How to reduce the operating expense of this building?

Building: 2-floor, 7000 sq commercial offices, large parking lot with a small front lawn area

Gross Income 125k
Expense 107k + 10k tax + 5k Insurance
Here are some of the larger listed costs:

Cleaning Contractor: around 1.1k per month, annual 13k ~14k
garbage collection: around $200 per month, annual $2400 ~ $3800
Payroll O&M: around $550 per month, annual $5k ~ 6.5k (Considering cut)
Vertical & horizontal transportation: $200 a month, annual $2400 (no idea what this is, for elevator?)
water testing: $600 a year
plumbing: $1000 a year
HVAC: $3000 a year
Minor repairs: $34 ~ 45k a year
Fire and Life Safety: $25 a month, annual $300
Electricity: $14k~16k a year
Fuel Oil: $17~19k a year
Water & Sewage: $300 a year
Roads and Grounds service contract: $10k a year, cost mostly in winter
Security Fee: $500 a year

Some of the cost are fixed cost regardless of the vacancy, like cleaning, roads and ground services, so the profit margin should improve if the building is 100% filled. (Currently around 85%)

By looking at the list I there isn’t much I can reduce. My idea is combine cleaning/garbage collection/ground and road service, and that can save maybe 7k,
eliminate O&M payroll (+6k) and reduce repair cost by 20k, reduce HVAC service by half
I project that I can save 34k or so. Not much to do about the heavy utility costs.

Any other ideas?

what are some practical and specific suggestions for reducing energy use at offices? You know these people will have full electricity and heat blasting all day long and that’s pretty usual for commercial tenants.

Contact an electricity and gas contractor to inspect your equipment for efficiency and suggestions for improvement. A couple hundred bucks is not a lot if their advice and a good cleaning saves you many times more than that per year. Your boiler might be the wrong btus for the building size or too old or the components may just need cleaning for optimal efficiency. There’s no universal suggestion other than improving insulation because rarely are two buildings alike. You put styrofoam and stucco on the outside of your building, you’re gonna save on heating. You get better windows, same thing.

Really, you should be looking into negotiating more favourable leases like triple net leases where the tenants pay for their utilities, so they have an incentive not to waste power or raising the rents.

Seriously, you shouldn’t base your decision on buying a building by what you can potentially save. In the past year in Ontario, I’ve seen electricity with the introduction of smart meters, gas and insurance premiums jump by over 30% across the board in the past year. And electricity rates are still rising to bring it in line with government subsidized solar farms and windmills. Minimum wage has gone up to $11 an hour in Ontario, which means labour costs for maintenance services will have to go up too. It’s a pipe dream if you think you’re going to save money on operating costs. It’s icing on the cake if you succeed, but you should REALLY be negotiating higher cap rates to deal with these increases or NEXT, unless you’re begging to go bankrupt. Why do you think the vendor is selling it?

Dave, that is a fascinating response.

I have never experienced that level of volatility regarding utility costs.

And you’ve demonstrated the necessity of understanding the nature of the farm, as well as the market itself.

Great post.


I go through our commercial properties every year and get new bids for all services like cleaning, pest control, trash, etc.

$34k to $45k just for maintenance is huge, it is the equivalent of paying a handyman a full time wage 52 weeks a year to work on your office building!

Your general maintenance budget should be $500 to $1000 per month!

I would get two or three fuel oil company’s to bid your oil needs and would look at filling your tank full right at that cheapest time of year. You might look at doubling or tripling your fuel storage capacity to buy more fuel oil cost effectively at that cheapest time of year.

Checking efficiency and putting programmable thermostats in which allow you to significantly reduce costs during unoccupied times of day or week.

Your summer time (6 or 7 month) lawn and plant maintenance should only run $150 a month for basic service. Snow plowing and walkway snow blowing should run you $35 to $40 an hour, snow removal by loading and trucking snow off site is expensive so use your lawn space and excess parking area for snow storage. Snow service could run you $1000 per month but should only be 5 months a year.

Get 3 or 4 or more snow removal bids as this $10k a year sounds like the buddy price. As in the managers buddy is making a boat load to support his snowmobiling habit. Remember it does not snow every day so removal may be every two, three or more days.

You also need to look at options for how your office space is rented / leased and whether your market has viable options for passing some of these expenses onto your tenants. Whether triple net, etc?


I’m going to say this one last time out of a sense of compassion as someone who’s been here before. Don’t buy it. It barely breaks even on the expenses as it is, before even making your mortgage payments.

Unless you’re a millionaire who has a lot of money lying around and has the freedom to gamble on a development like someone who can fly down to Vegas and blow millions on a roulette table or black jack instead of someone starting out, base your decisions on the results of past income tax returns.

