Tax-Time Check-In By Sonya Loera

Tax-Time Check-In

BY SONYA LOERA

For many apartment owners, April 15 is seen as the finish line. You tally up your income and your expenses, turn those numbers over to your tax advisor and you are basically done. (Well, all but for maybe writing a check.)

However, the reality is that with all those numbers and figures in hand, now is the time to put on your investor hat and do some serious analyzing. This is particularly true today, as we see a return to normalcy.

You may be feeling much more confident about the future. Although some owners got hit hard with delinquencies and non-payment of rents due, various rental assistance programs helped minimize losses.

And, as COVID-19 restrictions regarding evictions have been lifted, the opportunities to bring in new residents have expanded as well. However, turn-over also means less income for at least a period of time, and the expense of getting the apartment “rent ready.”

Some important decisions need to be made. Although you may have just written checks to the IRS and to the Franchise Tax Board, there may be a need for further expenditures.

First and foremost, you need to honestly evaluate the condition of your property. Have certain maintenance items and repairs been ignored? With everyone living pretty much in a lockdown mode for almost two years, how has the exterior appearance weathered? Is paint needed? What about the landscaping? More importantly are there any broken steps, shifts in the cement sidewalks or other potential liabilities that have gone unnoticed or unmentioned?

Now is the time to start prioritizing and putting numbers to what needs to be accomplished. Trip-and-fall risks and other such liabilities always go to the top of the list. How appearances impact your current and prospective residents should be evaluated, too.

If you are experiencing turnover or are expecting to have to re-rent one or more units in the near future, appearances can go a long way in helping to attract more thoughtful tenants. Well maintained exteriors demonstrate that you, as the owner/manager take pride in your property and that, in turn, often engenders a stronger sense of caring among your residents.

Yes, vacancy rates are very low, and you may be able to re-rent any vacant apartment without putting in much time, effort, or money. However, are you really doing yourself a service, or are you simply kicking the can down the road?

This is when wearing your investor’s hat becomes important. What do you see happening within the next two or three years? What are your long-term goals? Think about your answers on two different levels — both for your property and for yourself.

When you ignore or postpone repairs and maintenance tasks, they do not simply disappear. More than likely, the deterioration continues and, over time, the cost to make the fix may double or triple. Also to be considered are the unseen costs of what happens when your residents no longer respect where they live.

Certainly, getting work done and making repairs is apt to be challenging. Scarcity of items and of reliable labor remains an ongoing issue. However, the reality is that there may be no improvement in the situation for quite a while.

As an apartment owner, you must also keep in mind that you are operating under a “new norm” with many more restrictions. As our AAOC legislative advocates dreaded, the passage of AB 1482 was only the beginning. Today, in Orange County, we are facing even tighter rent limitations as Santa Ana’s Rent Stabilization Ordinance garners ever-growing support in neighboring communities.

So, what do you do? Much depends upon your ability and willingness to spend the money as well as on your own priorities. Maybe you want to do some travelling. Can you realistically make that happen if you are still managing the property on your own? Perhaps professional management is the answer, but is there sufficient cash flow for that to happen?

To be considered, as well, is your end game or exit strategy. Next month we will delve a little further into that subject with a look at what is happening in the marketplace, particularly in