Property Expense Metrics - The Number 1 Key to Rental Real Estate Cost Control and Cash Management

Property management is pretty basic business. Cash in and costs out equals cash flow. As operators though keeping this flowing the right way can be truly challenging and even seem impossible at times. A great management reporting system combined with strong purchasing control can turn a problem in to tremendous real estate rental cash flow.

The first step is to understand market costs where your property is located. This is best established by comparing operating costs and revenues from as many projects and properties as possible. Second, you should seek bids for every possible service and every possible supply item. Simply getting quotes is not enough. You should choose three sources with good reputations and the best initial prices possible.

Second, you have to develop a complete understanding of what the day to day supply and service requirements should be. This then is the baseline for operations. Next, you will begin monitoring the costs on a line item basis in a budget vs. actual cost. With this process in place, you've laid the foundation for management to slowly but gradually drive costs down.

The process for reducing costs is accomplished through a mix of activities. First and simplest, keep checking prices and re-bidding sources. You will from time to time cut costs in various areas in this manner. In particular, if your portfolio is expanding this will be a consistent contributing item.

Start looking for systemic means to reduce costs. Do you have systems that need to be upgraded. Can you justify a capital improvement on a cash basis and reduce your monthly costs. Do systems need to be improved to gain efficiencies? Are water costs too high? Are electrical costs or AC repair costs too high. Can you use long life high odor aborbancy carpet to decrease carpet replacement saving $100 per year or more in maintenance costs? Slowly work through the systems and processes gradually chipping away at the costs and improving your cash flow.

The combination of setting up comparative reports with cost reducing processes and procedures will certainly and continually contain or reduce costs for your rental operation. The process must not deal with costs simply on a cost comparative basis, but also on a system and process improvement plan to reduce the means of completing operations.

Investors and managers who use this approach will see strong and increasing profit margins. The improving margins will lead directly to highest possible project value.

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