controlling multifamily expenses

Controlling Expenses: Taking a Proactive Approach

Not every expense can be controlled.  In the grand scheme of property management, you must choose your battles.  Preparing a plan to manipulate the majority of expenses into submission can generate an opportunity for expenses to become savings.  A proactive approach can have measurable financial impact when you truly take invest a little time into controlling expenses.

multifamily cutting costsCutting Costs vs Controlling Expenses.

First you must decide which expenses have the ability to be considered a “controllable” expense.  Some would have the tendency to believe that ALL expenses could fall into this category but this is not necessarily true.  Each market has a generalized price floor which means that often, property managers are backed into a corner for certain expenses.  Do NOT be discouraged by this!  If you take a hard look at all of your expenses, you can still make an appreciable difference to your property’s overall budget.

Instead of the “cut costs” thinking, try re-aligning your thought process.  Cost cutting is a process that is, most often, detrimental to the property in that is calls for areas of managements and maintenance to be completely unattended to, or without regularity enough to maintain the appearance of a healthy, functioning property.

Example: The cost cutting mindset would say “Cut back on pool maintenance to 2X per month to save money.”  In reality this leaves your pool chemistry out of balance and provides unsafe conditions for your residents.  Cost controlling philosophy would say “Lets investigate using another vendor whose pricing would be more in line with our budget.”  Or try to broker a “deal” with your current company that would lock you into a contract for a longer period of time based on an increased savings for your property.

Fixed vs Variable Expenses.contracts reduce costs

Delving further into this process, you can separate your expenses into “fixed” or “variable” segments.  Fixed expenses will include things like utilities and insurance.  These are necessary and vital expenses where you may not be able to control pricing.  Variable expenses can contain things like maintenance contracts for grounds keeping, trash service, lawn care, and even HVAC maintenance or painting.  In looking at these types of expenses the best way to truly control them is to lock each into a consistent rate.

Example: An HVAC repair call can cost up to 3X the normal price if your area is in the middle of a blizzard or an extreme heat swell.  Locking pricing in, for your property, will ensure that you do not pay an inflated rate.

Retail vs Contract Costs.

Property managers should realize that their need for any service will happen with more frequency than a normal consumer.  This is a simple law of numbers.  You serve many homes inside one facility.  Many homes = many more opportunities for problems.  This also means many homes = opportunity for bulk pricing discounts!  Use the law of numbers to your advantage.

Example: If a normal customer would pay retail for internet service of $65 per month, then broker a deal with the internet services company to sell to your property at a reduced rate.  Make them the “preferred” service provider, long in a 2-year contract, and keep the savings difference in your general fund.  This will also, in turn, lower your property’s internet costs for the office.

Save Time and Money Multifamily Time vs Savings.

In shifting gears from a cost cutting to a cost controlling management style, always remember that you must take your time into consideration.  When choosing which expenses to control, make sure that those expenses are advantageously positioned in your budget.  A cost savings of $20,000 dollars in an overall year, is a worthwhile cause.  A cost savings of $2000 in an overall year, may not be worth the effort to pursue depending upon your property’s position.  If the costs of man hours (time) to pursue is greater than the overall savings (savings), then you may want to continue on the path that is already established.

Looking for more help controlling expenses?  Check out Leonardo247’s regular task list inciting property managers to evaluate costs.  By establishing a regular action cycle for these, you will not be stuck with a large list of contracts to evaluate at year’s end.  Leonardo247’s property management solutions can help bring balance and regularity to all of your property’s processes, not just expense evaluations, be sure to check out the demo today!

 

 

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