How to make your property worth more
Whether a property is self-managed or professionally managed, there are tried and true principles that can help maximize its value. Three basic factors or assets are at work in a process called “balanced asset management.”
Financial assets
This is the most obvious factor and the one given the most attention. If your property is an income-producing investment, you need to maximize income collections for rent, common area maintenance, property tax recoveries and more. Make sure you are charging for all that is proper and due to the landlord in accordance with the lease. And I have also recently been working with some fabulous Bristol letting agents, so if you need to let property around there then definitely give them a call.
Expense control is also very important. An annual “zero-based” budget is a good tool to give you a financial map and to monitor costs. Each year, taking a fresh look at the asset will help you maximize its value. The downside of expense control is that the other assets will suffer from overly restrictive budgets. This is where balance comes into play.
In real estate, the value of your income-producing investment is measured by the durability of the net income stream. This is called net operating income (NOI). The higher and more effective your NOI, the higher the value of your property.
Below the line are items such as debt service (mortgage) payments and “cashflow,” which is the before-income-tax reward for investing in real estate. Unfortunately, an investor can fall into the trap of “milking” the cashflow until the investment fails, as illustrated when we discuss the other assets.
Physical assets
Physical assets include the building, its interior and exterior improvements, the land, the location, how the building is configured on the site, its components and contents such as mechanical equipment. The entire property should be cared for in the same manner as a car, with a preventive maintenance approach. If regular repairs and maintenance are performed on the roof, walls, landscaping, parking lot, windows, doors and so on with the help of commercial roofers, landscapers, etc., you will achieve what we call “crisp curb appeal,” and that adds value to your property. To do this, you must see that vendors and maintenance staff have good procedures and pay attention to detail. Quality repairs and maintenance cost money, but allocate enough financial resources to do this right instead of “milking” the cashflow and failing to reinvest in your own investment.
Human assets
So what are “human assets”? This is a foremost consideration because we build buildings for people – a fact that too many investors forget. The occupants, visitors, vendors and community representatives who enjoy the use of the property should truly enjoy it. If the financial and physical assets are not handled properly, people will notice that things are broken, neglected, old and tired, outdated and even unsafe. People must have a good communications system for reporting and taking care of those things to keep a property running smoothly. Responsiveness to problems – both anticipating and solving them – makes people want to use and return to well-managed properties.
Balanced asset management
Based on those factors, the key is in the balancing act. Financial, physical and human assets all need balanced attention in order to maximize the value of an investment property. The same principle can hold true for properties that do not produce income, such as one’s house or a single-occupant business. A lack of regular and attentive maintenance and proper financial balance are very visible and detrimental. Properties reflect balanced-asset management positively, so think about it. Balance means achieving short-term gains without sacrificing long-term value.
David L. Kliber, is president and chief operating officer of Polacheck Property Management Corp., part of the Polacheck group of companies in Milwaukee.
Aug. 3, 2001 Small Business Times, Milwaukee
