Real Estate Investments - Just How Risky Are They? - Continued

by Eric Himebaugh

III. Development / Renovation Phase Perform construction / renovation / project management projects according to your plan

Regularly hold brief reviews with key members to confirm your progress

Make changes to your work activity according to review recommendations

Prior to completion, make a test walk through of the properties to ensure work is to Plan (Review development and staging activities)

Complete work (punch-out) and any final updates for final review

IV. Implementation Phase Review plan for staging property(s) and Marketing approaches

Make corrections to the plan, based on review results

Document lessons learned from our real estate developments

C) Develop a Risk Management Plan

Are you having trouble keeping your activities under control? Are you continually overrunning your budget? Did you complete a renovation project or manage a year of lease/rental income that should have provided you a good profit, but ended up giving you little to no real profit? If so, then you need to define a Risk Management Plan:

Risk Management is a tool that is not referred to enough in managing real estate businesses. It can be critical to the survival of many businesses. Most people think of %u201Crisk%u201D when they think of real estate investing. So, why would you not develop risk protection for your real estate business?

RISK MANAGEMENT Definition:

The process of analyzing exposure to risk and determining how to best handle such exposure.

The decision to accept exposure or to reduce vulnerabilities by either mitigating the risks or applying cost effective controls.

So, what is at risk?: Your time, your money, your physical assets, and suits against your assets and integrity. For real estate, Risk Management can be viewed as performing a series of risk protective activities at periodic times during your property development efforts, starting from the day you start your business to its operations and ultimate sale. [Creating a contingency plan, having access to attorney services, and incorporating your business are part of your Risk Management Plan]

If you are doing your job correctly, you should be able to determine before your begin a real estate project:

Anticipated profit you will take for your effort

Current value of the investment

Future value of the investment upon completion

Completion Time for the investment effort

Can you say this now? If not, you are not really ready to renovate a property for sale and profit!

Here are examples of how I have used risk management techniques in my real estate development activities. I always keep in mind that good locations and good residents are my most important assets.

Example #1-building cost reductions: Year 1999, Purchase of two 4-unit buildings as one property in good area; units were section 8 in need of major TLC (deferred maintenance and a classical diamond-in-the-rough ).

Purchased low, required inspections, negotiated with Seller on $10,000 post-inspection cash return for improvements Talked with landscaper on removal of overgrown bushes. They wanted $2,500 for effort. I declined. Within 6 weeks, using a chainsaw (no massacre here), I trimmed all bushes, creating a bonsai effect, placed mulch on beds using free mulch from a community resource center, and planted flowers. Renovated each apartment on a unit-by-unit basis as tenants left; upgraded exterior with new landscaping, decorative painting, and artistic fixtures Sold both buildings to local LLC for full-market price, $100,000 profit within 6 years

Risks managed: Materials and Management costs were kept low, so that tenant income and sale profits are maximized, using sweat equity.

Example #2 Seller Creativity during a Buyers Market: Year 2006 Sale of Historic Home in a financially-stalled historic district (tough sale for a tough period).

Reviewed listings and purchased bank-owned double with extra lot, very close proximity to local university and hospital Re-converted badly-designed double to original single-family home Installed high-end kitchen and bath cabinets, using discounted display cabinets and counters from a local home improvement store. Installed discounted high-end lighting (commercial lighting company provided 50% discount for using his services for my renovations); restored ornate doors and woodwork, landscaped yard, planted flowers During sale period (Buyers Market): extended my potential client market to include both residential and commercial clients; introduced my listing to Real Estate mangers for local hospital and university. Received excellent offers from the hospital and a professional person with the Air Force.

Risks Managed: Ability to sell home in a marginal area for a very good price during a Buyers Market; Expanded client base to both commercial and residential through location of home, provided several sale options, including Seller financing to help motivate Buyers.

Example #3 Management for Protection and Income Maximization: Year 1977 - current Use preliminary telephone and interview screening and credit screening for all applicants; following this up by directly personally contacting employers, landlords, and relatives Establish rules and conduct requirements verbally and in written Leases; provide checklists, support policies, and show residents that I care Remain strict with Lease requirements, rent payments, and the rights of other residents. However, I remain flexible and supportive of residents needs; making repairs as soon as possible; providing simple courtesies such as asking about the family, their interests, needs; I always tell residents that we appreciate their presence. When residents have established a good rent-payment history and start having trouble paying rents, I am flexible and work with them. I have created notarized payment plans, have created agreements to spread payments over periods of time, and have had residents work for me on occasion. I consider the comments You are the best landlord I have ever had to be the highest compliment and a definite risk management safety comment.

Risks Managed: Maintained residents for extended periods (maximizing profits); Ensured that residents knew who I was and that I was responsive to their needs and concerned about their well-being. This provided security, as residents were less-likely to be upset with management or damage the property, or move-out! It also builds a good tenant base, as word-of-mouth provides you with good residents.

I hope that this information has been helpful.

So, just how risky is real estate investing? . . . . . .only as risky as you are willing to make!

For more information, visit my website, www.globalrealestateinvesting.com

I started investing in real estate some 30 years ago. As a real estate investor, there was quite a bit of groundwork required before I bcame a seasoned-enough investor to be knowledgeable about tenants, property management, purchasing, financial asset management, and property sales. Often, it has been challenging at times. However, I love the business and the freedom it provides. I enjoy working with people and creating quality investment properties over the years.

My background consists is combination of training, human factors, technical systems development, marketing, sales, and management. I am a property investor, with 30 years experience in management, investments, training and serving as Director for a large Research firm in Ohio, providing training and systems programs for the government. Visit my site at: http://www.globalrealestateinvesting.com!

My educational background includes a MA in mathematics from Northwestern, a BA from Ohio University, and many years of inservice training in management,

Cant find what your looking for???

TRY GOOGLE

Enter your search terms Submit search form

Web InvestmentBagg.com