9 Steps to Protect & Improve Your Real Estate Business

By Garth Chapman

How will you ensure your real estate business prospers in tough times? What are you doing to adjust your business to our new economic realities? Here are a few things you can do for your Real Estate business.

1. Keep a balanced view:

• Take your view of your world from the 10,000 foot level (get out of the forest and above the trees). The view from up there is much more complete.
• Always read beyond the headlines; remember that the headline?s role is to entice you to read the story, while the last paragraph almost always sums up the real story much better.
• Pay attention to the longer term trends and statistics – they will keep you balanced and help you to make better decisions. Don?t let the day-to-day news of ups and downs take control of your thinking or your emotions.
• Pay attention to both the positive and the negative things that are happening around you. Be realistic as you evaluate what is going on. Be positive but don’t be Pollyanna. A positive mindset is a powerful ally in getting things done, but must be accompanied by a realistic view on things to allow you to focus on that which is achievable.

2. Analyze your business:

• What are you doing well and what not so well? What can you improve on? What must you improve on?
• Review your Real Estate portfolio?s financial performance versus budget. If you don?t yet have a budget then create one now. We use Quickbooks (the online version) and find it very easy to work with and it allows us to share the data in real-time with our accountant. The business accountant near me is very professional and works excellently so having him on board really helps us figure out what we’re doing with our finances.
• Make sure you are measuring the elements of your RE business that are significant so that you will know what areas to put your time, effort and money into. You should know your true key numbers and ratios for each property and your whole portfolio. If you don’t measure and track those key metrics you can?t fully impact your business, and that puts it at a higher level of risk. As just one example, could your online website be hindering your business due to policy updates or user experience issues? Should you be realigning your website with your business and perhaps looking at different real estate website companies to help create and design you a better online image for your business? There are many other aspects you’ll be wanting to consider as well.
• Always know your current cash position and your projected monthly cash-flows and cash balances going forward for at least 6 months (we project forward a full year). Maintain sizeable cash reserves, and/or credit facilities.
• Positive cash-flow is critically important, and cash reserves will get you through the tough patches. So knowing each property?s financial performance is a key piece of how you handle the asset, and indeed in determining if it is still a keeper.
• Don?t accept mediocre performance, from yourself or others. That will never serve your own interests and life plans, and in fact will usually delay or derail them.

3. Review your business plan including how it impacts your long-term life/financial plan:

• The business plan should be reviewed annually, and sometimes more often. Your long term life plan is the one you should have in place to achieve whatever level of financial freedom you have as your target. Your business plan is one element in achieving your life plan.
• Chart your course and make corrections as needed to keep your business on course to achieve to the objectives you have set for it.
• Be proactive. Don’t allow yourself to drift. And don?t take the easy way out when faced with difficult decisions.

4. Involve your team and other experts in this process.

• They are on your team for a reason. Get their input. Ask for their advice. Involve other people who you respect for their knowledge and experience. Most of your best ideas will come out of those discussions – both your ideas and theirs, for brainstorming is a powerfully creative process, and can be fun too.
• And you will awake with eureka moments in the wee hours of the morning. That’s a good thing. It means you have engaged your subconscious mind. Store pen and paper by your bedside so when the ideas come to you, you can record them.

5. Then take a break.

• Get away and relax. Read some books, go sailing, walking, running, diving, flying, driving, sit on a beach – whatever works for you. It is important to take the break only now, after you have gone through the first 4 elements of this process.
• Once the right amount of time has passed, and that is different for all of us ? in my case it seems to take 10-12 days for my mind to become calmed and quiet and clear, and therefore ready for new thinking.
• Then all that you have done so far in this process will distill in your mind and you will find clarity. And then you will be ready to act.

6, Now act to protect and improve the performance of your Real Estate business. A few examples:

