Be a good steward

One of the challenges of being a property owner is figuring out how much to spend maintaining / improving your building.

There is a permanent temptation to keep costs down by papering over problems. You can almost always find a cheap way to fix whatever problem has arisen. And, short term, you probably won’t notice much of a difference in how your building performs financially (except, of course, that your costs will be a bit lower, so there will be more cashflow).

However, over time, if you take the cheaper choice every time, your property will degrade. You may not notice, because you’re so used to how the place looks. And, your rents probably won’t decrease… in fact, they will probably increase, because that’s just the nature of owning apartment buildings in Los Angeles. So, how does the degradation of the property hurt you?

Simple: Your rents won’t rise as much as they could. And, because of rent control, each loss rental increment will compound. That $100 increase you didn’t get isn’t just $100. It’s $103 next year and $106 the year after that and $109 the year after that. Over time, across all of your units, that lost rent adds up.

Twenty-seven and a half years down the line, when the building is fully depreciated, and you or your heirs go to sell it and 1031 the equity into a new building, all that missed rent will result in a dramatically lower selling price.

So, do what I do: When something breaks, and you have the chance to do the right thing or the cheap thing, do the right thing. Yeah, it hurts short term. But the long term benefits of being a good steward of the property will accrue to you and/or your family. Oh, and it’s also just the right thing to do.