Buying Your First Property – What You Should Know

You are interested in buying a property and you can’t wait to get started with the process of searching for one, which can be both exciting and rewarding. However, it’s important to know that you are also making a major financial commitment and you will potentially have to do a lot of work. Investing in real estate has its benefits as it is a source of passive income. This means that it will never dry up nor mature. Instead, ongoing income is provided with no loss of assets.

1. Know Your Priorities

Before you start the process of buying a property, you need to have a firm understanding of your priorities. What kind of property are you looking for exactly? How long do you intend to use this property? Will you be living on this property?

What should be high on your list of priorities is the level of commitment. Especially if you are married and along with your spouse you buy your first home, you need to make sure you have backup plans and an exit plan in case everything goes south with the purchase. From the start, if your level of commitment to buying a certain house isn’t where it needs to be, then you need to stop before you buy and review your priorities.

2. Have a Plan

Along with having the right priorities, you need to have a plan in place for the property you are buying.  Is this property your forever home? Is it just a starter home to build up equity? Your search for a home will have more structure if you can determine what this property’s role will be in your plan. It can help to look exclusively in areas where either resale or rental properties may be easier for you, or you may want to invest in an up-and-coming neighborhood. It is highly recommended to have a real estate agent help you create a plan.

3. Crunch the Numbers Correctly

Miscalculating costs, values and rental prices of properties is one of the most common mistakes you can make as a first time real estate investor. Accurately calculating cash flow and house flipping profits are not intuitive. If you only intend to flip a property or buy a rental property to renovate, first know the costs of repairs. Contractors can sometimes be very difficult to work with, and renovations rarely go according to their initial plans. More often than not, contractors promise too much and end up delivering too little, both in costs and in time.

For your first investment property, keep it to just minor cosmetic repairs. Next, budget a large cost overrun reserve to handle the issues that will inevitably arise. It’s also wise not to tell the contractor about this reserve because otherwise he might find a way to spend it.

There are many costs and expenses to account for if you plan on renovating your first property. In the beginning, you should budget 50% extra as a reserve for any renovation costs, and an additional 50% cushion for estimated carrying costs. There is the After-Repair Value (ARV) to consider, the After-Repair Rent if you keep the property as a rental, and the non-mortgage expenses you will have to factor in. These non-mortgage expenses can include property taxes, property insurance, maintenance, property management costs, and major repairs and capital expenditures, to name a few. Expect these same expenses to average around 50% of the rent.

4. Practice Patience

One critical thing to remember is that the first property you purchase is a financial investment. When it comes to real estate, there is no room for emotional investments. You may find yourself emotionally attached to the first property that catches your interest. On the surface, you may love everything about this property and think that you would love to retire in that location. However, emotional investments lead to bad decision-making and “intuitive investing” such as guessing the time of the market.

Searching for the right property will take much more than reviewing only one property. For instance, if you make offers on 12 properties, it’s probable that 4 of those sellers will negotiate with you, and possibly 2 of them will reach an agreement with you. Finally, one of them will back out of the deal, and the other one will successfully close with you. This is partially how real estate works. Ultimately, you have to practice patience to see deals through, whether they succeed or fail.

5. Freely Negotiate

Negotiating is at the heart of the process of buying properties. Sellers expect you to do it, because otherwise they will second-guess the purchase price and wonder if they should have drove up the price.  Knowing how to negotiate real estate begins with research of the seller. Gather as much information on sellers as you can, such as their sense of urgency in selling, why they are selling, and when they want to move if the property is occupied by an owner. A real estate agent can help you learn more about a listing agent. Be thankful to know that listing agents often get talkative.

When negotiating, make the lowest offer you think the seller will take seriously enough to make a counteroffer. If the seller wants to close very urgently, don’t be surprised if the selling price stays low. Build a seller concession into the negotiation so that you can reduce your cash due at settlement. The main thing to do is set a ceiling price before making an opening offer. Put it in writing, and tell someone that ceiling price to lock it in place. After negotiating, if the seller won’t accept a number under that ceiling, then simply prepare to walk away.

Some sellers will call you back a few days later and say they can reconsider your offer, whereas other sellers will bluster and posture. By staying emotionally detached, you can freely walk away from deals you don’t like, which allows you to freely buy better deals. This is why it helps to freely negotiate.