• Maximize your borrowing capacity to ensure you have access to as much capital as possible in case you need it ? this doesn?t mean borrow more, it really means to ensure you have access to more funds should you need them. The best avenues for this are Lines Of Credit (LOC), and the best kind of LOC is one that is secured to a property as the interest rates are lower. Remember, you might need to borrow for any number of reasons, from unforeseen expenses to that great deal on a property that your Realtor brought to you.
• You should keep your personal debts (not including your home mortgage/HELOC) to below 10% of your gross income in order for them to not reduce your borrowing capacity. To do this you should diminish or pay off debts as much as possible.
  • Unsecured credit lines and credit cards, as when qualifying for a mortgage those are treated as though the payment is 3% of the outstanding balance. That means a $10,000 credit card or personal LOC carries a qualifying payment of $300 per month.
  • Secured LOCs, like the one many have on their home, are treated for qualifying purposed as though they were amortized over 25 years at the BoC Benchmark rate, so the qualifying payments will be as much as triple the actual payment amounts. It is usually beneficial to convert those LOCs to mortgage debts, especially if the debt is not going to be paid off or nearly off within 1-2 years. This can often be done by having your home mortgage split into multiple mortgages, as that allows you to track tax deductible debts separately from non-deductible debts for income tax purposes. By doing this you will almost always reduce your interest costs, and also will amortize the debts so it will be paid off over time.
• If you need to increase cash-flows, then reduce your mortgage payments by extending the amortization periods on those of your mortgages with shorter amortizations. Most lenders will do this without cost (or a very small processing fee). This can make for significant reductions in monthly payments. And once things improve you can always shorten the amortization periods again.
• You can reposition your existing mortgage debts, and often also save on monthly payments, and/or on principal pay-down by refinancing your mortgages to reduce interest costs when any pre-payment penalties are small enough for that to make good sense. You will be surprised how small the gap between your existing interest rate and the current prevailing rate needs to be for this to pay off for you, especially in our current low-rate environment. We have recently been able to refinance mortgages at rates as low as 3% and result in savings or improved cash-flows. Talk to your mortgage professional (banker or broker) about this ? they should be able to run the necessary analysis for you.
• Look for ways to increase revenues: provide cable TV, internet and/or other services, add rental units or other revenue generating elements to your properties (secondary suites, garages, parking spaces, coin-op laundry facilities, etc). But to increase the revenue generation, real estate companies must take care of the basics first. For example, when much of your job revolves around talking, you cannot have connectivity problems obstructing your video conferences and phone chats. An inconsistent broadband availability can actually hinder the success. That is why an SD-WAN (Software Defined Wide Area Networking) tool is critical! But you must be asking why sd wan? It is because SD-WAN technology provides real estate organizations better networking flexibility. Additionally, this technology can allow the use of multiple connectivity options, which can be beneficial in bridging the real estate industry’s technological gaps. Furthermore, with this technology businesses can move into the future without sacrificing quality, thus increasing the chances of generating revenues.
• Act pro-actively to decrease vacancies. Be creative in your advertising, write excellent ad copy, and be sure to advertise online, in the neighbourhood and at the property itself. You could even make use of things like these Custom Pens with Logo and give them to your potential clients. This is a subtle way of advertising, that has the potential to bring you more clients. Offer incentives to fill vacant units, preferably one-time incentives so you preserve good cash-flow. And take especially good care of your existing tenants. Tenants are among your most valuable assets, especially in tough times.
• Create new lines of credit where you have equity to provide a cash reserve you can draw on when needed. This could be utilized to fund unexpected costs or to purchase a great new property.
• Sell properties that simply won?t perform and those where the return on your equity is poor and cannot be improved. Then re-deploy that cash into good solid cash-flowing assets, or to reduce other debts.

7. Set expectations for your team based on your new initiatives, and clearly communicate each of these to them. Then regularly measure and report back to them on their performance as achieved vs those expectations. Celebrate their successes and address how shortcomings will be improved. If a member just isn?t getting it done ? then replace them. That will often be a difficult thing to do, but to avoid it does you and the rest of your team a disservice.

8. Continue to make decisions that fit with your long-term objectives. Don?t take the easy or quick path as those often cost more in the long run and tend to move you further away from your goals rather than towards them. Then you have a far bigger turn to make to get your ship back on course.

9. Review and repeat. Review what you did to determine how to do it better next time. Do this all again at least once a year. In these times maybe twice a year is more prudent.

Do the same for your personal life. The financial side of your family also needs the same level of attention. Treat your personal finances much like your business finances. If your personal financial health is good you will reduce financial pressures that often make for poor decision-making.

Share what you learned from this. This will help to make others’ businesses better. Much more will come back to you than you put out there, including many good ideas from others that you can employ yourself.

We have been managing our Real Estate business like this for many years, much as we have our personal life plan too. This ongoing process ensures we stay on top of our business and continue to improve its performance year after year, and to keep it on track to do its part in our achieving our long-term life plan. Our reward for this practice of constant renewal and improvement has played a major role in allowing us to enjoy the life we dreamt of when we married those many decades ago. The price was and is not all that high, and yet the rewards are more than we imagined.

{{cta(‘d1c08f98-196d-4a41-ad53-4e55f81797f6′,’justifycenter’)}}