GR mentioning a handyman working full time for a year is NOT a valid comparison to minor repairs being $35K to $45K a year and why it should be reduced. Handymen can’t pull electrical permits and other permits, which are $100 a piece btw. I had two alarm bells that had to be added into two apartments because the hallways weren’t loud enough. I got eight quotes and it came just under a grand for install, parts and permit. I had to change a fire alarm panel because there was a delay on the reset button. ULC standards wouldn’t allow a button to be soldered in and replaced, so I had to change the whole panel. With panel and electrical permit and install by a master electrician (which is required by law), it cost me another grand. And I had to have the work done or I would have to deal with the fire marshal, which is not a pleasant experience.

Not only that, what if you require asbestos removal by professionals prior to repairing a water damaged wall or other work?

If this is a heritage designated property (which I think it is with the $5K/yr insurance for a 7,000 sq. ft building), repairs could very easily go beyond $45K. I’ll give you an example. There was a large two storey house in my city (around 6,000 sq. ft) that switched hands and was on the market several times that had a leaky roof. It was a designated property and had a wavy thatched roof which was a mandatory requirement to upkeep in the designation. For around $10K, you could rip it out and replace with plyboard and get Home Depot shingles on it, but the heritage restrictions required a replacement thatched roof, which would have cost those owners $200K. As ridiculous as it seems, these are some of the things you have to look out for, which is very telling when you read the past financials on the property.

Maybe the property is way up north and that’s why snow removal is so expensive. For example, in Fort McMurray, Alberta, it is normal to have below -20 celsius weather, even though real estate is expensive because it’s located in an oil rich boomtown. Everything in that town is brutally expensive because it’s in a remote area and anyone with no education can work in the oil fields and make $100K a year, so why would a snow removal guy work for less? There may be a legitimate reason here why snow removal rates are so high, which can’t be lowered through competitive bidding.

As for competitive bidding on energy, garbage, etc., let me tell you something. Electricity is not as deregulated in Ontario as in the US. I looked into this. Even though they sell you fixed rate power for 5 years, what these scumbag sales people often leave out is that a variable global adjustment rate set by utility company is also added to the bill which doesn’t exist with the city’s utility provider. When power goes up, except in rare cases, the global adjustment rate goes up so at the end of the month your final bill under fixed rate is almost always higher than with the local utility provider. I had to call several energy companies to explain to me what the global adjustment rate was because a sleezy salesman told me it was a delivery charge and that I wouldn’t pay the delivery charge with the local provider if I switched over, which was a flat out lie. At the end of the year, your electricity bill is always higher under fixed rate with the private competitors.

These same sleezebags also do the same thing with other energy such as natural gas. There’s no savings here. At least, not in Ontario.

As for other bidding such as garbage removal, let me tell you something. I had steel garbage bins from a local company. I talked to a salesman from a national company who offered it cheaper. I signed up. A few months later, they added a fuel surcharge and my monthly bill was higher. I debated this with the salesman, and he said sorry, I can’t help you because of rising costs. I spoke to the local provider again and got a better quote. I called the current provider, they gave a big rant that everyone is doing it and how I was dealing with a national company and then he offered to beat it and lock in that price for 5 years. I said I’ll only do it if you write in there that there is no fuel surcharge. He did. I stayed with the current provider, but put the bills on my credit card this time and signed a 5 year contract.

A few months later, guess what happened?

They added a monthly administrative fee and environmental fee which made it a lot higher.

I was furious and phoned the salesman about my garbage bill doubling. He said sorry, I’ll take it up with my manager.

The salesperson ducked my calls and I left several angry voice mails. I threatened to take them to small claims court. Then I told their accounting department to cancel it and get their bins the f out of here.

They slapped me with a bunch of cancellation penalties. I threatened again to take them to small claims court. He told me the fine print allows him to do that and he ignored me again. I challenged him and said it specifically doesn’t say that, and that his response was a way too creative interpretation of some of the clauses. They didn’t care if I’d take them to small claims court. I finally had the last laugh when I filed a fraud complaint with my credit card company and the credit card company investigated it and reversed the credit card charges.

GR makes it sound so easy to cut these expenses. But, often it’s not. If they could lower it, why wouldn’t they do it to make the property more marketable. Often it’s a lot of wasted time and stress and it doesn’t come down. It might come down and that’s icing on the cake, but don’t count on buying this property and cutting those expenses in half. Base your decisions on the tax returns of the history of that property and what you know about the current political climate, otherwise, you’re asking for trouble.

At 7,000 square feet with 85% occupancy making $125K a year with $122K in operating expensive, I really can’t see the upside on this property. It’s a recipe for bankruptcy. Keep your money in a government insured savings account ready for a real deal when it shows up because it will when you least expect it. Don’t buy on emotion.

Energy reduction is the best way for it…