Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
Obviously the government mandated shut down of our economy caused a lot of financial harm to landlords and tenants. During this time, many tenants chose not to pay their landlords rent. Making matters worse, the CARES Act also put a moratorium on evictions for any property financed with government-backed debt.
First, not all landlords are swimming in cash. Real estate is a get rich slow business in which most wealth is tied up in illiquid properties. Real estate is a great way to build wealth, but it’s also a great way to lose it all. With delinquency of 15%+ most levered properties are operating at a loss.
So where does $1,000 of apartment rent go?
- $100 goes to pay the onsite staff (management team, maintenance staff etc. who work onsite each day)
- $150 goes to taxes (local and school taxes go to pay for government, schools, police, firefighters, and hospitals)
- $250 goes to the lender (local banks, credit unions, insurance companies etc.)
- $100 goes toward utilities (electric, water/sewer, gas, cable/internet)
- $40 goes to the property management firm (they employ accountants, marketing staff, regional managers and others who support the property)
- $40 goes toward insurance coverage
- $100 goes to repairs and maintenance (plumbers, electricians, painters, contractors, and other vendors who perform work at the property)
- $50 goes to various contracts (pest control, landscapers, cleaners who perform recurring work)
- $25 goes toward marketing (website, online marketing, outreach marketing, locators etc.)
- $100 goes to investors (individuals who may use the funds to pay for retirement or philanthropic endeavors)
- Remaining, if there’s anything left, is profit which goes to the owner to pay their rent, employee salaries etc.
Summary
The rent payment doesn’t go straight into the pockets of landlords…it goes to pay for the people and services critical to running a business.
The single best thing anyone can do in this time of crisis is to uphold your obligations. Pay your bills, pay your mortgage, pay your rent, pay your employees, and if you can, support local businesses.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com