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Classic business philosophy teaches that a great part of survival and subsequent success lies in an operation’s ability to reduce mistakes. The cost of repairing the mistakes is inversely proportional to the amount of profit potential of the operation. In other …” Mistakes Kill the Profit Margin!!!!!” As landlord’s, we don’t want to do damage to the precious profit margin we fought so hard to nurture. A landlord’s profit margin struggles every day to survive, grow and flourish in a sea of predators, competitors and government regulators. Below are the top 10 threats to your thriving profit margin. 1-Poor ScreeningThe costliest mistake is accepting a new tenant without proper screening. An undesirable tenant will often have poor rental and financial histories. Landlords should review previous landlord relations, credit reports, courthouse records and income. It is probable that if they have not met their obligations with previous landlords, then chances are that they will repeat their behavior with new landlords. Many landlords have faced horrific situations where tenants have stopped paying rent while employing legal maneuvering to avoid eviction. Others have faced tenants who moved in and initiated criminal activity, which adversely affected other tenants and neighbors. Either of these scenarios translates into expensive ordeals where the measures of rectifying the situation can threaten the financial stability of the landlord. A thorough screening also involves verifying that the person who is applying is the same person that submits credit/criminal info for screening. A picture I.D. should be cross-referenced with the application. Landlords must make sure that there are no omissions, inaccuracies or inconsistency in the actual application. Due diligence will certainly save landlords much money and stress. 2-Lease PreparationHaving a poorly prepared lease is very costly because it is the document that legally binds the landlord to the tenant. It is the rules of the relationship that dictate conflict resolution, financial responsibility and terms of execution. Without a professionally prepared lease the landlord stands to forfeit many of the rights afforded to the owners of the property. Landlords need to employ leases that are designed to protect them and their property and not the other way around. Many generic leases do not take into account the values of the landlord. Therefore, a custom lease would assure the landlord that their interests are protected. Many times, landlords receive requests for agreements after the lease has been signed. Landlords will use their best judgment when deciding to agree to a proposal but must never neglect to put the agreement on paper. A verbal agreement is always vulnerable to a false interpretation by the tenant. 3-Rent CollectionsLandlords must always enforce the terms of rent payment as it is written in the lease including late payments and fees. If not enforced, the landlord runs the risk of creating a dangerous precedent that will certainly cost the landlord dearly. If a tenant fails to pay rent for two weeks, then legal notices and actions must be initiated as soon as the law allows. Landlords should not accept partial payments. The courts interpret receiving partial payments from tenants as an acceptance of terms by the landlord. The eviction process is subsequently terminated for that rental period while landlord’s costs increase. If a tenant has had a poor history of paying rent on time, a landlord should consider not renewing the lease. Being late consistently is a sign of financial trouble and future uncertainty for the landlord. Poor payment habits can be a precursor to bankruptcy or evictions. 4-Law and Regulation IgnoranceMany landlords get into rental business without learning the rules of the game. To get a perspective of the folly of not knowing the rules, imagine trying to play basketball without knowledge of the rules. You would become paralyzed from the constant rule infractions. It would be impossible to win. Translated to the rental business: Knowledge of the Laws and regulations can make the difference between a profitable venture and a loser. Landlords must familiarize themselves with the states’ Landlord/Tenant Act. Every state has different laws; therefore, due diligence must be taken by landlords to educate themselves. Landlords must also take the initiative to draw upon with the experiences of other landlords. Many landlord advocacy groups exist in most communities and the Internet. Finally, it encouraged for landlords to develop a relationship with a real estate attorney that specializes in the rental industry. Having a knowledgeable supporter on your side can relieve a lot of uncertainty. A landlord must never wait to the last minute to develop a relationship with an attorney because the requirement of immediate response will prove to be costly. 