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Deferred Maintenance

Real estate is one of our biggest and most tangible investments. However, all too often, we postpone and neglect critical repairs on our houses that we need to do as owners of real estate. This is prevalent and is mainly because the financial resources are just not there. We feel sooner or later, we will get to it. It’s called procrastination. We will wait until we have the time or the money to deal with it. Maybe other things in life are much more important. Or we may have simply lost interest in the property. Perhaps, we no longer want to invest any more moneys. Or what if there are just too many repairs that have piled up on yourself and you feel financially buried in repair work. Or is your home just simply a money trap. All of this is called “deferred maintenance”. Whether you are an investor, an absentee owner or an existing resident homeowner, deferred maintenance is the undesirable, adverse side of homeownership. So, what do we do about it … nothing? Needless to say, this is not a good idea. Let’s delve into this topic a little bit.

There is a myriad of components that make up a beautiful home as well as the land that it sits upon. Adversely, there are just as many ways for something to become damaged and/or may need quality updating. This deterioration, deficiency, corrosion, infestation or overgrowth may be caused by regular wear and tear and may by exacerbated by time, neglect and postponement of repair and correction. A do-it-yourself job may, or may not, be the best solution. Questions may arise as to health and safety conditions. Safety, soundness and structural integrity can be the worst and most problematic matters. For example, weaknesses in the foundation, water leakage, roof leaks, defects in the roof shingles, inadequacies in the electrical system or plumbing blotches, mold and other adverse environmental conditions. And just because an issue is hidden or unapparent does not mean to ignore it. Those are definitely the ones that can give us the biggest problems later on.

When we defer maintenance for the sole purpose of saving money, do we really save ourselves anything from these inevitable expenses? The answer is “no”, we don’t. However, we are saving ourselves much more money when we directly tackle the maintenance issues immediately as they are discovered, rather than to wait, and wait, and wait. There are a few reasons why. First, inflation is always in effect. We will always pay more as time and inflation gradually rises upon us. Future expenses are rarely the same as opposed to 5 years ago. So, my question is, “Why pay more”?

From a resident homeowner’s perspective, everything gets worse as we continue to ignore the need for repairs and upkeep to be done. Our homes continue to decay. Our property values decline. And in the meantime, the costs prevail intensifying the problems. For example, it may be a pest control problem, a tree trimming problem, or the need for a garage door replacement. It will get worse, and it will cost more money over time.

If you’re planning to dump this problem on someone else. Guess again. When placing your home on the market, as the seller, you are required to reveal all known issues of the home to the prospective buyer. Some of those issues may materially affect the buyer’s decision as to whether they will move forward to purchase the home. They have a right to completely know all of the issues and conditions with the home. This disclosure protects you, and no one can ever come back and say that you did not reveal these facts to them. Some of these issues are discoverable and reported by professional home inspection companies and real estate appraisers.  It would also affect your selling price, and can also show up in your buyers offer to purchase; and thus, impact the appraiser’s value of your home as likely a distressed property. Appraiser’s will note this on their appraisal reports, and which will translate into your property’s value. And based upon the secondary market, banks and lenders may also ask the seller to repair these items before any real estate loans can go through.

From an investor’s standpoint, there are accounting matters. A property may be sold in “As Is” condition, but it has to make financial sense. Included in these considerations are the deferred maintenance costs, continuous upkeep, upgrade costs showing on the financial statements and balance sheets. For more information regarding recordkeeping, please contact your professional account, CPA or tax advisor.

There are so many points that we can continue to address on this topic, but I trust that this bit of information has been helpful to you. Please feel free to call us if you have any comments or need additional information.