There are a few key strategies to help you increase the value of your property. Two main options include raising rents or reducing operating expenses. In this blog, I’ll briefly touch on several steps you can take to reduce your building’s operating expenses. Investors should focus on controllable expenses, often referred to as common area maintenance (CAM).
Get Competitive Prices
If your property requires a variety of services, it’s crucial to get competitive prices from different providers. By shopping around, you can ensure you’re getting the best value and saving money where possible.
Charge Tenants for Some “Free Services”
If your leases don’t currently include common area maintenance (CAM) charges, consider adding them. This can be included as “extra rent” in your lease agreement. The amount will depend on the actual CAM expenses, but it can help shift some of the financial responsibility to tenants.
Implement Proactive Preventive Maintenance
Major repairs and replacements can be drastically reduced through proactive preventive maintenance. Planning ahead is essential for extending the lifespan of your building’s appliances, roof, air-conditioning systems, and other equipment. By staying ahead of potential issues, you’ll cut down on unexpected, costly repairs.
How to Reduce Fixed Expenses
Next, let’s look at reducing fixed expenses. While we’ve already focused on controllable expenses above, there are also ways to lower some of the costs you cannot directly control.
Reduce Annual Real Estate Taxes
One approach is to appeal to your local taxing authority and request a reduction in your tax assessment. There are companies that specialize in this service, and many charge only a percentage of what you save. This can lead to substantial reductions in your annual real estate taxes.
Reduce Your Debt Service
Another option is to refinance your current loan. Even if the interest rate is slightly higher, refinancing to a longer-term loan may lower your monthly payments. This is especially true if your existing loan is already two-thirds into its term. With today’s historically low interest rates, this is a great opportunity to lock in a lower, constant rate and reduce your monthly obligations.
By focusing on both controllable and fixed expenses, you can significantly reduce the operating costs of your property while increasing its value. Whether it’s securing competitive pricing, adding CAM charges to leases, or refinancing your loan, these strategies can help you maximize your property’s profitability.
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Meet The LeveragedCRE Investment Team
Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.
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