DEVILISH DETAILS
This is an old English language expression. It just means that sometimes the details can have some trickery or mystery or difficulty. For real estate investors, we are always looking at the details with respect to our tenants, our properties and our bottom line.
For example, many landlords prefer fixed term leases in Alberta. However, if you miss the renewal on that fixed term, and then deposit the next month’s rent, your lease becomes a month-to-month contract. Other examples are the ever-changing addendums and items that can/should be in your lease contract. A landlord might have a lease that specifically states “no-smoking” in the unit, but if it doesn’t specifically include other substances besides cigarettes, a court may find that the tenant has the right to smoke marijuana in that unit. And finally, tenant selection requires extreme attention to validate every detail. Unfortunately, there are very good fraudulent documents available on the internet these days. Regardless of how real it looks, great landlords and their property managers check, check and triple-check.
Real estate investment properties tend to get their most thorough inspections at the time of purchase. We like to know as much as possible from our inspector, and will literally spend the 3 hours walking around the property to learn and observe. We want to know what might be an issue today—but we also want to know if there are future problems we could prevent, or watch out for. And then, at least twice a year, we’re walking around those properties again—ideally with a tenant. Have they noticed any X, Y or Z? Despite Covid, we are finding ways to keep everyone safe and comfortable during these inspections.
Our third focus is the bottom line. As an investor, some us hire out the bookkeeping. Whether you do your own books, or hire an expert, each investor is a business owner, and responsible to be watching the profits and losses, the expenses and the income. Okay, the income is easy; once a year this requires a review, based on fair market rents in that area. Boom, done. But it can be easy to get complacent about expenses. For example, some of us set up our utilities with a “set it and forget it” mindset. Not this year! Natural gas prices have risen to their highest rates in 7 years—and are expected to continue rising. This particular expense deserves a new evaluation this fall—unless you’re way ahead of me! Some expenses are less controllable: like taxes, and the current insurance market. However, every expense line deserves at least an annual review. We also like to ask ourselves what proactive steps could we take to improve our net profits and/or cashflow.
So, as you can see, the devil doesn’t need to live in the details so long as we are paying close attention. Each problem has a solution, and many are preventable with good systems in place. We “take the time it takes” to go over the details with tenants, properties and financial paperwork with our properties. And, where we are still learning, we find great partners (lawyers, accountants, property inspectors, etc…) No one can predict every issue that comes up, but we make every effort to be proactive.
