How to Reduce Building Operating Expenses
There are few things you can do to increase the value of your property, you can either raise rents or reduce operating expenses. I’d like to briefly touch on a few steps you can do to reduce your building’s operating expenses, investor can focus on what we call controllable expenses, or otherwise known as common area maintenance.
(1) Get Competitive prices. If you have a lot of services, then get competitive prices from different providers.
(2) Charge the tenants for some of the “free services” If you don’t have a common area maintenance, then add it. This can be added to your lease as “extra rent”, this may vary according to the actual common are expenses.
(3) Proactive prevention maintenance. Major repairs and replacements may be cut down dramatically by having better prevention maintenance. Good planning generally is the key to getting more out of your appliances, roof, air-conditioning equipment and so on.
How to Reduce Fixed Expenses?
There are a couple approaches I’d like to bring to light that you can focus on as an attempt to further reducing your expenses. Above we focused on controllable expenses
(1) Reduce annual real estate taxes. Appeal to the taxing authority and request a reduction in the tax assessment. There are companies you can hire who will charge you only a percentage of what you save.
(2) Reduce your debt service. This may be nothing more than refinancing to a lower interest rate, or if your existing loan is two/thirds into its term of years, then a new longer term loan may duce your monthly payments eve if the interest rate is higher than the existing one. Currently we are seeing historical low interest rates. Remember, it is the constant rate that you need to look at.
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Phill Tomlinson is a commercial real estate broker with Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, and owner of the Leveraged CRE Investment Team specializing in investment sales and tenant/landlord representation in the Phoenix and Scottsdale submarkets. Phill applies over 21 years of experience in the Real Estate industry helping investors and owners maximize their returns.
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