Real Estate Operations
Real estate is one of the greatest assets for any person who is looking to invest and grow their wealth. In fact, it has often been said that real estate has built more wealth consistently than any other asset class. There are many different types of commercial and residential real estate. Each property has its own character, and the types of tenants vary based on the type, class, and location of the property. When it comes to managing real estate, there are a few different ways that managers and building owners tend to operate it. Here are the 3 different methods of operating real estate that we typically encounter along with the pros and cons of each.
This property management mindset is in the habit of regularly inspecting, repairing, maintaining, and performing preventative maintenance. These properties are generally Class-A buildings, which have a greater occupancy, higher rents, lower turnover, lower repair expenses, and have the highest returns compared to other similar assets.
This property can maintain its status and high-paying tenants because of the management’s attention to detail and commitment to routine maintenance. The owners understand the value of their real estate investment and are willing to put money back into that investment each year to maintain or increase the property value. This way, they can charge higher rents and attract high-paying tenants. Those who live or work in the building are happy to pay that rent because their building is functioning properly and looks beautiful.
The second type of operating mindset tends to defer initial problems until complaints are received from tenants and then repair the problems before they become major issues. These properties are fair to high class real estate. Occupancy, rents, and turnover is generally on par with the surrounding market. Repair expenses are larger, and returns are average.
Lastly, the third type of mindset will put off maintenance and repairs for longer than they should. Major issues exist throughout the property. Tenant complaints are ignored or minimally addressed. The aesthetics of the property are generally poor and the lack of care for the property is apparent. These properties generally are lower quality, have low occupancy, lower rents, and high turnover. Repair costs are low because they are not performed, and returns are extremely low. These issues could be fixed with a major repair or renovation investment.
The key is to operate your property as a type A or B. In these instances, maintenance is regularly scheduled and performed, and issues are taken care of before they worsen and become financial drains. When your property is looked at and treated as an investment, it is properly maintained, and these small changes can yield more financial gains in the long run. Just like any other business, real estate requires continual reinvestment over time to ensure its maximum value.