As an investor, you should be able to clearly state what your real estate investment goals are. Do you want to hold onto a property for a long time? Do you want the hold to only be short term? Are you looking to be a more hands-on investor? It's critical that you have concrete goals because your management strategy will have to be adjusted depending on what you want to accomplish.
Management Strategies for Real Estate Investors
If you think one management strategy can speak to multiple real estate investment goals, you're wrong. Goals often focus on one aspect of your investment; if your goal is focused, your strategy has to be, too. It can't be all encompassing and applicable to multiple ones. Here are some ways in which your management strategy can change depending on what you want to achieve with your multi-family investment.
Goal #1: Sarah's investment goals are simple; the only thing she wants to accomplish is to increase her cash flow of her two multi-family buildings. She's already tried a few strategies, but they aren't generating the results she would like to see.
Strategy: In Sarah's case, her property management team needs to focus on her expenses and income. To increase cash flow, building expenses need to be decreased, and income needs to be increased. It could be the case that Sarah is charging too little for her units compared to other multi-family buildings in the area. A property management team can also show her what costs can be cut down and where she can consolidate things.
Goal #2: Kevin is new to real estate investing and would like to acquire a multi-family property to save for and supplement his retirement income. He would hold the building he wants to buy for at least 15 years before considering its sale.
Strategy: Kevin wants a long-term possession, which requires a completely different management strategy than a short-term one. In this situation, the management strategy would focus more on market appreciation and normalizing the management system with a good cash flow. Kevin is in a marathon here, not a sprint, and this should reflect the budget allocation. He has more time for gradual capital enhancement and cleaning up the tenant profile. With a long-term possession, he would want to refinance at the five-year mark to get more money out of the property.
Goal #3: Megan has been dabbling in real estate and rental properties for a few years now. She has her eye on a good multi-family property that she can quickly improve and sell to make a profit. She doesn't want to hold onto the property for more than five years because something better will be coming along soon.
Strategy: Megan's goal is to get fast gains from her rental property. To do so, her management strategy would be to acquire an underperforming property that requires a high capital enhancement budget so she can improve it and eventually sell the building for a profit. Her property management plan would need to reflect her desired ROI so she can normalize it within a specific time frame. With immediate high capital spending on things like the roof, windows, or unit renovations, Megan is increasing the lifetime and value of critical building components, which makes the investment more attractive to other buyers.
As you can see, the goals of real estate investors can vary widely, and the management strategies to help them achieve those goals do, too. Your management strategy needs to be specifically tailored to your goal for it to be achievable.