6. Review Turnkey Properties

Contractors, permits, and refinancing for a long-term mortgage can be too stressful for some first-time investors. If you can’t oversee a renovation project right away, then you should consider buying a turnkey property instead. Properties that are already rented to legitimate tenants or properties that are in rent-ready condition can be bought on the market.

You can easily buy turnkey properties anywhere in the country by using various real estate platforms. One such platform is Roofstock, which helps you with large-scale investing and allows you to track and optimize key figures via a cloud network. Each listed property on Roofstock also has an abundance of data that you can use to make an informed decision about whether to buy or not. This data ranges from local market data to both historical and forecasted home value trends. You also get two guarantees from Roofstock: you are first allowed to return the property at no cost within a 30-day period, and you are also allowed to rent the property to a tenant within 45 days of your purchase.

7. Look at Mortgage Options

If you are in the favorable position of being able to pay cash for a house straight up, then you will be just fine. However, if you are like most people who don’t readily have cash available, then you might want to look into the various forms of a mortgage loan.

Calculating your debt-to-income ratio isn’t as easy as it sounds since it factors in specific incomes and debts or expenses. The debt-to-income ratio (DTI) consists of total debt payments divided by your gross income before tax either per month or annually, which is expressed as a percentage. You use the DTI to indicate your debt level. This is key because you have to factor in how much you will have for a down payment.

Look for the best interest rates and features possible in a property. If you can’t make an adequate down payment or have bad credit, spend more time improving your finances before you consider buying a home.

8. Learn the Legal Formalities

Before you buy a property, it is always essential to make sure that it is compatible with all legal documents. The best course of action to take is contacting real estate agents regarding how to obtain legal information. Real estate signage or prints in front of a property serve as a good clue of how legally safe that property is. Analyze the level of professionalism and find information online about these materials. The real estate company associated with the selling process must be reputable or else you will not have an enjoyable purchase.

The legal aspects of real estate include promissory notes, guaranties, mortgage defaults, and the Uniform Commercial Code. Promissory notes live up to their name, documents that declare a promise made by one person to pay a debt that is owed to another person. The writer of this note states their promise to make a payment of a specific amount to the payee.

Parties that sign an agreement is known as a guaranty. These parties accept responsibility of debt payments. With this agreement, lenders are reassured that they will be repaid for the money that was loaned to any borrowers. A mortgage that hasn’t been paid for in a specific time frame is known as a mortgage default. Once a mortgage passes this time frame, it is considered to be in default, which can instantly and negatively impact a person’s credit report and score. Mortgage defaults can also result in losing your property due to an order of foreclosure and sale of that foreclosed property

Lastly, there is the Uniform Commercial Code, which consists of a set of codes that maintain control over any commercial transactions that are done. All 50 states have adopted this code and it has been approved by the American Law Institute and the Uniform Law Commissioners. The Uniform Commercial Code has helped alleviate issues related with commercial transactions, enabling smoother transactions overall.

9. Beware of Appreciation

The belief that real estate always goes up in value is only a myth. Homes typically do increase in value, but if you are banking on this typical occurrence, then you are blindly speculating, and not properly investing. If you enter real estate with the intent of flipping houses, use today’s housing market prices when flipping. Long-term rental investors are encouraged to buy properties based on today’s cash flow.

Home values can and do collapse, but rents remain very resilient in real estate. The best example of this is the Great Recession period from 2007 to 2009 when home values dropped by 27.42%, but rents continuously rose, according to the U.S. Census Bureau.

Facts like these are part of the reason why rental investing works. If you know how to forecast cash flow, you can accurately calculate the returns on any investment property. You can also opt to invest in only high-yield properties, if you prefer. Investing in rental properties based on current rental income allows you to welcome any appreciation that occurs.

Conclusion

Judging from the list above, it may feel like it will take so much time and effort to get the first property purchase right. To a small degree, that is the reality of the real estate business. Investing in real estate is not for everybody. In the cases of many people, there is not enough patience and discipline to see the right deal close.

