There’s no way around it: California multifamily property owners are feeling the pinch. Multifamily operating expenses in Southern California rose by more than 7% over the course of the calendar year 2023 alone, often hitting small to midsize operators the hardest.

Here’s the good news: mitigating these expense increases is entirely doable. However, it requires a multi-prong approach that focuses on three key areas: expense containment, revenue optimization, and technology.

This blog post is the first in a three-part series that tackles each of these areas separately. Read on to learn some key strategies that multifamily owners/operators can use to reduce operating costs and ease the sting of expense inflation while maintaining high standards of service and tenant satisfaction.

Optimize Onsite Labor

Optimizing labor costs is all about centralization and efficiency. Here are five ways you can manage expenses with smarter labor management.

Refine Job Descriptions for More Clarity

Well-defined job descriptions ensure that each team member understands their responsibilities, reducing overlap and inefficiencies. Clear roles also help in measuring performance and accountability, enabling better management of labor resources.

Reduce Hours with Technology

Investing in technology such as property management software, automated maintenance request systems, and virtual tours can significantly reduce the number of onsite hours needed. These technologies can handle routine tasks, allowing your staff to focus on more complex issues that require personal attention.

Train Your Staff

Training is one of the best investments you can make in your staff. Regular training programs ensure that your team is up-to-date with the latest industry practices and technologies. Well-trained employees can perform tasks more efficiently and effectively, reducing errors and the time needed to complete their work.

Pool Labor

For owners with multiple properties, consider pooling labor resources. Staff can be cross-trained to work at different locations, allowing you to allocate labor more flexibly. This approach can reduce the need for overtime and temporary hires while ensuring you have the capacity to meet surges in demand.

Adopt a Human Resources Management System (HRIS)

An HRIS can streamline your workforce management, reducing administrative overhead and errors. This system can handle payroll, attendance, and benefits management, freeing up your onsite management team to focus on more strategic tasks. By centralizing and automating HR functions, you can better monitor labor costs and identify areas for savings.

Review Your Existing Contracts

You should make it a habit to regularly review contracts with third-party vendors and ensure you are getting the best value for your money. Look for opportunities to renegotiate terms or bundle services to achieve discounts. Competitive bidding processes can also help in securing better rates.

When repair and maintenance (R&M) needs slow, use this as leverage to negotiate discounts for larger capital expenditure projects. Vendors may be more willing to offer discounts during slower periods to secure business.

Minimize Turn Times

Efficiently managing unit turnover is crucial to minimizing vacancy loss and associated costs.

Here are two rules of thumb to live by: keep minor turns to 10 days or less, and major rehabs to 25 days or less.
You should be able to hit the 10 day mark for minor turns simply through having well-defined processes. Keeping your rehab turns under 25 days may require coordinating closely with contractors and possibly looking for ways to incentivize faster work.

In general, always maintain a bias towards speed in your turnover processes. Establishing a streamlined workflow and having readily available materials can expedite the process. Speed does not mean sacrificing quality; rather, it means optimizing processes and managing resources efficiently.

Accounting Treatment

Understanding the nuances of accounting can also help in managing expenses more effectively. Here are two of the areas of highest impact to focus on, both related to reducing your tax burden.

Capitalized Expense vs. Operating Expense

Differentiating between capitalized expenses and operating expenses can have significant tax implications. Capitalized expenses, such as major improvements, can be depreciated over time, providing tax benefits. In contrast, operating expenses are fully deductible in the year they are incurred. Proper classification can improve your financial statements and significantly reduce your tax liability.

Cost Segregation

Consider conducting a cost segregation study. This process involves identifying and reclassifying personal property assets to shorten the depreciation time for taxation purposes. By accelerating depreciation, you can reduce your taxable income and improve cash flow.

Have Questions?

We’re here to help. As an experienced Southern California property manager, Fairgrove is a leading resource for property owners throughout the region. If you have any questions about reducing your operating expenses or would like to learn more about how Fairgrove can help you, reach out today and we’ll respond ASAP.