Is Your Investment Property Maximizing It Return Potentials
By : Taro Chellaram, CCIM
Are you leaving money on the table? When it comes to your investment property you need to be earning maximum returns. After all, you aren't in this to give away money, am I right? However, too often, investors fail to collect the maximum earnings on their property. Leasing to late tenants, avoiding repairs, or simply not doing the proper market research can all be taking a toll on your profits. Does this sound familiar? If so, never fret!
Below are some relatively easy ways to avoid the common mistakes investors make. Avoid these and you'll be maximizing your earnings in no time.
Before you purchase you should be considering the longevity of you investment. A good decision on the front end, purchasing property that is likely to retain its long term value, is the foundation to making a sound investment. It is ill-advised to purchase property solely based upon its projected investment returns over the next few years, without giving serious consideration to the long term viability of the investment. When considering commercial real estate, one must ask themselves: Are there factors that will limit demand for the property when vacancies occur? Are the current rents likely to be above market when it comes time to renew the leases?
Preserve and Enhance value
In order to maximize profits, you need to continue investing in your property. Small updates and maintenance can help to maintain the property at a high standard. Too often investors defer maintenance in order to keep costs to a minimum. Not only does this affect the value when it comes time to sell, but may impact your business revenues as tenants and customers drive away with a negative impression. In extreme cases, maintenance shortcomings result in hazards and potential liability to the property owners. Consider going so far as to create a reserve fund so that capital is available when it comes time to replace the roof or paint the building.
Attracting tenants is easy, but attracting good tenants is NOT. You need to prioritize tenant screening. In order to be profitable you need tenants who pay on time, and prevent damage to the property.
Of course, you collect a security deposit, but major repairs will still be a cost to you. Not to mention, the cost of evicting a tenant can be as costly as 5,000 dollars.
Avoid the headache and screen your tenants. Simple actions like checking the clients credit report in order to determine their paying history, or acquiring pay statements to verify their affordability can be a major reflection of a tenants future rental behavior. You can also assess their behavior by looking into their criminal background and calling past landlords for references.
Consider Hiring A Property Manager
A hiring manager can help you manage issues like payments, and fees effectively eliminating the headache of dealing with tenants. However, their fees can take up to 10% of your returns. In today’s real estate market, that could reduce your cash flow to the point of barely turning a profit.
While it may be most beneficial to a larger property, or a owner of multiple properties, even new investors can benefit from virtual applications such as Rentlit, which can help you collect rent easily and without hassle.
Ultimately, the value of commercial property is determined by either what the market is willing to pay today for a given stream of future cash flows, or what a buyer perceives as the value of the property by locating his or her business there. Enter into solid leases with your tenants, maintain the property to a high standard and don’t over-burden it with debt that will impact your ability to readily sell the property in the future. By following these guidelines and more, you will greatly enhance the likelihood that your experience as a property owner is a profitable one.