Expert Panel Forbes Councils Member
COVID-19’s sudden and continued impact on the economy has left many individuals and businesses struggling financially. Your tenants may no longer be able to pay rent, and as a result you may not be able to make mortgage payments. That’s why you’ll need to take extra measures to protect your property investments.
As real estate professionals, the members of Forbes Real Estate Council have navigated challenging times and understand how to adapt and adjust. Below, they share 14 ways to manage your property investments during a disruption in the real estate market.
Forbes Real Estate Council members offer ways to protect property investments in an uncertain market.PHOTOS COURTESY OF THE INDIVIDUAL MEMBERS.
1. Be Quick And Agile
In market upheavals, you must be very quick to act. How do you attain quickness? Information and quick decision making. You need to be plugged into great sources prior to any incident happening. Building out a network of advisors that you trust beforehand so that you are prepared is essential to getting the right information. Being diligent to maintain those relationships will always prove useful. – Amy Tiemann, TM1 Properties
2. Lower Your Costs
Take a look at the operating cost of your existing portfolio. Are there ways you can lower costs in marketing, utilities or overhead? Can you refinance to a lower rate? Examine your cash flow, but be careful. There are different types of cash flow that can be deceiving. Be informed with your numbers and know them like a hawk, specifically your operating cash flow. – Kevin Palka,
3. Invest In A Rental Property Or REIT
During a market upheaval, the two most effective ways to protect your property investments are to invest in a rental property or buy into a real estate investment trust (REIT). In the case of a rental property, it offers the investor an opportunity to directly own the asset and benefit from the cash flow. With a REIT, all you are entitled to as an owner of shares is the value of the shares and the distributed cash flows. – Raja Seetharaman, Propstack
4. Underwrite Assuming You Will Own, Not Sell
Elkhorn is a distressed situation investor, meaning we invest in properties that have been severely mismanaged or need strategic capital investment. When we acquire a property, we underwrite it based upon the current cash yield and post our improvements that it can deliver. We are not dependent upon cap rate compression (i.e., selling to someone else at a higher price) in order to achieve our returns. – Bruce Fraser, Elkhorn Capital Partners
5. Understand And Mitigate Risk Projections
The concept of discounted cash flow is a glorified budget that simplifies where various events or risks will occur along the investment cycle to establish value. It’s prudent to understand it is highly likely that most of the time, your projections will be wrong! It boils down to mitigating how far off you will be. If you can identify, prepare and price risk, the closer you will be to your goal. – Damien Moore, Haüskey Inc.
6. Hire A Property Manager
Having a professional property manager who is on top of what is going on is essential. With the climate changing on a daily basis, even small mistakes can cascade into devastating financial problems. – Kyle Karker, American Real PM
7. Be Fast, Be First
In a true market disruption, every stakeholder, including tenants, lenders and even tax collectors, is highly concerned and weary. The question, “What is the ideal time to prepare?” is always met with the answer “Earlier.” If you’re not ready for a market upheaval, quickly open channels of communication with stakeholders and be the first to start a dialogue around constructing a plan that targets long-term staying power. – Syed Ali, Time equities inc
8. Don’t Overleverage
Set up a rainy day fund from the beginning. Be sure to add in business disruption and/or adequate non-payment reserves to your pro forma when purchasing a property. Also, do not overleverage and take on more debt than the property can service during volatile times. – Trey Cummings, CS Equities
9. Make Prudent Improvements And Upgrades
Value is based on supply and demand. To increase demand for your property, you need it to be in excellent condition. To create that competitive edge that will increase your value, you need expert advice on what are the most economical and wisest improvements to make. In homes, the most critical areas are kitchens, baths and decor that appeals to the current buyer. – Robbie Briggs, Briggs Freeman Sotheby’s International Realty
10. Diversify And Adapt
As a brokerage and property management company owner, we need to adapt to every situation. The main key to successful investments is diversification. We push our clients to invest in different markets to dilute the risk of any shift or crisis. For instance, owning luxury vacation rental properties as well as low-income or Section 8 property investments is a bulletproof combination in any situation. – Quentin Viac, VIAC MIAMI
11. Prioritize Flexibility In Your Approach
The needs of your guests or tenants can change rapidly during a market upheaval. It’s important to track trends in consumer preferences, adapt and prioritize flexibility in your approach. We recognized a need for effective isolation and flexibility beyond what was available, so we created a new product across our destination homes that delivers flexibility and benefits to work/live. – Alex Allison, D. Alexander
12. Offer Flexibility
Offering flexibility is crucial. A massive amount of tenants are seeking rent reductions or free rent concessions. This could exempt them from participating in the CARES act. During this unprecedented time, landlords need to proceed with caution and understand all the options available to them. – Larry Genet, CBRE
13. Maintain The Integrity Of Occupancy
Market upheaval impacts parties up and down the food chain. Being proactive and empathetic to the cash challenges of tenants will create loyalty that may result in better general care of the property and also show that continued occupancy can be normalized on paper to take the current moment into account. Being reactive may have the opposite impact on all levels. – Jeff Brown, Tahoe Mountain Realty
14. Patience Always Wins
Don’t get greedy—pay attention to overhead and monthly rent. If all you can do is cover that rent for the time being, so be it. A slight short-term loss is better than a large long-term loss, so be patient. Patience is always going to win. – Justin Pistorius, Local Life Realty