Property Management Keys To Protecting Capital Investment
Residential real estate investments offer a history of proven investor gains.
At the same time, the success path is littered with failed investments and investors.
Assuming you protect yourself adequately from leverage risk, provide adequate operating cash, and have sufficient reserves.
These three items in my mind are foundational.
How do you assure your capital will be safe and that you will avoid unnecessary risk? Three areas deserve focus for this goal:
Choosing a location in a quality neighborhood with strong traffic, good sources of employment, and other area amenities a resident will desire puts a project on the right footing at the outset of the project.
However, real estate investments are often long term endeavors during which time neighborhoods evolve and trends change.
Recognizing that events are turning against a location and selling early is an important capital risk mitigating step.
In some respects, this is perhaps even more important than choosing the right location because an owner may attempt to ride out events leading to a total loss when the greater finesse of following the area market requires more drastic actions.
A poor management company can quickly cause the drastic loss of occupancy, lead to inflated expenses, cause outsized capital costs and without quick actions result in a failed project.
The key is regular review and property inspection coupled with proactive management company discussions.
Additionally, a continual process that checks management alternatives for cost, efficiency, effectiveness and leading edge systems and skills are important parts of this effort.
Asset management is the continual process of reviewing investment needs, improvement plans, management shifts, and market conditions for sales and financing to maximize the capital results of the investment.
The asset manager is the key operational component to the first two issues and his or her skills following the market, developing strategies, and implementing plans is the gear that make the other two issues come together.
While the actual day to day function of these components may be out of a silent investors hands, attempting to effectively measure the quality of the investment location, reviewing how the property management processes will be handled, and testing the asset management skills are important pre investment activities.
Further, during the course of the investment asking the right questions about these issues is a good way to help your principals perform more effectively for you and for themselves.
At the same time, the success path is littered with failed investments and investors.
Assuming you protect yourself adequately from leverage risk, provide adequate operating cash, and have sufficient reserves.
These three items in my mind are foundational.
How do you assure your capital will be safe and that you will avoid unnecessary risk? Three areas deserve focus for this goal:
- Location quality,
- Management quality,
- Asset management quality
Choosing a location in a quality neighborhood with strong traffic, good sources of employment, and other area amenities a resident will desire puts a project on the right footing at the outset of the project.
However, real estate investments are often long term endeavors during which time neighborhoods evolve and trends change.
Recognizing that events are turning against a location and selling early is an important capital risk mitigating step.
In some respects, this is perhaps even more important than choosing the right location because an owner may attempt to ride out events leading to a total loss when the greater finesse of following the area market requires more drastic actions.
A poor management company can quickly cause the drastic loss of occupancy, lead to inflated expenses, cause outsized capital costs and without quick actions result in a failed project.
The key is regular review and property inspection coupled with proactive management company discussions.
Additionally, a continual process that checks management alternatives for cost, efficiency, effectiveness and leading edge systems and skills are important parts of this effort.
Asset management is the continual process of reviewing investment needs, improvement plans, management shifts, and market conditions for sales and financing to maximize the capital results of the investment.
The asset manager is the key operational component to the first two issues and his or her skills following the market, developing strategies, and implementing plans is the gear that make the other two issues come together.
While the actual day to day function of these components may be out of a silent investors hands, attempting to effectively measure the quality of the investment location, reviewing how the property management processes will be handled, and testing the asset management skills are important pre investment activities.
Further, during the course of the investment asking the right questions about these issues is a good way to help your principals perform more effectively for you and for themselves.