If you have legitimate interest in buying a property, as well as the patience and discipline, then you will see predictable returns, favorable tax benefits, and high-yield passive income. There are plenty of options for real estate investing, including living in a property via house hacking. This can be done with the help of roommates (think foreign exchange students, for example), renting out rooms on platforms like Airbnb, or renting out an accessory dwelling unit.

If you are generally good with numbers and can cooperate with professional real estate agents, then buying your first property will not be the headache some critics make it out to be.

Importance of Maintaining an Up-to-Date CRM System

What is a CRM System?

CRM refers to a collection of business tactics, tools, and processes that are used to assist organizations and their customers establish and maintain long-term relationships. CRM refers to all of the techniques, approaches, tools, and technologies that businesses use to gain and retain customers. CRM is an acronym that stands for customer relationship management.

Business divisions discovered that it was better to focus on customers rather than products in the early 1970s, and CRM was born. A result of this careful observation was the birth of customer relationship management (CRM).

Customer acquisition and retention, according to Peter Drucker, is the true business of every corporation. Because of the company’s reliance on goodwill, it has historically been difficult to gain new clients. Through the introduction of new products and services that were truly extraordinary, businesses were able to attract more customers and expand their operations at an accelerated rate. Customers were first satisfied and loyal in a way that could not be duplicated in the future due to the lack of a genuine relationship between the two sides.

What is the Need for a CRM?

Previously, conducting business consisted of a straightforward one-on-one transaction with no established process. Nevertheless, as additional communication issues occurred, the ship found itself in increasingly treacherous waters. Because of the rapid development of new techniques and technology in the global marketplace, as well as the resultant strong rivalry, it was vital to transit from a reactive to a proactive mode of operation. Due to the numerous advantages of CRM, both customers and suppliers were able to rapidly get up and running with it. Originally, it developed as a tool for maintaining long-term relationships with customers, customer relationship management has expanded to include all elements of a company’s operations.

Initially, customer relationship management (CRM) was founded on three fundamental principles: preserving and attracting existing customers, acquiring new customers, and enhancing the overall asset value of all clients. In the wake of the advent of cutting-edge software and technology, corporate perspectives were fundamentally transformed. Eventually, a customer relationship management system (CRM) was developed, which consists of a company’s worth of information that is presented sophistically in order to increase profits for the firm while also enhancing customer pleasure and loyalty while reducing the company’s cash outlay.

With this program, every stage of the engagement with clients is automated, guaranteeing that earnings are maximized at all times. The software gathers information from a range of different sources. Therefore, customer relationship management (CRM) systems are equipped to store an enormous amount of information on customers’ purchases, personal information, and even their purchasing habits.

With CRM, or customer relationship management, a company’s best chance of keeping and obtaining new customers is greatly increased by using it. The art of relationship management is about much more than just selling to customers; it is also about developing strong emotional bonds with them. This type of cooperation catapults the company to new heights of financial success.

In the event that a firm can build a personal and emotional connection with a customer, it becomes much easier for the organization to identify the customer’s genuine wants and deliver greater service to them. Many individuals believe that the effectiveness with which a firm implements a customer relationship management system determines the company’s capacity to expand and prosper. In most It’s easy to see why a firm needs a CRM system if we take a look at some of the larger viewpoints below. Businesses, CRM systems are well-maintained thanks to specific world-class technologies that have been developed. BatchBook, Salesforce, Buzzstream, Sugar CRM, and other popular business software are relied upon by numerous well-known enterprises.

CRM strengthens a company’s client base through successful marketing. In fact, CRM has expanded marketing possibilities by increasing campaign efficiency and efficacy. Using direct marketing, web marketing, e-mail marketing, and other CRM-related marketing methods has advanced recently. Compared to more traditional marketing strategies, these new approaches are more likely to deliver better outcomes and more business. Their modest asset values help boost marketing response rates, cut promotion costs, and raise accountability for investment decisions.

The Following Section Examine CRM-Centered Marketing in Detail

Customers are increasingly turning to web marketing and online purchasing as the internet becomes more prevalent. Transactions between customers and suppliers can be completed instantly and from any location. The following are a some of the many advantages of Internet marketing:

  • This is a low-cost solution compared to personally interacting with target clients.
  • Suppliers can now reach customers faster thanks to modern technology.
  • Online marketing tracking, calculating, and testing is straightforward.
  • Using proven online research and analysis techniques simplifies product or brand selection.
  • Online marketing is more promotional than traditional marketing, making it more effective.
  • Email marketing outperforms older tactics like direct mail and phone calls. Email marketing is a type of direct marketing that uses data to better target customers and meet their needs. Subscribers will enjoy newsletters, Coupons, e-cards, and the opportunity to save events to calendars.

