Investing capital in your property results in higher income.
Sounds logical, right? Nope. Unfortunately, it’s the eternal and repetitive debate of asset managers and property owners: “why spend money on a property which is chugging along nicely?” or “yes, sure, the asset is not in its optimum condition, but why spend money when a reasonable return is being achieved?” and “if you spend major money now, your yield just doesn’t work as you are leased at the top level achievable for the property”.
Ever stop to imagine that you can increase the income level achievable for the property beyond what you dreamed possible?
Regardless which type of immovable asset you apply the principle on – be it residential, retail, commercial or industrial – a clear capital investment (let’s not call it expenditure) plan is as powerful as compound interest.
It is said that there is life, death and in-between there is maintenance. Never truer than with immoveable assets. It’s a long-term investment class after all and letting it go like Elsa is slowly poisoning your property. Eventually the poison will infiltrate and destroy the main reason you’re in this game after all: your returns.
When operational and facilities management budgets are cut to the bone for a few years to optimise income, after a while, one by one and often in threes and fours, major things require repair or replacement. And while you are holding a bucket underneath the leaking aircon, you’ll have a good view of the back of your tenants, dragging suitcases en route to the latest glitz and glam around the corner. Your little steam engine, quietly chugging along has become a money digesting abyss.
Retail tenants are more location dependant than commercial tenants, but you need to avoid the complacency that your gem is so unique that tenants won’t desert you, while believing that there will always be a queue at the door – regardless what state the centre is in. Yes, you might drink from the vessel of fortune for a while, but eventually something’s got to give. A bird in the hand and all that.
Truth is, once you stop caring and cease being passionate about your building, your tenants and customers know it too and the butterfly effect might be slow, but it’s powerful.
Before you know it, your office building has run semi-empty except for the few stragglers still tied up in leases, but earnestly looking elsewhere. What to do now that you have basically no income to motivate your expenses? The empty hand keeps on giving.
At this sorry stage and as much as it hurts, you need an aggressive marketing strategy as well as a serious upgrade project to launch. Unless you bring your circa 1980’s lobbies and bathrooms into the new age, tenants won’t touch the space with a stick and those that are prepared to, will do it at a price. Heavily reduced rental. Ouch.
Unfortunately, the scenarios sketched are not urban fairytales but everyday stories, borne from the philosophy of some property owners. Fundamentally great golden egg producing assets turn into ugly, unwanted old ducks due to neglect. Beyond sad, as property has such power. Real estate develops cities, carries hope, empowers communities, provides the vehicle for the economy to flourish.
Your investment requires investment for it to remain relevant, market related and profitable, not only for you as property owner but for your life blood, your tenants.
Don’t get so caught up that you forget the number one rule of a healthy property: tenant retention. Other developers are not waiting for you to get your act together – they are building gorgeous, sparkling new buildings where your unhappy, unloved tenant will find a new home, taking your rental income with them. Consistent nourishment wins the race.
Do it now, love the one you’re with. Invest in your precious asset.
Copyright © 2017 by Natalie du Preez.
This article was written by Natalie du Preez and is original content, which is property of the author, all rights reserved. This article or any portion thereof may not be copied, shared or reproduced or used in any manner whatsoever without the express written permission of the owner.