|
The following are some points in a typical plan to create a profitable investment from an underperforming apartment building.
June 01, 2007 -- A management company or an owner may be faced with a problem property that was purchased for the purpose of a "turnaround" for profit. The property may have been acquired from an estate or purchased from a seller who failed to manage the property at all.
The first thing on the manager's agenda is the development of a plan that will help the investment become a success. The plan must identify exactly what to expect from the property and how to proceed as soon as the manager and owner take physical possession. The following are some points in a typical plan to create a profitable investment from an underperforming apartment building.
Computerize Financial and Accounting Functions
Management efficiency must be improved immediately. By doing this, rent invoices are mailed on time and payments from tenants can be sent directly to the bank for deposit. Computer financial software can be used for budgeting and for cash management.
Rental activities and property management functions must be centralized. There must be standard procedures for the maintenance crew to follow (schedules for regular tasks such as pool cleaning and lawn mowing as well as routine requests by tenants for minor repairs such as leaky faucets or cracked windows).
Cut Costs Of Operation
After budget is set up, all operating expenses and actual expenditures must be compared to the budgeted amounts. Analyze whether tenants should be required to pay for utilities and whether the real estate tax assessment should be protested. (Tax assessment might reflect the time before the property was underperforming.)
Improve The Property
Over-improvement of the property too soon can be a mistake. Concentrate first on improving the physical condition of vacant units; then consider making improvements for occupied units that will justify a higher rent when lease is renewed.
An effective way of controlling capital improvement costs is by adopting a regular maintenance program.
Set New Leasing Policies
Assess the current leasing policies regarding tenant credit checks and screening, discounts for signing or renewing leases, security deposit amounts, and procedures for dealing with delinquent rents. Search for new ways to alter the tenant mix in the underperforming building so as to generate greater profits. Policy changes regarding base rent, for example, may impact favorably on the vacancy level and on payment delinquencies, resulting in a more profitable building as a whole.
Consider Market Repositioning
Check the local population and economy to see if the property might be remarketed. An example could be a building that was occupied primarily by college students. It might be remarketed to employees of a new computer plant that is opening nearby. The building could be more profitable when occupied by employees who can afford higher rents, cause less wear and tear, and have less turnover.
Close Down Part of the Complex
In a totally desperate situation, if all else fails, it may be most effective to close down part of the underperforming property. This could work well, if there are separate buildings and one or more could be isolated. Eliminating that portion of the maintenance costs can allow funds and efforts to be put into the remaining units. Later, that section can be reopened. |
