10 Hidden Costs Multifamily Property Owners Overlook (and How to Avoid Them)

Managing a multifamily property has become increasingly challenging, with rising expenses impacting profitability. Many of these costs aren’t immediately obvious, and they can quickly add up if not proactively managed. Here’s a look at ten hidden costs in multifamily property management and strategies to keep them under control.

1. Water Damage and Leak Repairs

Why It’s Costly: Water damage is one of the most frequent—and costly—issues in property management. Leaks, if left unattended, can lead to structural damage, mold growth, and a range of repair needs. According to the Insurance Information Institute, the average water damage claim is around $10,849, but costs can soar if mold remediation becomes necessary. Furthermore, water leaks are often undetected until the damage is extensive, especially in units where tenants are not vigilant.

How to Avoid It:

• Install Water Sensors and Automated Shut-Off Valves: Place water sensors in high-risk areas, such as bathrooms, kitchens, and basements. Consider using smart sensors that send alerts to your phone or system in case of a leak. Additionally, automated shut-off valves can stop the water flow as soon as a leak is detected, preventing extensive damage.
• Regular Plumbing Inspections: Schedule annual inspections for pipes, water heaters, and appliances. Professional plumbers can identify signs of wear, corrosion, or weak seals that might lead to leaks.
• Seal Vulnerable Areas: Invest in waterproof sealants for high-moisture areas, like around bathtubs, sinks, and basement windows. This prevents water from seeping into walls or foundations, which can cause long-term structural damage.
• Educate Tenants: Ensure tenants know the importance of reporting leaks immediately and inform them about water shut-off locations within their units.

2. Vacant Unit Expenses

Why It’s Costly: Vacant units don't bring in income, but they still incur expenses like utilities, maintenance, and security. For instance, even with no one occupying the unit, minimal electricity and heating/cooling costs are necessary to prevent moisture issues. Vacancies can also attract squatters or vandalism, leading to unexpected repairs and higher insurance premiums.

How to Avoid It:

• Implement a Vacancy Preparation Checklist: Create a detailed checklist to prepare units for new tenants quickly. This should include cleaning, maintenance checks, painting touch-ups, and lock changes.
• Use Professional Staging and Photography: For units that may take longer to rent, invest in staging and high-quality photography. Professionally staged units and attractive listings are proven to attract more prospective tenants and reduce vacancy times.
• Pre-Screen Interested Tenants: Having a list of pre-qualified, interested renters can help fill vacancies faster. Partner with local real estate agents or use pre-application screenings to find renters who are ready to move in as soon as a unit is available.
• Offer Incentives for Quick Move-In: Consider offering discounts on the first month’s rent or flexible move-in dates to reduce vacancy time and get tenants in faster.
• Heightened Security Measures: Using advanced security measures can help notify you of skips when they happen, allowing you to set a unit up for rent much sooner. As well as help provide deterrents for squatters to move into vacant units.

3. Insurance Premium Increases

Why It’s Costly: Insurance premiums can skyrocket if properties experience frequent claims or are perceived as high-risk. Properties with proactive risk management, such as fire and water detection systems, often experience fewer claims and may qualify for lower premiums.

How to Avoid It:

• Invest in Preventative Systems and Documentation: Install smoke detectors, water leak sensors, and fire alarms to prevent high-cost incidents that could lead to claims. Document these improvements and show insurance companies your commitment to risk reduction. Some companies may offer lower premiums or rewards for preventive actions. This is a specialty of RezySave, our devices and system is proven to help lower insurance costs and losses by implementing advanced IoT devices.
• Bundle Insurance Policies: By bundling different types of insurance (property, liability, and casualty), you may qualify for discounts, reducing the overall cost of your insurance.
• Maintain Detailed Records of Claims: If you’ve had previous claims, maintain detailed records and evidence showing how you've addressed each issue to prevent reoccurrence. Insurers may be more lenient on premiums if they see a reduction in risk.
• Negotiate Annually: Use an insurance broker to compare rates and negotiate with multiple providers each year. Brokers often have access to discounts and incentives that may not be available directly from insurers.

