The Difference Between Success and Failure in Real Estate

Everybody wants to know the secret. “Now that I’ve taken the plunge and bought some investment real estate, how can I make sure it is a success?” The answer really has two parts. The first part should have been accomplished before you ever signed on the dotted line. Like it or not, the success of your real estate venture is at least 50% dependant on what you did prior to taking ownership. The other 50% is based on what you do now that you have taken title and control.

Prior to the purchase of any piece of real estate, appropriate due diligence should have been done. You should have done your homework. The answers to a few questions could have put you on a firm investment foundation. How was the property priced? What is the market cap rate? It the property cap rate sufficient reward for your risk? How is the property operating? Are the incomes and expenses in line with the market? Can they be improved? Do you have a sufficient down payment to insure that the property does not bleed you dry with negative cash flows? Does the property suffer from irreversible functional or economic obsolescence? Are the projected NOIs and cash flows adequate to meet your goals for the investment? If the answers to all of these questions are satisfactory, then you buy. Once you buy, you have to deal with the ownership equation.

Now that you own investment real estate, the single biggest part of the equation is management. I cannot overstate this element. Henry Ford said “The success or failure of any business is entirely dependent on management.” That is an uncomfortable truth, especially if you’re not experiencing success. According to the October issue of the National Real Estate Investor magazine, in an article by Sibley Fleming, the biggest difference in building success is effective management.

Like it or not, the future of your real estate venture and investment is in the management function. That is why you must be prepared to either provide the management muscle to make your deal work, or be able to find someone else who can bring that game to the party. With intelligent purchasing followed by proper and prudent management real estate is a great investment and wealth builder. It always has been and it always will be. Buy right then manage tight, and success will be yours.