If you’re a landlord, common area maintenance (CAM) is a key part of your day-to-day operations.
It includes all the maintenance and repairs of the communal areas in your building like the lobby and even the parking lot. CAM is also known as operational Expense Recovery.
Are you handling your operational expense recovery in the best way possible? A lot of landlords aren’t. Here are five tips for staying on top of these expenses.
1. Make Sure You Have a Full Understanding of CAM
Understanding common area maintenance and every charge associated with it is vital to being a successful landlord. But all too often CAM isn’t given the proper time and attention it needs.
Calculating your operational expenses can be very time-consuming and stressful. But sometimes it has to be that way to be accurate. Don’t overlook the importance of operational expense recovery. If you’re going to be a landlord, you need to take it seriously.
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2. Research Different Types of CAM Structures
There is no one-size-fits-all when it comes to operational expense recovery or common area maintenance. There are several different structures you can choose for your tenants. The larger the tenant, the less say you will have on the structure you will ultimately use. You should thoroughly research and compare the types of CAM structures before choosing what’s right for you.
Some landlords find that fixed CAM structures work best for them. With this structure, tenants have a fixed CAM cost that they are billed every month. Other landlords find that a capped CAM works for them. With this structure, even though the monthly CAM costs fluctuate, there is a maximum amount that tenants will have to pay. There are also different types of CAM structures with caps including Year-Over-Year Caps, Year-Over-Base Compounding Caps, and Year-over-Base cumulative Caps.
3. Expect Tenants to Negotiate Costs and Verify Square Footage
You should expect that your tenants will try to negotiate some of the CAM expenses before signing a lease. They may question whether or not paying for certain expenses should truly be their responsibility. If you have a cap structure in place, you may also have to deal with tenants who challenge a month’s CAM charge.
The amount of square footage your tenants are occupying directly affects the operational expense reconciliation they are responsible for. Because of this, there’s a good chance that your tenants will want to verify the amount of square footage they are occupying before signing a lease. Or they will want to verify following a build-out and a lease amendment will reflect the updated square footage. As long as you are accurately calculating your tenants’ square footage, you should have nothing to worry about.
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4. Treat Operational Expense Recovery as Revenue
You may be tempted to treat operational expense recovery reconciliation as a negative expense. CAM costs are not meant to simply reduce operating expenses. They are paid by tenants in a monthly bill just like rent. Many landlords may even choose to describe CAM expenses as extra rent in their lease agreements. Additional rent is a common term for this. When tracking your cash flow, make sure you treat operational expense reconciliation as income.
5. Negotiate Your Controllable Costs
Some tenants will require you to segment controllable and non-controllable CAM expenses. While some of your operating expenses will remain constant, others might change month to month. An example of a controllable expense might be landscaping or snow removal. While you can argue these really aren’t negotiable, some tenants will disagree and these items will end up in the lease. More than ever, this requires you to pay close attention to the spend throughout the year.
Use your negotiation skills and try to get a good deal on these expenses whenever you can. You never know when you might be able to save on some service. Although this won’t necessarily matter to your tenants if you have a fixed CAM structure, it can make a big difference if you have a CAM structure with a cap.
Let STRATAFOLIO Help Your Business!
If you need some extra help managing your operational expense reconciliation/CAM reconciliation and your overall expenses, you should try STRATAFOLIO. This cloud-based software makes managing your cash flow easy. You can track the bigger picture of your finances and take a more in-depth look at individual charges.
If you’d like to demo the software for free, give us a call! With the help of STRATAFOLIO, you can make smart decisions that will improve your overall workflow. And more importantly, using STRATAFOLIO will help you improve your bottom line.