In Part 1, I discussed the 3 keys to making money in real estate as a small investor. One, choose mastery and focus on one property type at a time. Two, once you find what you’re passionate about, study it like crazy. And three, I believe it is smart to start off with a property that’s close by.
In Part 2 and 3, I want to discuss what every successful owner of cash-flowing real estate concentrates on. I call it the 4Ms. I guarantee that if you put an emphasis on these four things, your property stands the best chance to make a whole lot of money.
Money + Marketing + Maintenance + Management = $ucce$$
You can see how money, marketing, maintenance, and management are all related to one another for success and in failure. For example, if you didn’t manage the money well, you’ll have no money for marketing and maintenance. Tenants will move out and costly deferred maintenance will start to amount. On the other side, if you do a good job of marketing your vacancies and addressing maintenance requests quickly, it’ll lead to a consistent stream of money from tenants and future rent increases. Lastly, if you manage the money, marketing, and maintenance well, you’ll have a very high-performing piece of real estate. Let’s discuss the third and fourth Ms closely in next few pages.
The third M. You’re probably wondering how do you make money from maintenance, right? Here are two main ways.
One, if you don’t keep your property looking pretty, tenants will not show nor will they stay around long. And if you have no tenants, you have no income. Simple, huh? The moral here is to keep your property looking spiffy, clean, and well-maintained if you want to maximize your money-making potential.
Two, the number one thing that nearly all new investors underestimate all the time is operating expenses – the amount of money it takes to maintain the property. Many new investors jump into properties armed with real estate broker financial data of the property. This data is almost always inaccurate and should not be relied upon solely in the purchase of the property. You’ll likely end up with more month at the end of the money!
The fourth M. This is management as in property management. Actually, this is where the money is made or lost! Property management is a tough and very dynamic job to handle – whether it’s you or a company that you hire. In the most successful projects I have been involved in, the property management was outstanding. And in projects that were not so successful, the property management was poor. In fact, the number cause of real estate failures is due to poor property management – either by you or by the company you hired. You gotta manage very well the following to make money in real estate – the money, the marketing, and the maintenance.
Another critical role the property management plays is in tenant-relations. I know that when I see an apartment building with a lot of tenants moving out (high turnover) more frequently than the market average, I know that it is because they are dissatisfied with some part of their tenancy. This is where good property management is worth its weight in gold. They must be able to keep tenants more than satisfied with efficient service, keep them paying on time, keep them adhering to the rules and regulations, and if done well, keep them referring other tenants to us.