4. Tenant Turnover and Vacancy Loss

Why It’s Costly: High tenant turnover rates lead to lost rent, marketing costs, and expenses for preparing units. According to the National Apartment Association, turnover costs can reach up to $4,000 per unit, which includes lost rent during vacancy, cleaning, repairs, and new tenant incentives.

How to Avoid It:

• Create a Tenant Retention Program: Develop a program that rewards long-term tenants, such as offering small discounts after each year of occupancy or providing loyalty perks like appliance upgrades or free carpet cleaning.
• Conduct Regular Tenant Satisfaction Surveys: Conduct quarterly or semi-annual surveys to gauge tenant satisfaction. Use feedback to address concerns before they become reasons for moving out.
• Establish a Move-In/Move-Out Transition Plan: Ensure that moving out is smooth for tenants, minimizing negative experiences that could deter them from renewing. Offer services such as discounted moving truck rentals or referrals to moving companies to make transitioning easier.
• Engage Tenants with Community Events: Organize tenant events, such as barbeques, movie nights, or seasonal parties, to create a sense of community. Tenants who feel connected to the property are more likely to stay.

5. Unplanned Maintenance Costs

Why It’s Costly: Deferred maintenance can turn small issues into big, expensive problems. Unexpected repairs can strain budgets and result in tenant dissatisfaction if not promptly addressed. Maintenance costs can vary, but on average, they constitute 10-15% of operating expenses.

How to Avoid It:

• Adopt Predictive Maintenance Practices: Use property management software that can predict when major systems (like HVAC or elevators) need servicing, based on usage and performance data. This predictive maintenance approach helps catch issues before they lead to costly repairs.
• Create a Maintenance Reserve Fund: Set aside a percentage of rent income specifically for unexpected maintenance. A well-funded reserve allows for immediate responses to maintenance issues without straining the overall budget.
• Partner with Trusted Vendors: Establish partnerships with reliable contractors and negotiate discounts for regular services or quick responses. Partnering with reliable vendors can reduce downtime and ensure that work is completed correctly the first time.
• Invest in Durable, High-Quality Materials: While cheaper materials may save upfront costs, investing in high-quality, durable materials for things like flooring, appliances, and fixtures can save on long-term maintenance and replacement expenses.

6. Energy Inefficiencies

Why It’s Costly: Inefficient lighting, outdated HVAC systems, and poorly insulated buildings can lead to high utility costs, which impact profitability. According to the EPA, implementing energy-efficient upgrades can reduce energy costs by 20-30%, translating into significant savings.

How to Avoid It:

• Upgrade to Energy-Efficient Appliances and Lighting: Replace outdated appliances with Energy Star-rated models. For lighting, use LED bulbs, which consume less power and have a longer lifespan than traditional bulbs.
• Implement Smart Thermostats and Motion-Sensor Lighting: Smart thermostats allow you to control heating and cooling more efficiently, especially in vacant units or common areas. Motion-sensor lighting in hallways and outdoor areas reduces electricity consumption by only lighting when needed.
• Insulate and Seal Gaps: Inspect the property for gaps around windows, doors, and vents. Proper insulation and weatherproofing reduce energy loss and help maintain consistent indoor temperatures, leading to lower heating and cooling bills.
• Offer Energy Conservation Tips to Tenants: Encourage tenants to adopt energy-saving habits, such as turning off lights when leaving and adjusting thermostats when they’re away. Simple education can have a big impact on reducing overall energy costs.

7. Legal Fees from Tenant Disputes

Why It’s Costly: Tenant disputes—over lease terms, property conditions, or evictions—can lead to costly legal battles. Legal fees vary widely but can range from hundreds to thousands per case, impacting your budget and resources.

