Avoiding the Death Spiral

[Account Closed]

Are you proactively managing your property or is your property starting down a death spiral?

Horror stories abound about the problems first time rental owners’ encounter managing their properties. The problem gets worse when you are managing for a group you put together. Preparing for the unexpected is essential when owning and managing rental property.

Here are some signs you might be heading for major problems – or worse, financial disaster.

• 1) Frequent Cash Calls

Do you ever call your investors and ask for a “temporary” infusion of cash? If you find yourself trying to get caught up month after month, there’s a problem. Rental income should cover operating expenses and provide profits/cash flow.

What you need to do:

Prepare a realistic operating budget – and stick to it.

Review your budget with your team and investors frequently to identify areas where you can tighten the belt or renegotiate third-party contracts.

Your managers should have access to accounts payable aging reports with supporting detail.

• 2 )Late Payments, High Eviction Rates and Low Retention Rates

If a resident gets behind on their rent, it’s hard to catch up. The longer the situation continues, the more lost revenue your company experiences. While you may immediately start eviction within your lease terms, a better solution would be to prevent problems from becoming a property-wide issue.

What you need to do:

Initiate strong resident screening and vetting protocol.

Include a master rent roll that details rents collected and outstanding balances for every unit.

A monthly review of aged accounts receivable reports will help you spot potential patterns early, allowing you to modify your leasing strategies before things get totally out of control.

• 3) An Uptick in Resident Complaints

Residents deserve to have a consistent and efficient way to report maintenance issues. If you find your office personnel are fielding a high volume of complaints, it might be time to take a look at your reporting and responding processes.

What you need to do:

Implement a maintenance policy that includes routine inspections to eliminate unnecessary inconvenience for residents.

Provide digital and/or printed documentation that identifies issues that qualify as emergencies and the proper channels for requesting service.

Encourage renters to use online resident portals whenever possible.

Keep your investors in the loop. Disgruntled residents may track down the investors/owners if their problems aren’t resolved quickly.

It’s never a confidence-building experience for an investor/owner to get a call about a plumbing leak at three o’clock in the morning.

• 4) Low Occupancy Rates and Limited Renewals

When you’re reviewing your rent roll and monthly tenant reports, remember to review renewal numbers. Low renewal rates may signal failures in your marketing campaign strategies as well as customer service issues.

What you need to do:

Review your marketing plan, including online reputation management and referral strategies.

If you don’t have a quick make-ready program so you can turn your units efficiently, make that a priority.

Offering early renewal options for current tenants and pre-leasing programs for future tenants can boost retention rates and lower vacancy numbers.

Initiating a sixty-days out plan to start the discussion about renewals

The Death Spiral occurs when the owners fail to manage the finances and as a result the property begins to show signs of neglect. Tenants move out, landlord drops rent to get occupancy up, bad tenants cause more financial shortfall, owners fail to invest in the property, the cycle repeats. Ultimately, the property is sold with a big discount as a distress property or worse.

Nicolas Paez