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The [K]orner

The official blog of Fabric[K] Design

How to Properly Manage Your Property

 
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One of the largest obstacles comtemporary home owners face is how to successfully operate and manage their property. There are many cost factors to be aware of besides your mortgage payment. Determining what these costs are is a crucial component in positioning yourself to budget property expenses properly and potentially build some equity.

Less than 100 years ago, estate management was more commonplace. For the modern homeowner, this may be a mysterious task. The millennial generation has been significantly slower to own, purchasing property much later than previous generations. There are many reasons for this, chief among them being ownership of extremely high college debt and having to live through a recession. But now confidence in property ownership is back on the rise for the world’s largest and wealthiest generation. In order to see proper returns on that investment coupled with equity growth, it is imperative that new property owners possess the knowledge to properly manage their asset. Here is a list of the principal operating and management cost factors to budget for. This is by no means meant to be comprehensive. Factors will vary from place to place.

 
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  • Utilities - Utilities are building services that power and sanitize your property. Typically utilities are billed from a service provider to the property owner, reoccurring monthly. They can be expected to show up every month for the duration of ownership. Common utility services include water, electricity, gas, cable/fiber-optic, telecom, internet, security system, storm sewer fees, and other specialty services.
 
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  • Land Management & Maintenance - These are costs associated with the upkeep of property grounds: services like lawn care, snow removal, tree/shrub pruning, landscaping & gardening, and others. These costs are often overlooked. There are those property owners who assume responsibility for these tasks and don’t do them or those that hire a grounds service without keeping track of the monthly cost. Regardless, grounds maintenance should be budgeted for. At the very least a monthly lawn care/snow removal should be assumed.
 
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  • Building Repair & Maintenance - Sooner or later something inside your property will need to be repaired or replaced: the boiler, furnace, roof, leaky pipe, broken window, and the list goes on. The question is when? That, we cannot know. Building repair and maintenance is not a monthly recurring cost but it will need to be budgeted for in preparation for the day. Common practice is to put aside a little cash every month. Some stash away the annual equivalent of 1% of the property purchase price ( [purchase price x 1%] ÷ 12 months = monthly repair budget). Others try to save the annual equivalent of whatever $1 per square foot of property amounts to ( [property area x $1] ÷ 12 months = monthly repair budget ). Choosing a number that falls in between these two figures is probably your best guess. And, remember older buildings will require more maintenance. So plan accordingly.
 
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  • Property/Homeowner's Insurance - This is insurance specific to home/property owners and is typically paid for in a monthly reoccurring fee. It covers losses and damages to an individual's home or other types of private property. It also covers accidents that happen on the property protecting your investment against things like fire, "Acts of God", break-ins, and bodily injuries. Because there are a lot of insurance products in the market, be sure to shop around for the best value.
 
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  • Property Taxes - This is a percentage tax levied on the value of the property and is a major source of income for the governing bodies that collect them helping to pay for services like transportation, trash removal, education, parks, and more. In the U.S. property taxes are calculated by a millage rate determined every year by the various governing bodies. That mill rate is multiplied by the taxable value of the assessed value of your house or property. The basic equation goes like this… Annual taxes due = [ mil rate x ( taxable value = assessed value x assessment rate)]. Tax breaks should they apply are usually included in the assessed rate as a lowered percentage. In Detroit for 2016, the total millage rate was 70.09 mills or 7.09%. Millage rates vary widely across the U.S.
 
  • HOA Fees (Homeowner's Association Fees) - These are costs uniquely associated with condominiums or planned communities of condos. The fee is assessed based on property size and rates can vary widely, depending on the by laws of the HOA organization.

Add these costs to your monthly mortgage payments to get the operating and maintenance cost of your property. Rates typical change every year, so you will have to adjust this number annually. Operating costs are a critical component in determining the true equity you have gained or lost in a project. EQUITY = Assets ( Mortgage Payments +/- land/property value) - Liabilities (Capital Costs + Operation Costs + Maintenance Costs).


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