Colorado Real Estate Journal - January 21, 2015
Investing in real estate remains one of the finest methods of building wealth and sustaining financial stability. The most unfortunate by-product of this has been the rise of seminars and websites with “get rich-quick” and “do-it-yourself” schemes that leave many of those eager to take advantage with a sour taste. Careful planning, researching and hiring of people who will help accomplish your investment goals will turn that sour taste to a pleasant sensation of satisfaction. Identifying and purchasing the right type of property to accomplish your overall goals is just the opening chapter of your real estate investment journey. Working with a real estate professional from the beginning is your most advantageous asset. If you already own property, your best investment protection will be working with real estate professionals who possess the expertise to assist you with ongoing management to achieve the highest financial returns. The two greatest contributing factors that result in either a mediocre return on investment or a great return on investment are: 1. Controlling the maintenance and repair costs; and 2. Continually increasing the income potential. To build significant wealth through investment assets requires a mind-set of deliberate design and specific actions, mixed with the ability to implement those actions that result in desired outcomes. Hiring a property management professional is the best first step to achieving these outcomes. This would be akin to hiring a portfolio manager to handle stock assets for increasing gains while minimizing losses. In the same way, an excellent property management firm will oversee real estate assets, keeping a sharp eye on opportunities for gain while avoiding unnecessary losses. A seasoned investor will tell you that one of the greatest advantages of hiring a management company is freeing up your time to pursue other interests you are involved with, including focusing on family and personal pursuits. Property management is a time-consuming business that requires 24/7 diligence to effectively protect the full real estate investment potential. M a n a g i n g a property well requires control over tenant, staff, maintenance and repair management. A management firm should establish relationships with the professional v e n d o r s required on a day-to-day basis, as well as offer a layer of protection in direct tenant relations. One major area of concern in property management, according to Ed Boyle, real estate expert and owner of Katchen Co., is repair expenses increasing substantially when a property is not properly maintained. “This occurs from being reactive rather than proactive in the primary maintenance plan,” said Boyle. “This includes any complacency about which providers are on the approved vendor list, as standards of care can easily fall below par, causing increases in the repair dollars spent. Every dollar saved in the expense column becomes a dollar added to the bottom line of the profit column.” The best way to save dollars on expenses is to have maintenance plans in place in advance of any needed repairs because this will cost less in the long run, he said. The level of objectivity an outside management company brings to the table is another easily overlooked asset to the successful return on a real estate investment. While vetting tenants prior to signing lease agreements is a main aspect of the management process, it is only the first item on a list of important duties to be carried out if property value is to be increased along with the overall return on investment. A professional property management company recognizes the duty to act as asset manager while considering the future of the asset performance as well. Just like a stock portfolio manager, the professional expertise, knowledge and ability of the property manager affects many things, including the budgeting, day-to-day oversight, all aspects of tenant relations and management of onsite staffing, as well as with outside vendors hired for specific assignments. There are distinctly different approaches to managing different types of property, such as industrial over retail and multifamily complexes over office complexes, Boyle said. “Although there are elements of property management that remain the same, the methods used to manage each property type will depend on a number of factors,” he said. “In retail, for instance, you would consider if it is a strip, street, neighborhood, community, specialty or lifestyle center. A professional property management company must have the knowledge and resources to customize their basket of services to meet the specific needs of the individual property while considering the desired outcome of the client.” There are certainly myriad details to examine when contemplating the purchase and maintenance of real estate as an income-producing investment. A little research and the assistance of an agent experienced in this specialty can set you on a successful and financially lucrative journey in the real estate investment field