Overlooked Business Items That Warrant Your Attention
By JD Esajian on February 2, 2015
As a real estate investor, closing deals is not enough to be successful. Sure, bringing in revenue is the lifeline of your business, but that alone does not guarantee you will have a profitable business. If you neglect your books or fail to file documents properly, it will eventually eat away at your profits and leave you wondering where all your money went. Closing deals is important, but it is more important to remember that you are running a business and you need to treat it like one. The minute you take one aspect of your business for granted, the sooner your business will suffer.
Accounting is the most neglected aspect of any business. Most investors come from either a blue collar background or have some experience in real estate. Most are not accountants and have very little experience in bookkeeping. You don’t need to be a seasoned accountant to keep your books in order. Not only does sloppy accounting make for a headache at tax time, you are also probably throwing money away every month. If you run your household, you probably know where every dime goes – from the cable bill to the grocery bill. The same principals, and more, need to go into your investing business. You need to stay on top of every expense you make and dollar you bring in. While this sounds fairly basic, there are many investors who do not feel comfortable in this area and end up neglecting it. There are many good apps and programs available that can make this much easier than you think. You can always hire an accountant if you are really lost. If you want your business to be as profitable as possible, you need to know exactly where your money is going.
There are too many investors that fail to grasp the concept of proper due diligence. Every area of your business should be held in the highest regard and treated as if it is the most important thing. If you are going to make an investment of your hard earned money you need to spend the time knowing everything about the property. This means doing much more than just walking the property or looking at some comparable sales. You need to get inside of why a property is listed for the amount it is or why a seller wants to see at their price. You should have no doubts in your mind whether or not you are making the right offer on a property you see value in. If you spend as much time researching what phone you are going to buy over what property is best, you may be in the wrong business. Due diligence should mean that you put in an ample amount of work in figuring out if this is the right property for you. This will get tedious on every property, but if you neglect just one it will come back to haunt you.
The same concept can be applied to how you breakdown a deal. It is easy to get caught up with what you see on TV and how they do it. Some seasoned investors can get a good idea in the first few minutes, but for most people they need some time to digest what they are looking at. You need to develop a system that will quickly and easily allow you to decipher all of the information. The numbers are the guts of the deal and can just be estimated or assumed. You need to get inside of them and know if they will stay the same or change in the future. Sloppy estimates and lazy assumptions will get you involved in more bad properties than your business can handle.
If you own rental properties, it is easy to assume that everything will go smoothly from lease to lease. The reality is that you need to put work in to find the right tenants. This means starting the process much quicker than you think you should. There is no reason not to begin looking anytime from 60 days to the start of the next lease. The closer you are to the next lease, the more likely you will be forced to choose between taking a less than qualified tenant and dealing with a short term vacancy. If you don’t screen your tenants, you have no control over who will be living in your property for the next nine months. Nobody wants a vacancy, but dealing with an eviction is much worse. Good tenants take time to be screened. This means knowing where to advertise and having an application process to fill out. If you just go with the first tenant that applies you could deal with months of headaches for the entire lease.
A successful business brings together many small steps that you do every day. If you are unorganized or undisciplined, you will get involved in bad deals or bad properties that are difficult to get out of. The small things in business, and in life, are the ones that really make all the difference. Everything you do in business is important. If you focus on the small things, the big ones won’t seem so daunting.