How Deferred Maintenance Can Destroy Your Profits
Don’t Ignore Your Building’s Health
According to Wikipedia “Deferred maintenance is the practice of postponing maintenance activities such as repairs on both real property (i.e. infrastructure) and personal property (i.e. machinery) in order to save costs, meet budget funding levels, or realign available budget monies.”
As you may know by now, I love quotes. This one by Ben Franklin is perfect for the theme of this article.
“Don’t put off until tomorrow what you can do today.”
For those of you learning how to invest in real estate; heed this advise! Deferred maintenance can be disastrous to both buyers and sellers.
For the Buyer
If deferred maintenance is not identified and included in your analysis of the property, it can affect your projections and hurt your cash flow. The last thing you want to do as you learn how to invest in real estate is to cure deferred maintenance with the funds you had budgeted in your expenses for repairs and maintenance. This could greatly hurt your return.
For the Seller
If funding is tight for an owner it could seem like a smart choice to postpone repairs and maintenance that do not seem absolutely essential. Do you see a problem with this? If something happens as a result of a delayed repair, what could have been a quick inexpensive fix, could turn into an expensive repair that probably could have been avoided. A property owner is not doing himself/herself any favors by deferring maintenance activities. It might be an attempt to save money upfront. But, it could hurt profits when it comes time to sell the property. It might lead to a lower valuation than expected.
With respect to maintenance, the key to the success of a property is doing preventative repairs as needed. This will hopefully minimize deferred maintenance.
Here are 3 examples of preventative repairs that could save an owner major headaches and dollars later on:
- Changing filters in Air Conditioning units and furnaces– forcing the motor to work that much harder and risk a complete mechanical failure. This will be much more expensive than a filter.
- Cleaning water heaters before they rust out and you have to replace them.
- Sealing around roof vents, flashing or windows before leaking occurs. These over time can cause rot and mold and be very costly.
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