How to Avoid It:

• Hire a Legal Consultant to Draft and Review Leases: Have an attorney create or review your lease agreements to ensure they cover potential conflict areas and are in compliance with local regulations.
• Document Everything: Keep thorough documentation of every communication with tenants, especially in cases where complaints or issues have been raised. This documentation can be invaluable in case of a dispute.
• Educate On-Site Staff: Train your property management team in conflict resolution techniques to handle tenant complaints effectively. Many disputes can be defused before they escalate to legal action.
• Consider Mediation Before Litigation: If a dispute does arise, consider mediation as an alternative to going to court. Mediation is often cheaper, quicker, and less adversarial.

8. Pest Control and Mold Remediation

Why It’s Costly: Uncontrolled moisture or poor sanitation can lead to pest infestations and mold growth, which are both expensive to remediate. Mold remediation alone can range from $500 to $6,000, depending on severity.

How to Avoid It:

• Use Preventive Pest Control: Schedule regular pest control treatments to prevent infestations before they occur. For properties in high-risk areas, consider monthly or bi-monthly treatments, especially in shared spaces like hallways and basements.
• Monitor Indoor Humidity Levels: Mold thrives in high humidity. Keep indoor humidity levels below 60%, especially in bathrooms and basements. Use dehumidifiers in problem areas, and ensure that bathrooms and kitchens are well-ventilated.
• Educate Tenants on Reporting Issues Early: Inform tenants about the importance of reporting leaks, pest sightings, or signs of mold. Early reporting can prevent problems from spreading and reduce the cost of remediation.
• Invest in Mold-Resistant Materials: When renovating or repairing, consider using mold-resistant drywall, paint, and flooring materials, especially in moisture-prone areas.

9. Inadequate Security Measures

Why It’s Costly: Insufficient security can lead to vandalism, unauthorized access, and tenant turnover. A lack of security may result in property damage, theft, and a poor reputation, ultimately affecting tenant retention and occupancy rates.

How to Avoid It:

• Implement a Comprehensive Security System: Invest in a combination of security cameras, access control systems, and well-lit common areas. Cameras should cover entrances, parking areas, and other high-traffic spots to act as both a deterrent and evidence in case of an incident.
• Engage Tenants with a Crime Prevention Program: Educate tenants on how they can contribute to a safer community. Simple measures like locking doors, reporting suspicious behavior, and not letting unknown people into the building can make a significant difference.
• Regularly Review and Update Security Systems: As technology advances, outdated security systems can become a vulnerability. Conduct security assessments annually to ensure that systems are current and address any new security needs.

10. Administrative and Management Costs

Why It’s Costly: Administrative tasks, like tenant communication, paperwork, and compliance management, can be time-consuming and costly if done manually. These costs add up, consuming 10-15% of operational expenses on average.

How to Avoid It:

• Automate Administrative Tasks with Software: Invest in property management software that automates rent collection, lease renewals, maintenance requests, and tenant communication. Automation reduces manual work and minimizes the risk of errors.
• Outsource or Consolidate Services: If your property requires specialized services (e.g., accounting or legal), consider outsourcing to companies that specialize in those areas. For day-to-day operations, hiring a property management firm might reduce costs over time by improving efficiency.
• Centralize Document Storage: Use a cloud-based system to store leases, contracts, and tenant files. Centralizing documentation makes it easier to access important records when needed and reduces time spent on paperwork.
• Implement Digital Communication Channels: Encourage tenants to communicate via email, a resident portal, or a mobile app instead of calling or in-person visits. This can save time for property managers and provide a trackable record of communications.

Bottom Line

Managing a multifamily property requires careful attention to hidden costs that can erode profitability if left unchecked. By addressing these costs through preventive measures, efficient management, and strategic upgrades, property owners can protect their investments, improve tenant satisfaction, and maintain a healthy bottom line. To learn how RezySave and its team can help your property save on all of these 10 hidden costs, click the button below to learn more.