The cost of maintenance is becoming a growing concern for landlords who manage single-family rental properties. According to Zelman & Associates, costs for repairs, maintenance, and capital expenditures surged by an astonishing 27% year-over-year in November, marking the highest rate of increase since January 2023. This uptick underscores the financial challenges landlords face as they navigate a rapidly changing market.
Breaking Down the Numbers
The 27% year-over-year increase is significant and noteworthy for being compared to a particularly low baseline from the prior year. While the spike seems dramatic, part of the jump reflects a rebound effect from unusually low costs in 2022. However, even when factoring in a two-year compound annual growth rate (CAGR), the increase remains substantial at 9%, pointing to an ongoing upward trend.
Several factors contribute to these rising costs:
1) Storm-Related Repairs: Unusual weather patterns in recent years have led to more frequent and severe storm damage, pushing up the demand for repairs and increasing costs.
2) Turnover Costs: An increase in tenant turnover has exacerbated the issue. Higher turnover rates mean landlords are incurring more expenses for cleaning, painting, and minor repairs between tenants.
3) Inflation and Supply Chain Challenges: Broader economic factors, including inflation and lingering supply chain disruptions, have made materials and labor more expensive, adding to the burden.
How This Compares to REITs
Interestingly, real estate investment trusts (REITs) have reported more modest increases in controllable expenses, with growth rates in the mid-to-low single digits. This disparity may be due to the economies of scale that larger organizations enjoy, allowing them to better manage costs compared to individual landlords or small property managers.
What Landlords Can Do
For landlords, the rising costs of maintenance pose a significant challenge to profitability. However, there are strategies that can help mitigate the impact:
1) Invest in Preventative Maintenance: Regular inspections and proactive repairs can help identify issues before they become costly problems. While this requires an upfront investment, it can save money in the long run.
2) Build a Reliable Network: Establishing relationships with trusted contractors and suppliers can provide more consistent pricing and quality work, especially during periods of high demand.
Leverage Technology: Property management software can streamline operations, making it easier to track expenses, schedule maintenance, and communicate with tenants.
3) Partner with Professional Management Services: Companies like Excalibur Homes offer comprehensive property management services, including maintenance coordination. Their expertise can help landlords reduce costs and maintain the value of their properties.
Looking Ahead
As we move into 2024, landlords should prepare for continued increases in maintenance costs. While Zelman & Associates expect similar year-over-year growth rates in the short term, understanding and adapting to these trends will be critical for maintaining profitability. Staying informed and proactive can make all the difference in navigating this challenging landscape.
If you’re feeling the pinch of rising maintenance costs, consider reaching out to professional property managers like Excalibur Homes. With their expertise, you can protect your investment and ensure your rental properties remain a reliable source of income.
