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8 Essential Real Estate Investment Business Processes

For me, and for all the REIN members like me, we’re buying or are preparing to buy. I have no doubt in my mind that the properties I buy today will have appreciated significantly in five years’ time. Why five years? Because that’s the minimum hold that my Joint Venture partners and I agree on. Real Estate is a long term game, and flipping is a good way to break you neck, but that’s another story.

The question right now is how do you continue to get the strong rents you need to keep the positive cash flow going. There’s more units on the market right now and tenants are getting a little choosier. Some are asking for discounts, and other are threatening to move. Yes, vacancy rates have increased slightly, but they’re still relatively low.

What you need to do is make sure that your business is operating flawlessly, that you’re doing the extra 10% and you’re working with a spirit of continuous improvement. That said, there are:

Eight common things you already do and you should have written procedures for

This helps you, helps your tenants, reassures your JV partners and reassures your banker.

  1. Deposits – What ways you accept payment, where it goes, how/why/when you issue receipts, and how you track from whom and for what. 
  2. NSF Cheques – How you get notified, how you notify the payor, make sure bills still get paid, get repayment, fees and tenant policies. (Chronic NSF cheques constitute substantial breach in Alberta, and that’s grounds for eviction)
  3. Changes in the Prime Lending Rate – Reducing the payments on your variable rate mortgages can have a huge impact on cash flow and return on investment. 
  4. Mortgage Renewal Tracking – You won’t believe what the banks will do to you if you miss a mortgage renewal. It’s your one penalty free chance to shop around and be proactive about the single largest expense your business has. 
  5. Paying Bills (and getting mail) – How to know which bill is for which property, which account, which JV. Decide which bills to pay when, how, and which ones you should look at a little closer. ($2,600 for painting a one-bedroom?!?)
  6. Tenant Screening – One of the most important parts of due-diligence, making sure you’ve got good tenants. A bad tenant can cost you thousands of dollars, so use the REIN landlording tips, learn from other people and add in some good old fashioned common sense. 
  7. Rent Increases and Lease Renewals – You should already be using a calendar to track when the tenant moved in, when the last increase was, and you’re ready when it comes time for the next increase. In Alberta, you can increase once a year, with 3 months notice. This means you should have a calendar warning you at t-minus 4 months, then 3months, and then on the date of the increase. 
  8. Tenants Vacating – It’s not the end of the world when someone moves out. Make sure you get the move-in paperwork together, get ready to show the suite, decide on market rents and your rental rate, and get advertising. 

And the bonus step, tenant move-ins. This should include all the steps from #6 above (tenant screening) the lease, security deposit, the application, keys, and the in-report. 

You’re running a business; treat it like one

Write what you do down. Show it to your JV prospects. Show it to other investors. Keep to the procedures you’ve laid out. I did it the other day when I got the mortgage rate change notice from TD. My procedure said pick up the phone and call the bank to ask them to lower my payments. Just that one phone call resulted in a 200% increase in cashflow and approval for a second mortgage.

I’m going to do a series of posts detailing what my procedures look like, as well as the how and why of their design. (I can tell you’re excited for the ‘paying bills’ procedure!)

And finally, REIN members! Remember, you’ve already received a bunch of procedures and due diligence checklists with your member binder, or if you attended a Live ACRES/Quickstart or got the homestudy system. That stuff is like gold.

Write it down. You’ll be glad you did.

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