Have you ever wondered why a property on one side of the street is wildly successful while the same type property on the other side of the street struggles to meet performance expectations? Could it be the side of the street the property's on, or is it luck?
Having worked with hundreds of struggling property owners and managers over the last 25 years, I have uncovered many common mistakes that landlords regularly make that lead to under performing financial and operating performance.
Ever ask you self this question: “Why Do Some Real Estate Investments Out-perform While Many Others Under-perform?”
Real Estate investments failing to meet financial expectations exhibit similar characteristics. I have grouped these characteristics into four general categories.
4 Cornerstones to Successful Real Estate Investments
There are four cornerstones of successful real estate investments. Failure to successfully execute these four cornerstones increases the likelihood of under performance. Here are the four cornerstones that should be built into any real estate investment and management model:
1. Competent management
2. Viable business plan
3. Motivated team effort
4. Financial resources
Each of these four cornerstones is necessary to the success of real estate investments. Unfortunately, many under performing income properties fail to achieve one or all of these necessary cornerstones.
Do you have a great business leader running your property? The number one reason apartment buildings struggle is from poor management. According to Herbert Woodward, “Business problems are due, not to bad luck, but to recurring patterns of non-constructive conduct by management.”
For example, an apartment building is a business that has its own income statement, and balance sheet, must operate within a budget, needs to remain competitive with other properties, has financing that needs servicing, and has a continuing need to keep its current customers as well as attract new ones.
The better you are at running your business, the stronger your investment will be.
Do you have a Viable Business Plan?
Having a viable business plan that tells a realistic story about the real estate investment and how to best position the property greatly increases the likelihood of solid financial and operating performance. A viable business plan accomplishes the following:
- Provides a road map
- Helps determine a competitive business advantage
- Requires finding answers to tough questions
- Establishes a system of checks and balances
Do you have a Motivated Team Effort?
A motivated team can reach mountaintops with the right attitude. Most success can be traced back to attitude. Does your management team have the attitude and belief that they are going to be successful in achieving the goals in the business plan? Here are some great “team check” questions:
Do team members look for ways to contribute to the project?
Is your team excited about the success of the project?
Does the team run the property like they own it?
Do you have the Financial Resources to Succeed?
Having adequate financial resources to run an apartment rental business is critical to a property's performance. A reality check for real estate investors and managers is that controllable and uncontrollable miscalculations and mistakes happen.
So, planning for mishaps to occur in one's financial modeling is critical to achieving top performance. Create reasonable operating models that include adequate capital reserves.
Finally, make certain the property has the financial wherewithal to access additional capital resources.
Maximizing Financial & Operational Performance
Measure your under performing properties using the four cornerstones to a successful real estate investment. Do you have solid management? Do you have a targeted business plan? Do you have good team motivation? Do you have the needed funds to effectively execute your targeted plan?
It is important to mention again that all four cornerstones must be successfully executed to create a solid foundation for optimum performance. A good plan executed with poor management can create under performance. A good management team with a poor plan can also create under performance.
Whether you are buying under performing apartment properties or having difficulty with an existing apartment property, make sure you're firing on all four cylinders. Unleash your real estate investment's full earning power by running on all four cylinders so that you can optimize performance.