By Erich Jett, ABD
Adjunct Professor, Real Estate Studies at American Public University
While not everyone is pursuing a degree in real estate studies, it is very likely that many of us will acquire at least one investment property at some time in our lives. By doing so, we effectively become a property manager, whether we intended to or not. Property management is also a career option, either by working for a property management company, real estate firm, or acting as a sole proprietor.
A successful management plan is the key to profitable property management. A comprehensive plan incorporates the owner’s objectives into a strategic analysis encompassing external and internal factors including local and regional area summaries, risk determination, financial assessment, and mitigation plans.
Taking a property management course would be beneficial in developing a successful management plan. The plan brings clarity to the following three issues commonly faced by potential investors:
1. To determine if real estate investing is right for you.
Day-to-day real estate management responsibilities vary dramatically; for some being as simple as collecting rent checks, and for others as complicated as repairing homes, dealing with delinquent payments and negotiating maintenance contracts with vendors.. Planning makes the difference. Whether you’ll be wholesaling houses, rehabbing a house, managing rental units, or investing in short sales or land contracts, it’s good to have a plan.
Having a written plan covering all aspects of your operation from property selection, ROI, to tenant screening is imperative. Determine in your plan the return on investment (ROI) you plan to make. You’ll have to factor in the cost of inflation, and complex real estate market factors such as location, school districts, crime rates, disaster risks and more. For a non-leveraged property you’ll want to aiming for 7% after inflation is standard practice. Summarizing these responsibilities in writing will enable you to make an educated decision if property management is right for you.
2. To make the initial purchase or pass decision.
Rental property profitability begins before the sale. The time to make the decision regarding the level of risk you are willing to accept is not when the opportunity presents itself. Know what level of risk you are prepared to assume and detail this within your management plan ahead of time. When the opportunity arises, make an offer based on your pre-determined level of risk or walk away if the property does not meet your investment needs.
3. To protect yourself and your assets in a highly litigious environment.
Understanding the various laws, tax considerations, hazards, and regulations as a land lord, property owner (and seller), and their potential penalties is very important. Part of the planning process is finding a real estate attorney to review your final plan — especially ahead of your tenant screening process, advertising, and documentation templates.
Planning leads to profit in real estate; creating a personalized comprehensive plan developed by utilizing your goals will create a strong foundation to build your own profitable real estate portfolio.
About the Author:
Erich Jett earned a Bachelor of Science in Business Management and an MBA in Business Administration from Maryville University along with a Master of Arts degree in Real Estate Management from Webster University. He is a consultant with 20+ years of executive experience in real estate and financial services.
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