The best way to ensure your property investments generate cash flow is to imagine that you are the CEO of your own real estate company.
And first and foremost, you need to look for opportunities to maximize your revenue. Focus on the fundamentals first – this can be as simple as pricing your properties appropriately to attract good quality tenants. Don’t be tempted to lower rent below current market value in an effort to attract tenants. When you under-price your property, you encourage tenants that are renting on price-point only, as opposed to those looking to build a life in that home. They will also be easily tempted to move, forcing property investors to look for tenants more often and wear the cost of more vacancies.
Once you’ve got the fundamentals right, you can look at more creative ways to generate income such as renting out a detached garage or parking spot.
Like any successful businessperson, your job as a
real estate investor is to slash expenses. Now, this obviously doesn’t mean just cutting anywhere, as has been pointed out above with rent. Rather it means cutting where appropriate and making further investments that will either increase your property’s marketability or reduce its operating costs.
For instance, savvy investors wouldn’t just stick with the same snow removal company without shopping around. They would find the best deal in order to reduce that expenditure and thereby increase their cash flow, so long as the service was still sufficient.
Another example is finding ways to make your properties more energy efficient. Though there are initial costs, the savings tend to pay off fairly soon. For instance, sealing up cracks along baseboards and plumbing stacks, or adding insulation to the basement and attic of one of your properties could save you hundreds of dollars a year.
But the most important expense to monitor is your mortgage. While many investors like to see the Bank of Canada lower its key interest rate, many novices forget to call their banks to have their mortgage rate adjusted to the current level.
The tenant is your customer
If you are the CEO of your own real estate company, then the tenant is your customer.
Think about how to build long-term relationships with your clients – or tenant – and how to keep them buying from you, which in this case is keeping them renting from you.
Send your tenants cards for their birthdays and gift baskets for Christmas, for example, or if you are doing any renovations send them a restaurant voucher so they can get away from the noise.
Doing these or similar acts for your customers goes a long way. It keeps them happy and spreads the word about your business.
Build a good team
Building relationships with other professionals is equally crucial for any business owner looking to expand his or her company. Likewise you, as a real estate investor/business owner, need to surround yourself with a solid group of trustworthy professionals to help you work more efficiently, get better deals and, ultimately, develop your business.
That means you need good lawyers, Realtors, mortgage and insurance brokers, and also a group of fellow investors who will assist you in building your business and will provide you with honest, constructive advice.
Proper property management
One of your most important relationships, and most important business decisions, will be getting a reputable property manager. Sure, at first, when you only own a couple of properties in your area, you’ll most likely be taking care of the property management, but once you are serious about real estate investing, you’ll need somebody else to take care of your assets.
As CEO of the company your job is to maximise revenue, minimise expenses and find more properties to create more cash flow. This means delegating the property management to someone else so you can focus on potential investment deals. A property manager can eat into your profits, but you should look at it as an investment in your real estate company.
But you must make sure that the property management company you’re hiring has a good track record. The best way to do that is to go by referrals from other successful investors.
Next, you need to set parameters for your property managers and if they stray from them, you need to bring them back on track or find a new property manager altogether.
For instance, if some of your rent payments are late or if you have to make repairs to one of your properties, don’t just sit back and wait for the property management company to take care of it. Get involved.
As well, it’s important to give property managers a reason to work. Because property managers always gets the same paycheque regardless of any additional work they do, they tend not to exceed your expectations. For this reason, it’s best to create incentives for your property managers so they have something to work towards.
Let’s say you have five properties in the same city and you know the vacancy rate is 1%. You could offer an incentive, such as a 1% bonus on your total rent for the year if there are only two vacancies for a total of two months during the year.
By handling your client and professional relationships like a true business owner, you’ll be able to expand your real estate company as more people come to acknowledge and respect your work. Just remember you as a CEO have to continually foster those relationships.
When you’re looking for tenants
Do complete background checks every time, including calling references, credit checks, job confirmations.
Know your target renter well, so you know where they’ll find rental ads. Focus your marketing spending on the most likely place for your target demographic
When handling contracts and leases
Know that although leases often look the same there are subtle differences in each and that it is your job to have a standard one that you understand clearly and that fits your local landlord and tenant laws.
Feel free to make an addendum to leases as part of the contract for anything that you agree to verbally. Nothing will stand up in landlord and tenant court if it is just verbal. Write it down and get it signed by all parties.
Make sure that everyone in the house (who is of age) reads, agrees and signs the lease, not just one party.
When making repairs or hiring contractors
Get three quotes at a minimum for any job that’s more $1,000.
Then sign and date an agreement with the contractor you choose, which includes the job’s price estimate, time lines, quality of finish, clean-up after renovations, etc.
Finally, build financial penalties into the deal if these parameters are not met.
When handling tenant issues
Follow the book to the letter. No removing doors to get your tenants’ attention.
Each province has very clear step-by-step rules dealing with all tenant issues. You must know them and follow them. Any breach puts you at risk of losing a case in court.
*Excerpted from Canadian Real Estate magazine
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