Analyzing client internet shopping behavior, a CRM system tracks customers’ internet purchases. This interactive technique delivers tremendous accuracy and quickness in addition to profiling services that provide precise information on consumers’ buying habits. Individual client behavior analysis can disclose favorite products or brands. For example, a customer’s past purchases can be used to predict future purchases. Consumer satisfaction and long-term partnerships result from appropriately identifying and meeting customer wants. Customers’ online shopping behaviors can be studied to improve marketing methods and strategies.

Future marketing strategy forecasting Marketing strategies change as clients’ emotional and behavioral states fluctuate. CRM market forecasting solutions leverage regression and statistical analysis of online customer behavior to grasp this transition. The more advanced yet more accurate analysis tools of CRM systems are among the most effective marketing methods. Those who have tried it say the potential rewards are astonishing.

To achieve better results, a firm must monitor marketing performance to ensure that procedures are always up-to-date and coordinated. CRM-based platforms provide for consistent marketing performance measurement across the organization.

These synergistic marketing approaches are integrated into CRM for high-end marketing. It must therefore anticipate change, test the tactics’ efficacy, and optimize their combination to meet client needs and maximize marketing expansion.

It’s easy to see why a firm needs a CRM system if we take a look at some of the larger viewpoints below:

  • In a customer relationship management system, all customers who have purchased or who are in the process of purchasing may be examined and analyzed at any point in time. As a result of using this strategy, the amount of time spent searching for and correlating customers is reduced, resulting in an increase in business.
  • A customer relationship management system makes it simple to keep track of clients and discover which ones are most likely to be successful in the long run.
  • Clients are divided into groups by the CRM system depending on the nature of their business or their physical location, and each group is assigned to a specific customer manager, also known as an account manager. Consequently, you will be able to devote more attention to each individual customer.
  • A customer relationship management system (CRM) can be used to manage existing clients as well as to acquire new ones. The first step is to identify an ‘Opportunity of Business,’ which is also known as a CRM opportunity, and then enter all of the information related with it into the CRM system. Then, Sales and Field staff court the clients, following up with them and attempting to convert them into paying customers by diplomatic ways. An integrated customer relationship management system handles all of this with ease and efficiency.
  • CRM outperforms all other alternatives in terms of cost-effectiveness by a significant margin. By removing the need for paper or manual labor, a successful customer relationship management system helps to reduce the number of people and resources required for maintenance and upkeep. The development of a customer relationship management system, in comparison to the traditional method of conducting business, is also significantly less expensive and time-consuming.
  • The customer relationship management system (CRM) keeps all of the information you need at your fingertips at all times. This shortens the amount of time it takes to perform a task, which in turn increases the amount of output.
  • The level of customer satisfaction can be raised by effectively dealing with all customers and issuing them with precisely what they require. The likelihood of acquiring new clients is increased, resulting in increased sales and profits.
  • Customers will remain loyal to you and your organization as long as they are satisfied, resulting in an ever-growing customer base and a higher net profit for your business.

Dealing with current customers and obtaining new customers is a common practice in today’s economic climate, but it is also a difficult one to master. Implementing a customer relationship management system (CRM) allows you to effectively challenge innovative ideas to marketing and doing business. Everyone in today’s business world should be encouraged to implement a comprehensive customer relationship management (CRM) system that can accommodate the diverse needs of their organization’s various departments.

The Importance of Using a Good CRM System

The Importance of Using a Good CRM System

What is a CRM?

When people refer to a CRM, they are talking about a customer relationship management system or software. In general, they can be used to track web activity like sales, marketing and social media relationships, connections with the business, and more.

This is used by businesses to track data in relation to their customer’s activity in relation to different important areas. The way businesses choose to use different CRM systems is dependent on what products or services they sell, and what customer data they find most useful.

Continue reading through this article to discover why a good CRM system is beneficial to businesses to improve client relationships and more.