5-Poor Response to Service RequestsThe number one reason that tenants do not renew their leases is poor response and execution for service requests from the landlord. Tenants expect constant inspection, repair, and preservation of the general conditions of their rental home. This also includes timely repair or replacement of parts for appliances. Everything has to be in working order and problems must be addressed quickly and courteously. Everything has to be in working order and problems must be addressed quickly and courteously. To facilitate an efficient delivery of maintenance requests, the property manager’s best method of receiving these requests is actually answering the telephone. When the manager is too busy to actually answer the phone or the request comes at an odd hour, many properties utilize apartment call centers. This resource allows properties to always have a human responding to the needs of their tenants. The apartment call centers are industry specific and have direct, open communication with the maintenance and property management. Maintenance requests should be supported by a shared calendar that documents the request cycle: creation, delivery, execution, completion and follow-up. Maintenance requests, if implemented properly, should be a team effort that will lessen and distribute workload among the property staff. 6-Not Employing Good Customer ServiceRunning a rental business is just like any other business in the sense with respect to employing good customer service. Many landlords forget that they would not be in business if it weren’t for the customer. Practicing good customer service not only reduces tenant turnover, it also is one of the primary forms of marketing. Word of mouth advertising is the time tested, most effective way to promote any business. In the long run, a positive approach to communicating with your tenants will reflect the profitability and value of a property. On the other hand, poor customer service will take a toll on the general conditions of the property. Tenants will not respect the property by not cleaning up after themselves or not following the property’s rules and regulations. Therefore, poor customer service may result in high turnover, high vacancies, higher operational costs and lower profits. 7-Not paying taxesMany landlords do not have their rental income as their primary source of income and neglect to report their income to the government. Others fail to pay property taxes because they don’t reside in the property. Failing to declare income and ignoring property taxes can cause very expensive recovery efforts. The government will assess taxes, add fees, add penalties and assign interest. Other costs will come from attorney fees, added accountant charges and personal time. In extreme cases, landlords may get their property confiscated. 8-Not waiting for the funds to clearIn a rush to fill the occupancy, many landlords make the mistake of allowing the tenants to move in before the funds are cleared. The scenario of tenants moving into a property too soon has caused numerous headaches for landlords having to initiate eviction procedures without ever collecting any rent or deposit. Always ask for money orders and certified checks or simply wait for the funds to clear the bank. 9-Not conducting a detailed pre-move-in inspectionNeglecting to have the tenants complete a pre-move-in inspection can result in damages to a property that cannot be documented by the landlord. Payment for rent must not be accepted until this inspection is completed. 10-Not keeping a professional landlord/tenant relationshipLandlords must always uphold a professional relationship with tenants to avoid the pitfalls of not employing the codes of conduct that are based on the stipulations outlined in the lease. The professional relationship is based on the landlord realizing profits from the rental business. Changing the nature of the business relationship threatens the ability for the landlord to collect rent.

