Escalating Energy Costs Crimp Profits For Landlords
Debra Di Leo, manager of 63 apartments in Worcester.Some opt to keep units off the market to avoid losses
Rising energy costs might be an inconvenience to motorists, but for local landlords and property managers, they are throwing the economics of renting property completely out of whack.
So out-of-whack, in fact, that some are leaving available units off the market, rather than dealing with the cost of bringing in a tenant, said Sherri Way, president of the MetroWest Prop-erty Owners Association, and the owner of nine apartments in Worcester and two in Marlborough.
Shrinking Margins
“There’s definitely not as much profit as there was five or six years ago,” Way said. “It’s just that all the costs, especially energy, have gone up so much. Whatever profit margin you had, it’s shrinking, shrinking and shrinking.”
In most cases, Way said, if a landlord can charge his tenants individually for heat and other utilities, he will. But in some cases, the property determines how the landlord has to play his cards.
Newer apartments are predominantly separately metered, but some older properties, such as the ubiquitous Worcester three-deckers, have a common boiler for all units. Such properties present a tricky situation for landlords.
Debra Di Leo manages her family’s 63 rental units in Worcester. She said there are some tricks to keeping energy costs as low as possible.
Di Leo also said that overall vigilance pays off.
“It’s your piece of property, you have to maintain it,” Di Leo said. “Do daily a walk through, make sure your tenants are doing what they’re supposed to do, and not leaving windows open or anything. Keep an eye on your property and you can stay on top of things.”
Stephen Lane, president of A.J. Lane Development Corp. of Framingham, said his company leases or manages more than 900 apartment and condo units in MetroWest, including the massive Fountainhead Apartments on Route 9 in Westborough.
Lane said his company tries to purchase electricity and energy through long-term, fixed-rate contracts, which helps his company budget more efficiently and protects them from volatile price swings.
Offering heat and hot water included in the rent can act as a kind of double-edged sword, Lane said. On the one hand, tenants view included utilities as a very attractive amenity.
On the other hand, said Lane, when tenants aren’t paying the heating bill directly, they tend not to care as much about their own efficiency.
“Hopefully everybody’s trying to conserve as best they can,” Lane said. “Unfortunately, that’s more the case if the cost is coming directly out of the tenant’s pocket.”
Fountainhead Apartments in Westborough.Going Green For Green
Lane, Di Leo and Way all agreed that small investments in more efficient appliances, windows and insulation are well worth it in the long run.
In most cases, rents have been going up incrementally in response to rising energy costs. But there is only so much the market can bear, Di Leo, Way and Lane said. A landlord cannot simply keep raising prices to cover the higher costs.
“Sure, you can put an apartment up for $1,100, but if it takes months and months to rent and is sitting vacant, what’s the point?” Way asked. “If you can put it up for $900 and rent it in a few days or weeks, that’s more desirable a lot of the time.”
Because costs are rising faster than rents, a lot of landlords are simply breaking even on their properties, according to Di Leo.
In addition to rising energy costs, Di Leo said the rising cost of everything, from taxes to water to materials for repair, has made making money increasingly difficult.
The sour housing market, however, does offer at least a glimmer of hope for apartment owners. All three said they noticed things were picking up in the apartment market lately.
All of Di Leo’s apartments are occupied, she said, and Way said she has noticed that more people are willing to pay real estate agent fees and security deposits in order to secure their apartments.
To Di Leo, it seems that many who jumped into the housing market soon realized they were in over their heads, and those that weren’t foreclosed on have beaten a hasty retreat.
“A lot of people jumped into buying when they shouldn’t have,” she said.
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