Time for a Year-End Accounting

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Time for a Year-End Accounting

Time for a Year-End Accounting

by Sonya Loera
Apartment News, Dec 2022

As the end of the year approaches, everyone tends to become a little reflective about the milestones and changes that have occurred during the past twelve months. Certainly, 2022 has had an impact on all of us – be it at the gas pump, in our personal lives or with our investments.

Now, more than ever, it is important to conduct a year-end accounting of how our rental properties are performing. And, this needs to be more than just checking cash flow or your bank balance. 
Basically, you want to audit each of your properties. A good way to start is to review your books and look not just at the bottom line numbers, but also at trends and percentage changes.

For example, with all of the supply chain issues and inflation you know that expenses have increased. But now you want to analyze by how much and in what categories. Maybe costs in one particular area have risen much more quickly than any others. If that is the case, it is likely that that area of operations needs some extra examination and attention. You may even want to call in an expert to look at the situation and make suggestions or recommendations.
Think, too, about your cash reserves and any upcoming (or overdue) maintenance needs. With repair and replacement costs rising, will the funds you have set aside be sufficient?

Get some updated quotes, even if you are not planning to do the work for another year or two. And, if you have been deferring items, you need to seriously consider both the cost of Band-Aid fixes as well as how much of an increase to expect going forward. You may discover that it is more cost-effective to do the work now rather than wait.

Look, as well, at the income side of your operations. Have your rent increases been keeping up with rising costs? Probably not.  Realistically, with today’s limitations on annual increases, you cannot afford to miss any reasonable opportunities to raise rents.

Another part of this review should be a physical walk-through of your property. One of Tim Gorman’s favorite suggestions is to ask your insurance agent to join you. These folks know the current laws and often see overlooked items like broken steps and improperly closing gates that are apt to become liabilities.

Do a little window shopping, as well, and check out your competition. Then come back and re-walk your property. Where and how does your property shine? What are the places or items that look less attractive? Maybe some trim needs repainting. Or your trash bin area needs a good clean-out.

As – or even more – importantly, you need to review your own role. Are you involved in the daily operations? Do you handle some of the maintenance or repairs? Are you personally collecting the rents?

Write down all that you are doing and then estimate how much time that function requires on a weekly or monthly basis. Then, look at the profits generated. Are you receiving a fair wage for your efforts?

Similarly, you need to put on your investor hat and do the same type of audit. How much time do you spend staying informed about what is happening in the rental market, both locally and on broader scale? Do you keep current with prices and values?

And, is your list of resources and trusted advisors up-to-date? How often do you contact them and seek their advice and opinions?  Who provides you with information about new innovations, products, services, and opportunities?

Last month, I wrote about “Plans, Goals & Legacies.” I concluded that article with the suggestion that during the holidays you should spend an hour or two talking with and listening to your heirs about their goals and expectations regarding your properties.

Based upon what you learned from your heirs as well as in completing your own year-end accounting you should have a much clearer picture of how you are positioned and, perhaps even, a path for going forward into the New Year.

Sonya Loera
Agent, Manager DRE#01947308