Oregon 30-Hour Real Estate Law Practice Test

What financial practice can help a property manager protect against obsolescence?

1. Maintaining low operating expenses

2. Ensuring low tenant turnover rates

3. Investing in capital improvements

4. Reducing maintenance budgets

The correct answer is: Investing in capital improvements

Investing in capital improvements is a strategic approach property managers can utilize to protect against obsolescence. Obsolescence refers to the decline in property value due to outdated features or lack of modern amenities that meet current market standards. By committing financially to capital improvements, a property manager can enhance the property's appeal and functionality, thus maintaining or increasing its market value. Capital improvements may include modernizing facilities, upgrading systems such as HVAC, adding energy-efficient appliances, or renovating common areas. These actions not only make the property more attractive to potential tenants but also can lead to higher rental income. Such enhancements ensure that the property remains competitive within the market, mitigating the risk of becoming outdated and less desirable to tenants over time. In contrast, maintaining low operating expenses and reducing maintenance budgets can potentially compromise the quality of the property and its appeal. Although managing expenses is important, prioritizing capital improvements directly addresses the concerns around obsolescence. Ensuring low tenant turnover rates is beneficial for maintaining cash flow and stability but does not directly contribute to the physical or aesthetic aspects of the property that drive its value in the long term.