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The Property Plan Adding Value
It would be nice if making sense of your property evaluation was as easy as finding that
$700,000 worth of repairs are needed, saying, Mr. Seller, we want to reduce our asking
price by $700,000, take it or leave it. It’s not that simple. With the Tucson property, we
looked at the $700,000 repair bill as part of the bigger picture. And that bigger picture is
called the property plan.
You will reach your financial goals much quicker if you can find property that is
underperforming and kick it into shape through sound management. As you probably know
by now, sound management means reducing expenses and raising income. That’s how you
increase the value of your investment. Hopefully, during your evaluation and due diligence
you found some specific ways to increase the cash flow of the property. Here’s some food
for thought:
• While walking the property, did you turn the corner and ask where the laundry facility
is only to be told there isn’t one?
• Did you walk into one of the units and find a breathtaking mountain view and later
look on the rent roll to discover there was no premium for this unit?
• During your property inspection, did you encounter a ramshackle tennis court that
would be an ideal location for six more rental units or garages?
• Have you thought about investing $20,000 to install access gates, which increase the
perceived value of the property and enable you to add $10 or $15 in rent per unit, per
month?
You get the idea. The property itself should be showing you the money. If you aren’t
seeing increased income potential around almost every corner, you’re not looking very hard
or there may not be much. If it’s the latter, you may want to consider another property
alternative.
Your team members should be active participants in your mission of finding incomegenerating
or expense-saving opportunities. They will see things you don’t see. If you think
there is no creativity in this business, you are dead wrong. I have more fun walking
properties with my team and just exploring the possibilities. Remember, that’s how money
is made when you and your team see things other people don’t see and then capitalize on
them.
At this point, your job is to ask “what if?” And with every “what if,” enter the numbers
into the budget and see how the bottom line shapes up. Here are a few what if ‘s you should
be asking of the properties you are considering:
• What if I increase the rents?
Will it create more vacancy?
How quickly will I rent the unit if someone moves out?
Can I test it on vacant units before issuing increases to existing residents?
What is the market rent in the area and are my rents in line with the market?
• What if I need to attract new residents?
Do I have a system in place?
Do I have a waiting list if I am full?
Am I keeping in touch with the vacancy rates and concessions in the area by
communicating with my team and surveying competitors regularly?