Re story, we had owners who insisted in using their maintenance person. The person was not cheap and yet his work was far from even the worse standard i’ve ever encountered:
- need to paint the windows… why would you leave the windows open while you paint? That’s so unnecessary. So we ended up with an airlocked house.
- need to figure out a leak in a bathroom? let’s take down the gib and replace it with a non-bathroom one… and then you ask yourself why is it that there’s a pool in the bedroom and the gib is completely mouldy.
Enough said… sometimes the only answer is to decide whether we are the best suited to look after their properties.
Seriously now, there’s one thing that is usually overlooked when you talk to clients about repairs and maintenance and it’s the tax treatment of it. From our perspective when the year is gone we send them a financial summary that covers the expenses that were run with a net rental income at the end. However when there is a substantial change being made further to the maintenance being done, then this is not a deductible expense but a capital expenditure which is thus depreciated under the lifespan of the new floor ect. That can have some pretty important impact in how much tax the owner will have to pay.
Ex: if you redo the floor and put up a higher quality one: Cost is $10,000. Because it is higher quality and thus will give us better tenants and may increase the rent on it, from a tax perspective, this repair will be capitalised and depreciated for 10 years straight line. That means that instead of getting a full deduction of the 10 ground you will only get a $1k a year during the next 10 years so in terms of cash flow, the owner may be left with an issue in the short term and for 10 years after that that may not have been considered in the first place.
The other thing with maintenance is the end goal of the investment and how they came up with this investment in the first place. if they are highly leveraged and not hedged then more likely than not they will not be keen to undertake much maintenance, only repairs. If on the contrary, they are building a portfolio and thus are keen to get the best out of everything, then they will not be happy on undertaking repairs that could have been foreseen and handled in a different way. It’s probably a case of how do you educate them in this process than the maintenance itself that would make the difference. And yet for some of them like the one in the story above, you may not be the one to get them to come through to a real investment thinking and that is fine too.
