Vacancies: life or death for investors
Real estate investors that have owned rental real estate – be it residential, multi-family, or commercial –can tell you the number one cash flow killer is vacancy. Vacancy can be the difference between sweet monthly cash flow and starring down the barrel of foreclosure.
I think most investors understand this concept but struggle with the execution. For example, have you ever put off that expensive contractor paint bid and two weeks later you still have not finished, there is somehow paint in the carpet, and you still need to put everything back together? Vacancy needs to be thought of in terms of days, meaning how much does it cost you in rent loss and utilities, etc. per day to be vacant? This would be a good number to know. Let’s say for the sake of experience and easy math that it costs you $35 per day to have a duplex unit vacant. The extra two weeks to save money on the paint job cost you $490 in vacancy. Now that $350 bid looks darn good, doesn’t it?
The above scenario is a position real estate investors often find themselves in. Real estate can be a fantastic investment, but only if the cash is flowing. The point here is make sure you are set up to properly manage and maintain your property. For some, this is a large tool inventory and extra free time to work on and manage their real estate. For most, this is much better accomplished with a professional property management company and good handy man and contractor networks. Good professionals can significantly reduce your turn around timeframe.
The way to outperform the competition in the rental real estate world is to beat them at turnover. Unit turnover is like a race car in the pit. Some teams are slow and cost the driver time, other pit teams are world class and their turn-around speed gives their driver a competitive advantage. The more quickly and efficiently you can turn your rental unit around the more profitable your building will be. A word of caution here is cutting corners. If you try to cut corners in your rehab, showings, or marketing be ready to pay the price. Most of the time this strategy costs you more money than it saves you (i.e. don’t ever use stick on vinyl tile in your rentals even though it seems cheap and easy). This is especially true when it comes to building maintence. Make improvements for the long term.
If you are not a full-time real estate investor, having a team around you that can accomplish a quick turnaround will be crucial. Avoid this learning curve and invest like the pros and hire an expert team. If all this sounds like a lot, you are not alone. Although I believe in everyone owning real estate as part of their life plan, holding a large portfolio is not for everyone. For those that believe in real estate and want monthly cash flow investments, promissory notes with monthly interest returns is a very solid and popular direction for well informed investors. For more information for real estate cash flow ideas or if you are ready to purchase investment real estate please contact our office at 509-258-5000 opt 1 for investors.