Investment Real Estate: 4 Essential Areas You Must Stay On Top Of
Buy the investment property, hire the property management company, and collect checks. That’s how it works, right?
Sadly, I hear that from new real estate investors all the time – they just don’t know what they don’t know. Unfortunately, I’ve also seen many of those same investors go out and try to do just that, only to lose a lot of money or fall way short of their investment goals. Most of their investments start out fine, but they lose track of them and by the time they realize there’s a problem, it’s out of control. Fortunately, there is plenty you can do to make sure this doesn’t happen to you.
When you invest in real estate, you are investing in a living, breathing business. It can change on a monthly, weekly, even daily basis. Over the years, I’ve seen properties go from good to bad or bad to good in a matter of months. There is no real estate that can change faster than rental real estate. Because of inevitable change, you must know what is going on with your properties. Do not just turn the keys over to someone else and sit back and wait for checks to arrive.
Whether you hire a property manager or manage the property yourself, you need to keep on top of your investment or it can be disastrous. An easy way to do it is by having your manager provide you with a weekly, bi-monthly, or monthly report that keeps you in the loop. This will ensure you know what is going on with your investment and make sure nothing slips through the cracks. It will also keep your management company on their toes as they know you are monitoring their performance.
4 areas you must keep on top of to make your real estate investments a success:
- Occupancy – An empty apartment doesn’t create income. You need to keep your property full if you want to make money. Your management company’s number one priority should be filling your property and keeping it full. Make sure you know where the market occupancy is and if your property is below or above it. If it’s below, you could have a problem and you need to find out why. Also, be sure to keep an eye on how many residents are moving in and out.
- Collections – Priority number two is making sure your residents are paying rent and in a timely manner. Keeping your property full is only half the battle. It doesn’t do you any good to have a full property if residents aren’t paying their rent. Slow payers can also cause problems with your cash flow when loan payments and other expenses come due. Get rid of non-payers and stay on top of collections.
- Maintenance – One of the biggest problems I see with properties is that their owners have not kept up on maintenance issues and now they can’t afford to take care of all of them. If you don’t take care of maintenance issues right away it will cause you major problems. Good tenants will leave if you don’t respond quickly to their maintenance requests. When you take care of maintenance issues quickly, you can handle the costs associated with them. If you put maintenance issues off they will only grow. They can quickly snowball into large repairs that are very expensive and you may not have the money to take care of them.
- Financials – You must keep track of where your money is. Being disorganized or losing track of the financial picture of your property can be a disaster. If you let bills stack up or don’t know your cash situation at all times you can quickly get into trouble, and it can be difficult to recover. Owning investment real estate is a business. If you treat it like a business, it will pay you as a business. If you treat it like a sideline hobby, it will pay you like one as well. Having financials that are up to date and readily available are essential. If you’re not a good financial person, make sure you hire someone to help who is. A good property management software can be very helpful as well. At a minimum, we make sure we get monthly financial reports that show the income that was brought in, expenses that were paid, and how that relates on a monthly basis. If your financials are a mess, your business is a mess.
Real estate is a living breathing business. You must stay on top of the occupancy, collections, maintenance issues, and financial performance. Whether you manage the property yourself or hire a property manager to take care of your investment, keeping on top of these four essential areas will allow you to identify problems quickly and adjust to take care of them before they become big issues. Having reporting in place will ensure you know what is happening with your property and will keep your property management team on its toes.