strategies and technologies to reduce costs. Some improvements are as dramatic as a total rehabilitation costing hundreds of thousands of dollars. But more commonly, an increase in property value can be achieved through a combination of small improvements that together add up to big cost savings for the property.

The special skill required here is knowing how and where to look for savings. Knowing the best contractors and the best techniques to realize those savings are also key. Once a property manager has experience, however, saving money on operations is easy and requires very little time. Figure 1 shows the dramatic results of a value-added approach applied to an actual property in Everett, Wash.

Water and Electrical Retrofits

Among the most beneficial improvements that can be made to almost any property are water and electrical conservation retrofits. Water conservation retrofits consist of replacing the existing shower heads, kitchen and bathroom aerators, and toilet flappers with new water-saver devices. These efficient devices allow no more than an average of 2.5 gallons of water usage per minute. After first determining total water and sewer usage in a given time period and converting this to annual dollars spent, we estimate usage and cost savings after the retrofit analysis is completed. Water conservation retrofits would reduce costs by over $20,000 per year on our sample property producing an estimated $229,222 in increased property value.

Electrical conservation retrofits consist of replacing old commonarea and clubhouse light fixtures and lamps with new energy-efficient, state-of-the-art fixtures and lights. We analyze the existing energy usage, then convert the energy consumed to dollars. Then we estimate energy consumption with energy-efficient fixtures and lights installed and calculate the savings. The investment in new fixtures and lighting is typically paid back in less than one year.

At our sample property, an investment of only $3,743 produced savings of $2,047 the first year and added value of $26,744 to the property. It is also important to note that many conservation-related improvements can be subsidized or enhanced by public utilities, reducing or eliminating the needed capital outlay.

In-House Labor

Significant savings can also frequently be realized by reducing the costs of preparing vacant apartments for occupancy. Consider using in-house labor for housekeeping and repairs when possible. If you spend $500 a month on carpet cleaning, then $1,700 spent for a carpet cleaning machine can be recovered in as little as 3.4 months. Replacing drapes with miniblinds or vertical blinds can eliminate the need for professional cleaning for each new resident. In our sample property, such changes produced annual savings of $14,329, adding value of $159,211. These obvious improvements are only the beginning, however. Valueadded management must also find ways to reduce hidden costs, even costs that most property managers do not traditionally think of as operating costs. …

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