Track Client Activity

Using an efficient CRM system within your business is very important in terms of tracking client activity. It’s important to note that there are several different systems out there; some are very specific to one major platform like sales, marketing results, or tracking support tickets with customers.

As mentioned above, there are many areas of client activity that may be more beneficial to one company over another. Maybe you are a small business that sells and ships products to their customers via social media direct messages – most likely you’d be looking for a system that tracks social media engagement. However, think of a larger business that tracks direct sales inquiries; they might have less dependence on social media and more on support.

Depending on what aspect of your customer base requires tracking, it may be a good idea to do a deep dive into features of different systems to ensure the right fit.

Access to Leads – Increase Customer Base

There are benefits to seeing where most of your engagement is coming from, mainly because you could be targeting the wrong audience. This is a benefit of CRM systems as they can help you by housing all this data in one place.

A customer management system that places an emphasis on client sales and their engagement with your advertising and marketing content can provide answers to gaining leads over time. Generating leads are essential to increase your client base and gain traction as a business.

It is easy to see why this is an important aspect of any business that depends on customers to increase profitability. Systems that can easily turn customer activity into usable data will help you understand where existing customers are coming from, and where potential future customers are. This gives you the opportunity to direct your marketing and sales teams towards this audience and thus, generate leads.

Other Important Benefits that Increase Business

Technology has come a long way to make everyday business interactions easier. Systems put in place to give users a snapshot of how different strategies are performing provides a deep dive into easy-to-analyze data about what customers are drawn to or, what isn’t working and causing customer loss.

Productivity

Whether you use a CRM system to analyze marketing strategies, track sales, or a general central workspace to keep communication efficient with customers, the options are endless. When you find the right system and begin to get an in-depth look at how a business is performing across departments, productivity will rise.

Not only is this system providing you with client data, but it will also show you what pain points exist in your company. This provides a direct answer to why you might be seeing a decrease in customers. If you see clicks on a social media ad with no results, or many of your customers are on your website and never browse through a certain category, address these dips in business.

Employees and business owners who know their audience, what they need, and how to solve their problems will have a much higher rate in productivity than those who “guess” where their best results come from.

Results of Customer Relationship Strategies

An additional benefit to using a CRM system for business is to track which strategies related to customer management is working. This means using customer data to manage, analyze, and report on the results of your customer relationship strategies.

So, how does this benefit your company? Well, being able to run analytics on whether different aspects of your business are generating new leads, increasing the chances of returning clients, or driving traffic, will give you a good overview of what you should continue doing. Think of spending thousands of dollars on an ad that you didn’t realize was only giving you a fifty percent return on your investment – it would be a financial loss.

Learning what your customers react to with positive impact and lead-generating results is a huge proponent of company success.

Learn to Pivot Your Business

There may be a time in your business to switch up your strategies for increasing traffic to a website or increasing profit. There’s no sense in continuing to put effort behind a strategy, that through a customer relationship system, shows you that it isn’t doing well. This will also give you a bird’s-eye view of how customers are being responded to through business inquiries, if they are being followed up with, if the communication resulted in a solution, and more.

There are also great options in terms of analyzing trends over time. It’s possible that a previous customer audience has shifted; maybe you released a new product with better sales. It would be beneficial, without a doubt, to be able to track when this shift in customers happened and why. You can project sales using reporting tools which is a great option for the financial department of a company.

This article has provided an overview of the benefits of implementing a good CRM system into your business. Not only will it increase productivity, efficiency, staff performance, customer satisfaction, and overall business rating, but it can save you time and money in the long run.

Running a business is quite the undertaking, so adopting any type of technology that could make running day-to-day operations easier is a good reason to shop around for the best fit for you. Before you choose one, do the research into all the available systems to ensure it matches the areas you need.

The Importance of Having Cybersecurity in an Office Setting

The Importance of Having Cybersecurity in an Office Setting

Within an office setting, technology is present in different forms that could contain important information like documentation, finances, employee information, and more. For these reasons and many more, it is important to address the possibility that this data can be compromised or accessed without permission. This usually occurs through third-party organizations or external people through what is called, “cyberattacks.” The increase in cyberattacks over the past few years increases this cause for concern and protection.

