Getting Squeezed?
By: Jeffery S. Watson
Dear Anna,
Have any of the following been causing a little extra pressure or making you feel squeezed in your real estate business – rising interest rates, tightening lending criteria by institutional lenders, near double-digit increases in real estate taxes and insurance premiums, or increasing costs for materials and supplies for repairs, renovations and rehabs? If any (or maybe even all!) of these are making you feel the squeeze, you are not alone. The question is, what can be done about it? Here are a couple of strategies you can employ.
1. Be diligent about tracking all income and expenses. This is something you should already be doing, but it’s so much easier to say than do, especially when times are good. It’s easy to become lax about keeping up with what is going on in your business. By communicating with your tenants regarding the increasing costs, you can get rent increases when they are needed. Those rent increases can help offset the escalating costs associated with being a long-term landlord or a short-term rental operator.
Please pay attention to what I am about to say. The vast majority of the clients I work with do a poor job of tracking their expenses. They fail to follow the “Profit-First methodology”. If they have it, they spend it rather than planning for everything they do and assigning each dollar a job description and task. In previous emails, I’ve stressed the importance of knowing your numbers and tracking things. If you’re like me and are not good at that, you need to have someone on your team who is.
2. Sell one or more assets to trade up into better quality assets, and use some of the cash from the sale to provide an extra cushion or resources in the event the squeeze gets tighter. This is one that I am currently in the process of doing. I’m not advocating selling assets to pay off the expenses you’ve accumulated because you didn’t track your money. I’m talking about making a strategic decision to take one asset and trade it for something better, and doing it in a way that generates extra cash so you can build your reserves, eliminate another expense, or solve some problem.
These economic times allow those of us who are not afraid or frozen in panic to take actions that will reap rewards for the next several years.
Your comments and brief questions are appreciated. I read every one and will do my best to briefly respond. If you like this article, please feel free to share it on social media or otherwise and encourage your friends to go to WatsonInvested.com to sign up so they can receive their own emails.
Until next time,
Jeffery S. Watson