By: Clifford Hockley, Senior Advisor and Principal Broker
Assume Life is Not Perfect
The way life usually happens when you are selling your property (or buying a new one) is you discover something is broken. Maybe the roof is leaking, or the chimney is falling apart, or the air conditioning has been serviced, but the vendor missed something, or the elevator has not been inspected. There is a myriad of things that can happen and do happen at properties. How do you protect yourself from these surprises?
First thing to remember is that all properties are living breathing things and need proactive maintenance care. This means that you need to work with your property manager to schedule at least annual property inspections and need to be focused on keeping your real estate in good condition.
For example, I was involved in a transaction for an almost 30,000 sq ft multistory building that had been well built and well taken care of. As a result, all inspections went well and the buyer paid almost full price, because he was not nervous about the building quality and its performance. Unfortunately, that was unusual. Most of the time we find significant deferred maintenance and other issues during the due diligence phase of a purchase, usually starting with a leaking roof and poorly maintained air conditioning and ending with the failed crawl space sump pump someone has forgotten about.
Of course, it is always best to inspect your investments personally at least once a year. If you cannot make it, hire someone to do it for you, or have your property manager take pictures or prepare a drone tour. Drone inspections work well for building exteriors but is more difficult for the interior of properties. Some of our clients consider this too hands on, but it is my position that it’s your property and you have the responsibility to take care of it.
Drone Inspections Shed New Light
Just this week, I had a vendor come out to give me a bid for a chimney repair at a property we own. He was one of three vendors that were available. While this vendor used a drone, the other two used a ladder. There is nothing wrong with the ladder approach, but with the drone he was able to quickly document the problems and prepare a bid within 45 minutes and without the risk of anyone climbing on a roof. Not only was the speed reflective of the vendors knowledge but also the impressive professionalism, so he got the job. No, he was not the most expensive vendor, but he was priced in the middle of the pack. Why is this important? Because if you cannot get to a property, it is much more time efficient to hire someone who is able to fly by with the drone and record your properties for you. The results make successful operation of your properties much more likely. That being said, I am still a strong advocate of an in-person walk-through of your properties as you just have a more in-depth view.
Equally important is the monthly review of the financial statements. This arduous task is critical to making sure tenants are paying rent as well as the understanding of the financial operation of your property. It never hurts to confirm with the property manager which tenants may be delinquent, who is paying on time, and establish that all bills are paid on time. This helps particularly as you are making decisions to renew tenant leases.
Good Property Management
Critical to the success of your operations is your communication with your property manager. As with any property that is over four commercial tenants or over ten apartment units, you should be checking in with your property manager to review your monthly reports, bids, and delinquencies at least once per month. A well-organized property manager will help make this process easy for both of you. By running an ongoing property by property project list, you can tell which projects are being bid and completed on time. Remember a building is impacted by the weather, age, use, and tenant turnover, so it constantly needs to be cleaned and updated. How do you track that if you and your property manager don’t have a running list nor constantly communicating?
Managing By Remote
It’s not easy to manage your properties from far away. It takes discipline and organization, and most importantly goals you want to achieve regarding the increase in value and the maintenance of your property. Make sure your property manager is aware of your ownership goals so that you can both move in the same direction. Real estate needs to be attended to. How can you negotiate leases, if you have not seen the inside of a vacant space, and have the ability to visualize the cost for tenant improvements? Leasing agents need your collaboration and to clearly understand your expectations.
You can successfully own property if you live far away, but you need to take time to notice all of the property issues. Remember, up to 80 percent of all learning comes through visual pathways.* Paying attention to these details will help your property operate more smoothly and also help you maximize its value when it’s time to sell.
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