Keep reading to understand why businesses should be concerned about reviewing any existing cybersecurity and ensuring you have the best practices in place.

What is a Cyberattack and Cybersecurity?

The term “cyber” refers to systems and networks, usually in reference to computers but can also be used in reference to other technology. When a malicious action occurs on a piece of technology like a mobile phone, computer, laptop, or other device containing important business or personal information with the intention of stealth or fraud, this is called a cyberattack.

Cyberattacks can be many different things that occur to invade and disrupt the security of information contained in computer systems for the purpose of stealing data, committing fraud, and more. Thus, cybersecurity is the defense against these types of attacks. It involves implementing different security measures that work to stop these attacks before they can occur.

Protecting Your Business

There are many reasons why someone should keep processes and practices in place to protect the technology used in a business setting. The following are some examples of important information a business may want to protect from a cyberattack:

  • Employee personal details (contact information, addresses, banking details)
  • Business finances, transactions, credit cards, etc.
  • Customer details, payments, personal information
  • Hacking leading to shutting down entire systems

When a business has an unauthorized user access this type of information, it can be very detrimental to its productivity and continuing success.

Keeping employee data safe is critical to any business for so many reasons that may seem obvious but should be seriously considered when you have multiple computers accessing shared folders, drives, or networks that hold this important data. The potential for someone to access an employee’s address or credit card number is a big concern and can result in potential lawsuits.

The second item listed above to consider is the importance of keeping the business’ finances, payment details, and transactions secure and safe from external sources with cybersecurity. The last thing a growing business wants is an unauthorized user gaining access to a company’s financial information and using it to purchase goods. This type of information is usually stored in the office itself with HR personnel and the finance department.

Businesses that interact with customers and obtain personal information need good cybersecurity as well. For example, obtaining payment information over the phone for purchases that is entered into a system can be hacked by third parties.

An additional situation where cyberattacks can negatively impact your business is when they gain access to an entire system or network. These cyber attackers can shut down your network, block access to your own websites, and worse.

Making Clients Feel You are Trustworthy

If you step aside from thinking of personal reasons why cybersecurity is important to have in a business setting, you can see how the lack of this security can make a business appear in terms of liability and trustworthiness.

Think about when you type in your credit card details in a website, imagine hearing months later that the company was hacked and there is a possibility of your credit card details being compromised? You would never use that website again!

As a business, you want to be able to assure customers that their information is safe and secure against unauthorized access or complete loss. If a customer was to ask what types of policies and procedures are in place to secure shared information, it is vital to have concrete documentation or certifications that can put their minds at ease. A trustworthy business is one that people will return to and want to continue working with.

It gives a business a lot of notoriety and praise when they can share details of their cybersecurity practices outright.

How do I Increase My Business’ Cybersecurity?

After reading this article some may be asking questions regarding one of two things – how you can confirm the security of the technology your business is using, or how you can increase or enhance this security.

The first and possibly obvious answer would be to team up with a cybersecurity company that are experts in the field of IT to review your networks and tech systems for any so-called “red flags.” The process usually tells a business if there are areas that need improvement and suggestions on how to implement those improvements.

Train your staff on privacy and security best practices when it comes to keeping company data secure. This can be as simple as not sharing personal information through non-secure email networks, leaving computers open and logged in when working in public or at home, etc.

Another important factor in cybersecurity is the ability to reboot systems and possible lost data after a shutdown or cyberattack. This refers to situations where cyberattacks result in clearing out files, deleting data, etc.

Conclusion

In summary, the rise in cyberattacks on larger companies and the various types of client and employee data that is usually shared in a business setting, puts substantial importance on implementing good cybersecurity practices.

Cyberattacks can negatively impact the everyday productivity, future success, customer growth, reputation, finances, and the overall standing of a business. If external sources access bank details, customer addresses, financial statements, credit cards, or other personal details of both employees and clients, it can cause a substantial loss.

Business owners need to review their existing policies in place for data security and privacy within their office settings. Those that already have IT experts or a team in the business should check in on a constant basis to ensure any security practices stay up to date as well. Technology is everchanging and unfortunately cyber-attackers change their methods just as frequently.

