I have been in the apartment and investment real estate business now about 18 years or so. Like anything, does not seem like it has been that long. Anyway, one of the things that rings true for apartment property owners is cash flow. Obviously the more cash flow the property produces the better the return, the happier the owner and the more money the owner will get from the sale of the property. I think now is a good time to make sure that you understand that the value of the apartment property is all about the numbers. Sure, condition, location, tenant mix are important but the most important aspect to any apartment property investment is simply… How much cash flow does this property produce?
How much will it produce for a future owner?
By the way, I just gave you the most important question that all owners and investors need to be asking themselves. I hope you caught it. Oh, before I leave that this is also a question that they should be asking themselves all of the time, every single day!
As I noted above, net income is the most important aspect of commercial real estate ownership, the more the better. Now, even the most astute owner does not realize that there is one type of income that is more important than all of the others. Which is it? The most important cash flow for an owner is the proceeds they get when they sell the property. Owners need to understand that the monthly cash flows are very nice but all of the work, effort, etc. is really to get the last cash flow, the money you get when you sell the property-as big as you possibly can. So how do you treat your day to day operations of your apartment property for the eventual largest income you will receive from the property?
As I said, most owners do not really give this much thought. Not directly anyway. They pretty much HOPE for a large sales price when they sell. Most owners do not have any plan in place to make this cash flow as large as possible. So, make sure on your apartment and or commercial property “to do” list that you have action item on making your largest cash flow you will ever get from your apartment property as big as you possible can. Make this a part of you-I would even say make this a routine item that you work on. Now, this does not mean you need to “build Rome in a day” – no- this is something that you will consistently work on and improve on.
You will make much better progress doing small things, taking small incremental steps than trying to conquer it all at once. In an upcoming article I will go over some key areas that you will want to start with and keep working on. Many people work on the things that have NO impact on value. I will help you avoid that. Stay tuned…