From time to time in any commercial building you will come across the need to save money for the landlord. Pressures arise from existing vacancy factors, property oversupply, and cost escalations. It directly follows that you should watch the trends of the property market, and look for any new developments that could shift the balance when it comes to occupancy and tenant enquiry.
Identify and Implement Cost Savings
Here are some ideas to help you consider and convert cost savings from an investment property:
- Energy: The costs of energy are always on the rise. They will have an impact on occupancy costs for the tenant in the building, and common area charges for the landlord. Energy savings can be achieved through proactive initiatives across the cycles and operation of the plant and machinery, air conditioning, and lighting, and then you can also have a look at the tenant usage. You may also create savings through better electrical distribution systems within the building. Understand and determine that you are recovering the appropriate levels of energy consumed from the existing tenancy base. Once you know that tenant energy is being correctly recovered, then you can focus on the common area energy supply and use within the building. That will include the power system grid including lighting, air conditioning, and the technology behind the operations of plant and equipment. The contractors undertaking maintenance in the building can offer you some valuable input when it comes to energy savings and alternatives.
- Outgoings: Understand the timing of outgoings as they apply to building usage on an annual basis. Some of the expenditure items can be timed and controlled. Look at the expenditure costs for the last few years, and look for the patterns; identify the bigger items of expenditure impacting the net income and determine if they can be shifted or changed. Consider how those factors of expenditure can be reduced or staggered to stabilise the net income. Some costs associated with property operation may be discretionary. Other costs may be reduced through maintenance modification.
- Taxes: Rates and taxes will have an impact on cash flow. Those rates and taxes are largely uncontrolled and will need to be paid at certain times of the year. They will however be impacted by property valuations and the policies of the rating bodies; you can research and track those issues on a regular basis to stay ahead of escalations in most of the municipal charges. You can also achieve some reasonable control over rates and taxes when you set a budget for the building and allow for the timing of rates and taxes on the building cash flow. A budget will allow you to time the critical elements of expenditure that cannot be controlled in any other way.
- Maintenance: Prior to the start of any financial year, consult with the maintenance contractors for the building to determine building code compliance issues that must be undertaken. Those items will need to be inserted into the building budget regardless of everything else. After inserting those essential items into the building cash flow, you can consider discretionary maintenance factors and also the timing of those other issues.
A successful commercial investment property today is usually the direct result of prudent financial and physical property control. Stay ahead of the operational costs for the building and set a budget based on known cash flow, so that you can save money where possible and thereby improve the net income for the landlord.