These unfortunate situations can be avoided through things like staff training, following best practices on a regular basis, and teaming up with a trusted, high-rated cybersecurity company. As mentioned, there are even infrastructure/system tests available that can be run (usually by third-party cybersecurity companies) that will test for the levels of protection that exists or can be implemented across the business.

Repair or Replace Your Commercial Property?

Repair or Replace Your Commercial Property?

If you own commercial property, one of the main questions you will ask yourself when evaluating the health of your property is “Can I fix my roof, or is the damage so much that I have to replace it?” Whenever the time comes that your commercial roof starts experiencing problems, it is important to address these issues immediately and not wait. Otherwise, these issues may become more expensive as time goes on.

Roof Repair

When it comes to roofs, making repairs is the most cost-effective option available. Minor issues can be safely and easily repaired, which include missing individual shingles and small leaks. If there is no damage to the insulation, flashing and membrane, then you can afford to repair a single isolated area, which will help extend the life of your roofing system.

When assessing the current condition of your roof, one of the first things to consider is the age of your roof. Most asphalt shingle roofs generally last anywhere from 15 to 30 years. If the roof has damage but most of it is still in tact, a spot repair can be performed.

You should also consider the value of your commercial property especially if you intend to sell it in the future. After determining how long you want to own a commercial property, if your roof is mostly in good condition it would make more sense to have repairs done. If you become a seller in the commercial real estate market, scheduling minor repairs is the best action to take.

Roof Replacement

In other cases, however, the roof has sustained so much damage that a minor repair will not address the issue. If the current roof’s integrity is compromised to the point where a roofing overlay is not possible, then you will need to consider having a complete replacement. Hail, strong winds, and severe amounts of rainfall can lead to major interior leaks. Because of this investing in a new roofing system can potentially save you thousands of dollars.

After replacing an old roof with a new one, you will be better prepared to stop future leaks from developing and prevent future repairs that may become too expensive to afford. You will also protect the value of your commercial property by having your roof replaced. If you decide to replace your roof,  depending on the type and/or quality of the material you use, you may qualify for significant discounts on your insurance policy. You may also qualify for local or federal tax credits to offset the cost of your roof replacement if you incorporate environmentally-friendly features.

Concerning HVAC Units

The HVAC system is a highly important and often highly expensive part of a commercial property. As the property owner you face a tough decision to make when this system starts developing uncharacteristic habits. You particularly want your HVAC system ready for the colder temperatures of the winter season, so typically an annual inspection is scheduled for the furnace and heating system during the fall season. If substantial issues with your heating system arise, you must decide to either repair or replace it.

A case can be made for delaying the replacement of your HVAC system because there are some advantages to making repairs first. At first glance when your furnace goes out, it initially seems logical to have it replaced. However, considering the current condition of your commercial property and its long-term possibilities along with the ever changing weather patterns, it could be wise to hang on to additional thousands of dollars and instead pay less for repairs.

Whether you decide to repair or replace your HVAC system, you will need to have a plan in place. Ask yourself the following questions; How much will a repair cost? When is the right time for a complete replacement? What is the best long-term option for your commercial property? In terms of function and dependability, will the new system be worth the investment?

Potential HVAC Issues

Beware of the signs that will indicate whether you should repair or replace your HVAC system. Potential issues that could affect your HVAC system include the system becoming sluggish or inconsistent, or if it is simply not working at all.

Clogged Filters

If you turn on the heat but the building does not warm up, then the filters should be checked. Clogged filters do not allow proper air flow, and because of this the HVAC system can become inefficient. Check your filters on a monthly basis and plan for regularly scheduled replacements.

Leaks

It is easy to diagnose an HVAC system that has leaks, but it can be complex to fix these leaks. Start with what you can obviously see and trace back to the source of where the liquid is leaking from. If it is coming from anywhere but the condenser pipe (the part where the water should leak from), then it needs to be repaired immediately. If you let the leaks linger for too long then the HVAC system will need to be replaced.

Electrical Issues

There are electrical components in all HVAC systems, including units powered by oil or gas. Most electrical issues typically involve the ignition system. If your unit clicks many times before ignition or it continues to click without igniting, then the issue is with the electrical igniter. Fuel is wasted and the HVAC system’s performance suffers as a result of electrical issues.

