Fresh starts to your new year should go beyond unfulfilled resolutions about diet and exercise. To really get ahead on improving your life, start with taking a long, hard look at your current commercial property portfolio. Is it performing to expectation or falling short? Having to assess your holdings isn’t easy, in fact; it could be painful, especially if getting a grip on reality has been put on pause for the past year. So set some time aside for this reality check. Grab a pen, paper or your favorite screen and keyboard because you’ll want to take some notes. First quarter 2019 is the right time to revisit your real estate and design a game plan that meets your goals.
Real Vision Supersedes Blind Ambition
We’ve all done this. Investors and real estate brokers alike – boasting about the deal they got on a property purchase. In fact, we love to retell that story as often as possible, even when enough time has passed deeming it old news. But if your real estate holdings are truly screaming “What have you done for me lately,” it might be time for a change.
Did the market change? Did the market value change? Did the rent roll take a nosedive instead of an increase? Did your property management company raise their rates or provide lackluster service? These are just some of the many questions you should be asking yourself when reevaluating your real estate as they all affect the financial balance that defines whether keeping real estate or obtaining more is worth the risk.
Put emotions and stress aside. It’s time to establish the next steps.
Real Estate Holdings Game Plan for First Quarter 2019
Most people engage in acquiring commercial property as the means to increase their worth through somewhat passive income (somewhat because it can require hands on attentiveness in dealing with tenants) and increasing value which, over time, equates to equity. However, things can happen beyond your control that can make a solid plan turn sour.
- Did you have a life event happen that affected financial security or overall asset value?
- Are there unexpected financial obligations that put more stress on monthly expenses?
- Do you have enough cushion to withstand any of the following, should it take place over the course of this year:
- Job or business loss
- Real estate market value downturn (10%) of your holdings
- High-end property maintenance expenses such as HVAC, roof or structural repair or replacement
- Increase in vacancies (more than 25%)
- Geographic plight (decay of neighborhood or area of property location)
Time changes everything, for the good and not so much. This is why it’s crucial to review commercial property value (perceived, intrinsic and potential) in the first quarter each year to allow for adjustments to be made with minimal consequences.
For example, if after assessing your personal situation and weighing the strain that real estate may be putting on you and overall goals, you decide that the time may be right to sell the property and reallocate some or all of the gain into other property(s), there’s still time to entertain a 1031 exchange.
It’s important to keep a constant watch on what current rental rates are within a mile or two in proximity of your subject property and classification. As supply wanes, and demand increases, you could be missing out on additional income when current leases are set to expire. This can also be a sticking point in negotiations that can go in your favor, should your tenants want to discuss a relocation or tenant improvements.
The Meeting of Both Minds
Time has a strange way of changing our perspective. If you’ve been in real estate for some time, chances are, you like a good challenge with an upside. But there’s often a cost, which has little to do with money.
The price of owning real estate can bury a person’s mental health. What seemed worth the risk of one’s psychological wellbeing at 45 years of age can seem very different at 62 years young. The financial gain, each year, may not be worth the headache. Diversification of portfolio could be appearing as the best option. For those who own real estate, say a handful of small properties, and self-manage and/or take care of the maintenance and repairs needed on site, relief may not necessarily come in the sale or reallocation of assets but in hiring a third party to take the burden off, and free up time to be able to enjoy life more.
Eyes Wide Open for Today’s Real Estate Opportunities
Commercial property investing has embedded itself into the digital marketplace. It’s easier than ever to get a piece of real estate ownership, without the overriding stress than accompanies the responsibility.
Many people new to real estate investing are getting involved in REITs or crowdfunding for real estate. REITs allow you to buy shares of real estate, similar to how you purchase stocks. If you buy low and sell high… you know the rest. The types of REITs are based on rental properties (residential and commercial) or mortgage debt.
Crowdfunding real estate provides the perfect vehicle for the small investor to step into bigger shoes, sharing the risks exponentially. Like REITs, crowdfunding real estate comes in two options: equity or debt based investments. Crowdfunding of properties has only been available to the larger public since 2015, leaving success rate analysis scant. The key here is the longer the hold, the more likely the profit, especially with the equity crowdfunding.
Agility Is the Smorgasbord of 2019 Investing
As we’ve seen in the stock market this year, anything can happen. Because financial news travels in the blink of a click or swipe and can live online forever, accuracy in discovering what’s real and what’s perception can sway markets easily. The new focus in investing is honing the ability to jump from one trend to another without losing your shirt. Not the challenge that many property owners prefer but, according to Deloitte®, “Realign business priorities and adapt to new demands. The most agile will win away customers and top talent—along with investment dollars.”
Get Out From the Old and Into the New
Think of the first quarter of 2019 as your commercial property wake up call. Dust off your old ways of thinking and be open to lines of opportunity that could minimize time vested, and expand cash flow and long term gain. COBE Real Estate brokers, agents and property managers can help give you a refresh on your current portfolio and provide recommendations to help you achieve your goals for this year and into the future.