Real Estate: Business VS. Investment

Real Estate: Business VS. Investment

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The purpose of this article is to provide readers with a solid foundation on what are those necessary tips to make the most out of the real estate market when it comes to rentals.

Managing properties, just like any other profession, requires a set of skills and knowledge for it to be carried out efficiently. Kenneth Slaught, president and founder of Investec Real Estate Companies in Santa Barbara, has learned several important aspects throughout his 33-year career that can help future real estate enthusiasts and real estate market developers achieve their goals avoiding the majority of issues this profession normally entails.

 

Image courtesy of nevermindtheend at Flickr.com
Image courtesy of nevermindtheend at Flickr.com

First, any property management must be aware of the need to incorporate metrics for success in order to measure if they are doing a good job. Like any other job, managing properties requires a deep understanding of the most common indicators and metrics that can help managers understand the behavior of their business for further decisions. The basic premise of any type of business suggest that people want to make more money with the less invested, and the way to achieve that is by making more profit. Moreover, the most appealing scenario would be making more profit with less time, hassle and money invested. However, there is a misconception about this: in reality, what all managers and investors are after is not how to make the most money — or even attaining the highest rate of return —, but how to make the highest rate of return when it is adjusted to the current scenario: adjusted to the time, money and hassle they put into it.  Making money in the real estate world is rather a life cycle process than a linear one: usually, people start with the property, which is afterwards leased. The tenant then goes to work, he makes money and then he pays the owner the money. The owner then uses that money to pay the expenses like taxes and insurance, and then the owner gets to keep some money. But, what if the tenant unfortunately disappears, or stops paying, or loses the job? Or what if one of the stages of that life cycle is broken: the owner does not get the money, or the property cannot be leased, or the tenant ran out of money? Unfortunately for the landlord both expenses and mortgage keep going, which is why figuring out how to keep the life cycle going and healthy becomes extremely relevant, for it is the only way the landlord can actually make money.

The fundamental question here is to define who the tenant is. What kind of tenants landlords should go after? Readers and real estate enthusiasts might be aware of the perks of having both Fortune 500 tenants and Federal Government Type tenants; nonetheless, the magic of being a landlord is they get to choose what kind of tenants they want. However, most readers might have heard, before, stories about how ugly things turned out after buying and renting a property, and in most cases this happens because real estate investors do not have the idea that real estate investment is a business and an investment at the same time: business produces income and an investment produces income. Businesses have expenses whereas an investment does not quite, whereas a real estate does have expenses.

Understanding the nature of real estate and housing investments will enable owners to make the most out their rentals. There are also some secrets that future landlords might find interesting and helpful for their future endeavors. Being a good owner — which is highly correlated with being a good person — will make things smoother with both the tenant and the property manager. Having a good relationship with these two will keep that part of the cycle healthy and the odds of being conned, robbed or worse will be low. Moreover, if landlords acquire enough money for a second property, and if they also have a good relationship with their current property manager, then the odds of attaining an appealing new tenant for that property are much higher. So being a good owner has its perks and it is highly advisable not to disregard them.

In addition, the cheapest (include whatever term here) does not save owners and landlords money. When looking for a manager or even a repairs team — or anything — the decision should not be based on how much it costs. Although managers can cost a lot, choosing the right one, the one who has proven to be successful and the one who looks after the owner’s money and their investments will be in the long run much cheaper than the one who, at first sight, seems more ideal. And last but not least, property managers are more aware of the opportunities within any local market, which is why, when looking forward to buying a property, it is advisable to hear the ones who are dwell within the market first in order to avoid possible losses.

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