The 10 Costliest Landlord Mistakes

New industrial estate units under construction

The game of commercial real estate can be won in many ways. It's more of an essay test than true or false. There's definitely more than one correct answer. A large percentage of the world's millionaires earned their wealth through real estate investment. While nothing is a sure thing, real estate offers many opportunities for the savvy investor. Whether you want to build wealth or simply maintain it, there are several strategies that you can implement to get where you want to be. Where should you begin? You don't want to put your hard-earned money into a dead market. You want to protect what you've worked so hard for. Let's look at a few of the more popular methods for investing in commercial real estate. One of the more classic approaches to commercial real estate investment is the buy and hold strategy. In this maneuver, you buy property that is valued at a fair price. It may be a few miles away from town or outside of a development area. You then simply hold the land for a number of years. While you do this, the city comes to you. Developments are going up all around you. Yours is the last piece of raw land around and every developer in the state wants a piece of it. You, the genius entrepreneur, then sell the land for millions more than you pay for it. It couldn't get much better than this. While this is obviously the ideal scenario, it can work like this. As you know, land is the only commodity that they don't produce any more of. Therefore, the price of your land will eventually go up. While there is a great deal of money to be made in this sort of venture, it can take a long time to mature. This is great for someone who has a big chunk of money that they want to sit on for a few years. There is no set time limit as to how long it will take you to win. You basically have to go with your gut on this one. Should you sell it five years from now for twice what you paid for it? What if in year six, Wal-Mart wants to move in and pay you 10 times what you paid? There is really no way to know. You have to get out when you feel the time is right. Look for the signs around you. If the trends of development in your area are coming towards you, wait for a while. If you've had the land for ten years and the city that you just knew would be the next boomtown turned into a ghost town, you might want to get out. This strategy can produce a great return and it's a pretty passive source. You don't really have to do anything except buy the land and wait. Another great way to invest in commercial property is through the rehab market. This is where you buy a run-down property that needs a lot of work done. You fix it up with a little elbow grease. Then after it's up to par, you put it back on the market and make a tidy profit. This is a growing segment in the real estate industry. There is a definite need for this as property is always getting old. The most important thing to remember in this type of venture is you make your money when you buy the property, not when you sell it. You must find properties that are undervalued. If you overpay, no matter what you do to the property, you'll still come out behind. You need to find properties that need a lot of work. This has the highest potential for a great return. Don't get involved with a property that just needs a new coat of paint and the yard mowed. This will not cost you any money. In fact, you'll lose money. Stick with the properties that need the most TLC and you'll come out on top. Another popular strategy is that of quickly turning a property. This involves finding distressed properties. You search for a great deal that is extremely undervalued. This could be a property that is facing foreclosure or bankruptcy. Someone may take a significant cut in the price in order to get out fast. This can benefit you, the investor, greatly. You then take the distressed property and put it back on the market quickly. Since you don't have to sell quickly, the property will get fair market value and you can make thousands of dollars in profit. As with rehabbing property, the key is finding cheap properties that you know are worth more. This is where all of the money comes from in this type of transaction. If you know the market, you can do very well with this type of deal. For investors that already have a good sum of money saved up, there is another form of investment that is very appealing. Professionals who want another steady income can invest in expensive real estate that is already a great performing asset. This could be a luxury apartment complex or condominiums or any number of properties. The investor then takes over the cash flow that is generated by the subject property. They will leave the existing property management in place and just take the steady cash flow. This is a great form of investment for those that are looking for a passive source of income from their investment. People who would benefit from this are usually remarkably busy and already successful in some other walk of life. They understand that the only way to create wealth is through multiple sources of income. Diversification is the key. Whichever method of commercial real estate investment you decide on, make sure it's the right one for you. Consider all the factors carefully before making your decision. Just remember that you too can succeed in real estate investment.

Winning The Commercial Real Estate Game

An empty mortgage application form with house key

A loan in which real estate is used as collateral – a guarantee that the loan will be repaid and on time – is usually called a commercial mortgage. While it is much like a residential mortgage, the difference is simply that the collateral and the building purchased with the mortgage is used for commercial rather than residential purposes. A loan would be considered a commercial mortgage if, for instance, an entrepreneur were moving from his home office to a storefront retail, office or warehouse location due to the growth of her business. If, however, she simply wanted to expand her home office by another few feet and needed a mortgage loan to do so that loan would probably be considered a residential rather than commercial mortgage. Another difference between a commercial mortgage and a residential mortgage is how the financial institution looks at the ability to pay the loan. The okay for a residential mortgage, as well as the rate, are determined by the borrowers financial situation – her or his credit history, and current ability to repay the debt. When considering a commercial mortgage, however, a lender would look at the value and quality of the property being purchased by way of that commercial mortgage, and its ability to bring in revenue. Rental property in a market that is glutted would be looked on less favorably even when the borrower has sterling credit than a mortgage for commercial rental property in a town that has a scarcity of rentals and people moving in all the time. Even if the borrower had less than perfect or even some bad credit, he or she would be favored over that person with perfect credit in the town that doesn't bode well for full rental occupancy. Commercial mortgage loans are charged a considerably higher rate of interest than are residential mortgage loans. These are nearly always fixed rate loans, however, which means that that borrower pays the same interest rate throughout the life of the loan.There are some capped or variable rate commercial mortgage loans, but they're not in the majority. If you are an experienced home owner and mortgage borrower that is just setting out to secure a commercial mortgage for the first time you may be unpleasantly by how much more complicated and time consuming the commercial mortgage process is than its residential counterpart. That is because the legislated guidelines require lenders to rely on the properties stability and income history as a means of determining its potential for future profit. It is only after this revenue potential has been determined to be promising that the credit history, financial strength and assets of the commercial borrower are even looked at. The commercial mortgage application is extensive enough that you'll probably benefit from working with a commercial mortgage broker. You'll probably have to provide financial history about the property and your own situation for the last two years. The format in which this information must be provided is generally quite strict and an experienced and knowledgeable mortgage broker will get you past these commercial mortgage hurdles and on your way to a great fixed or variable rate commercial property mortgage.

