The art of investing in real estate - by Thomas Donovan

Real estate investing is as much an art as it is a skill. No one can time the market, or the factors that drive it, perfectly. Location, zoning, size, transportation, and neighborhood density give you a baseline for comparison. But many other factors affect whether an investment is profitable. Vacancy, tenant problems, regulatory issues, service costs that outpace income, inflation, and a higher cost of capital can all break the investment model.

So how do you hedge against this? Early in my career, I heard a phrase that has stayed with me: “Manage the property like you plan to own it forever, even if you are selling it tomorrow.” Small lapses in management can have an outsized effect on value.

Over the past year, I have strongly advised my clients to review their properties now, while no capital event is pending. That means checking lease accuracy, violations, open permits, deferred maintenance, and anything else that needs attention. My team and I have seen why this matters many times this year. The rent roll is out of date. Leases are turning over. Debt is coming due. And the property can’t be rented, sold, or refinanced because it was poorly managed.

If you can’t raise rents, you can still increase cash flow by cutting expenses and growing occupancy and collections. The cleaner and more streamlined the building’s operations, the more money stays in your pocket.

Thomas Donovan is the president of Queens Investment Sales at Meridian Capital Group, Manhattan, N.Y.