Worn Parts

Parts wear out as HVAC systems age. Parts such as belts and motors can easily wear down, which causes the system to become less efficient. If your system starts operating out of the ordinary, then contact a professional technician for an annual inspection. The upfront cost may be steep, but in the long-term you will save money with an efficiently running HVAC system.

Terms Concerning Repairs and Replacements

Duty to Repair

Pay attention to the commercial lease agreement you have because in that agreement you have specific responsibilities that can affect the condition of your commercial property. Any major defects in the premises of your commercial property can negatively impact your business. If you let repairs to your damaged premises go for too long you will be forced to shut down the premises and halt business until repairs are done.

Should anything go wrong with the premises where you operate your business, make sure your business will still be able to function in some capacity, or at least get compensation if it cannot. The following listed terms are referred to as the “Duty to Repair” terms of a commercial lease agreement.

Repair Defects in a Timely Manner

It is wise to put a provision in the commercial lease that states the tenant is allowed to make the repairs and then receive compensation from the landlord either directly or by way of a proportionate deduction in paying the rent.

Liability Notice

It is recommended to negotiate with the landlord to put a provision in place that the landlord will be held liable for any loss that your business experiences because of any defect in the premises. With this provision you are ensured that the landlord will stay vigilant in making fixes to any problems that have been reported about your commercial property as quickly as possible.

Reasonable Rent Reduction

A provision can also be negotiated that will grant the tenant of the commercial property a rent reduction for the period of time the defect remains in tact. This will keep the landlord motivated to fix any defect, whether minor or major, as quickly as possible.

Replacement Reserve

A replacement reserve is basically a dedicated fund that serves to finance the periodic replacement of commercial property components. When setting up your annual budget, as a commercial real estate owner and investor you should have a replacement reserve in place.

Money in a replacement reserve is what you put aside to cover any major replacements or refurbishments that need to be done to your property. Replacement reserves should be specifically used to pay for capital expenditures to your property, including resurfacing an attached parking lot or replacing old floor tiles and paint in the building’s most common areas.

In the case of homeowners and condominium associations, a reserve requirement is always in place, or at the very least dedicated statutes that outline how much money must be kept in funds at any given time. Reserves help these associations avoid the need to charge residents any special assessment fees when a major project needs to begin.

At the heart of the matter, having adequate replacement reserves for the commercial real estate investments you make is a logical thing to do. Compared to a homeowners association’s governing body that depends on multiple residents to fund its reserves, you and your team of investors are the only ones responsible to pay the bills for replacements. If you have a sufficient operating reserve in place you will have the necessary funds to handle capital expenditures whenever they emerge without adding anything to your existing debt service.

What are Replacement Reserves Best Used For?

Any items in your commercial property that have a shorter lifespan than the building itself will need to be replaced at some point in time. This is where it helps to have a replacement reserve fund ready. The more support you have in this fund the more you reduce the possibility of constantly deferred maintenance to the building.

A replacement reserve fund normally prioritizes tasks such as putting on a new roof, replacing an old HVAC system, replacing windows or exterior masonry, and making accessibility upgrades, among other things. Routine maintenance costs are not factored in to your replacement reserve fund because they are normally considered to be part of your traditional operating expenses.

Other tasks that are well suited for your replacement reserve fund are reparations to a communal plumbing system, repaving the sidewalks, driveways and parking lots of your commercial property, and overhauling any elevator systems.

How Replacement Reserves Factor in to Your Budget

Any debates that you might have when it comes to where to put this line item in your budgeting plan can be put to rest. Should a replacement reserve component be included in your Net Operating Income (NOI) calculations? Items of capital expenditure are not counted as operating expenses, so therefore they should not be included in your NOI. Instead, consider your calculations for your cash flow and incorporate these items there.

The standard accounting equation for your cash flow should look like the one below.

Net Operating Income – Replacement Reserve – Existing Debt Service = Cash Flow

Conclusion

The main question to ask is “Should you repair or replace your commercial property?” The answer depends on your situation, what your needs are, how much you can afford in either action, and how much of an impact either action will have on your business. The condition of the building you own should be your first priority, and whatever message the building’s condition is sending you is where you develop your plan around. Whether you decide to repair or replace your commercial property, one thing for certain is that you must be aware of the expenses involved with either action.