How To Get A Commercial Mortgage

New Construction Commercial Real Estate Storefront Building

Locating financing for every commercial project is not always an easy feat. Many items can affect the acceptance of a loan, how much is loaned, and under what specific terms the loan is given. As a commercial real estate insider, it is important to always be completely prepared when approaching a lender, whether it is a commercial bank, savings and loan company, or a private investor. The key to success in commercial real estate is maximizing all aspects of the business. This includes resources, energy, time, return on investment, as well as financing. Without good financing and a dependable lender, commercial real estate is not a business to be in, unless, of course, you have your own multi-million dollars lying around just waiting to be invested. In some cases, this may be true, and congratulations! However, for most of us, we rely on other people’s money (OPM) to build the wealth and riches we dream about every day.In order to get the financing, you need absolutely every time you apply for it, you must take some necessary steps and precautions that prove your project is worthy of the money loaned to you. I must insert here, that because of the amounts of money that are loaned in commercial real estate, almost everything can be non-recourse, and written that way in the contract. Non-recourse means that no one must personally sign for the loan. In fact, the borrower is often secondary to the actual property and project in question. The property acts as the guarantor of the loan. After all, this is where the actual money and value lies, not in the borrower’s pockets. Always remember that the property is responsible for returning the money loaned to the lender, because that is where the value is found. The lender must trust the borrower and his or her assessment of the property, its intended use and projected income or profit of the property in order to feel completely comfortable with loaning the money.So what are some steps and precautions you need to take in order to yield the results you want with the lender every time? What you want to do is build a development or loan package for every property for which you want money. This package is much like a business proposal, and must be done professionally, accurately, and clearly. This loan package should have everything the lender needs to make a decision whether or not money should be lent on the project. The most important aspect of this loan package is the reason for the loan. Generally, it must be a solid, economic reason that shows the income projected and exactly what funds will be available to pay the lender back. After all, the number one concern of the lender is that the loan will be paid in full, with the interest agreed upon in the contract. This economically solid reason may be shown through income and expense sheets, comparisons to other properties similar to the one you will be working on, and any other important economic information that proves you can pay the money back.Because every project is different, it may require varying criteria that must be met. For example, if it is a corner lot for a shopping center, traffic counts, whether or not there is a light on the corner or a four lane road, and the location of the closest residential development that will support this shopping center area are all facts that must be included in this loan package. Population, growth, any future changes in infrastructure that might affect your project and so on must all be addressed, as it is necessary to your specific project.Bottom line, you must have every ounce of supporting detail regarding your property, project and projected income. This loan package should be like you are optioning your first born child, and he means everything to you. I know this simile is extreme, but that is how money is borrowed by the commercial real estate insider. Impress the lender with a profitable project, quality and accurate information, and you will get your money. Many lenders, especially if they are local, may know an area well, and will automatically be able to assess your project as something they will or will not support. There may be other lenders that are thousands of miles away, and know nothing about your area of interest. The distance of the lenders can affect the feasibility of a project, and some would say you would not need to provide as much information for the local lender as you would the far distanced lender. However, I say, if you want the money, do it the same for each lender.Look at it this way. If your local lender does not finance the project, then you can easily transfer your loan package to another lender no matter where they are located.Consistency in quality will earn you a reputation as someone to do business with. This is exactly where you want to be in this business: reputable, honest, and one good real estate insider. As you increase the amount of financing you need, build rapport with the lenders you have and will work with. Always present yourself to these lenders in a professional, intelligent manner, and be perfectly prepared to do business. Always follow a specific lender’s application process and guidelines. If you do everything the way they want you to do it, they look to you as someone who is dependable and willing to make things easy and straightforward, without a lot of road blocks along the way. The smoother you can facilitate the process, the more likely you are to get the money you need.Lenders are concerned with one thing, making profits by getting their money back with interest. The object is simple. Show them your project can do this, and you will get your money. Have a defined amount of money you need, and stick to it. Don’t ever be wishy-washy, and stand your ground on what it is you want to accomplish. Maximizing your financing is an asset to the commercial real estate insider. Your ability to conquer more and more opportunities relies greatly on your ability to get funding; so master this skill, and you will be on your way to a real estate fortune!

Knowledge Center

The 10 Costliest Landlord Mistakes

Winning The Commercial Real Estate Game

How To Get A Commercial Mortgage

Maximize Your Commercial Real Estate Financing