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Welcome to episode 6 of Season 12 of the Growing Empire Show. Today is the question and answer segment. So make sure you stay tuned.

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Welcome to Growing Empires. Hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

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I think I say this every season, but I love these question and answer segments. I think they might be my most favorite. As much as I love interviewing people, I think these questions that I get are incredibly creative, and well asked. So let me jump right in, because we’ve got four really good ones today. First question is, do I really want to stabilize if I’m selling? Great question. The answer to that is it all depends. So stabilization can mean quite a few things for a property. It could mean that you are far below market rents and you want to increase the income because you have a bunch of month to month tenants in your property. In that case, my answer would always be, absolutely yes. Because no matter when you actually do the rent increase, as long as you do it prior to listing your property for sale, the reality is that your building is worth what it is netting in income. So, I would definitely take advantage of increasing rents, as long as you’re not prompting vacancies, to be able to show a better cash flow when selling your property. However, I would ask you to consider one critical factor. Does it make sense for you to transition those tenants into year long leases, or do you want to keep them as month to month leases? And either those can be looked at differently by every investor. But my general rule of thumb is, most investors want the flexibility to do what they feel is right with the property. So although you may be increasing rents today, I think most investors would prefer to take on a month to month lease than an annual lease, especially if it’s potential that your increase is still not at market. Because that gives them the flexibility to do what they want to do. So if we’re talking about in terms of stabilizing increasing rents, absolutely, I would consider doing that. If you were talking about decreasing expenses, by cutting out some unnecessary expenses to the property, I would definitely recommend that you consider doing that before you sell your property. If the stabilization is going to require you to spend money, then I would caution and tell you that it needs to be really looked at not only by you, but by your advisors as well. Because you do want to make sure that you’re going to get dollar for dollar back. And depending on the market. And depending on the type of renovations that you’re doing, you may or may not get dollar for dollar back. But some of the most critical things that you can do when selling a property is make sure, A, your curb appeal is amazing. If there’s anything that prevents investors from buying buildings, more than not, it’s what the building appears like on the outside of properties. There is no shortage of people that won’t even walk into a building if the outside appears to be a wreck. Because the assumption is that the inside is also going to be a wreck. So curb appeal. Every dollar that you spend on increasing the curb appeal of your property is going to go a long way in you recouping a good portion of your equity on sale. Anything you could do to increase revenue, anything you can do to cut out unnecessary expenses, or potentially turn expenses over to the tenant as a responsibility factor, those things would make a lot of sense. And if you’re going to put actual capital into your building, as far as like roof repairs and those sorts of things, then you’re going to want to just make sure that you are well advised and making sure that you can get your biggest bang for your buck when you go to sell. One other note that I have on this is simply that most investors do not want a fully stabilized building. So you never want to make it absolutely perfect because if there’s no upside, it’s less attractive to investors. However, nobody wants the property with all the problems either. So if there has been a ton of deferred maintenance that you have avoided over a period of time, you’re going to want to consider taking care of that deferred maintenance. So your building as a whole does not appear to be a money pit. Because that will also deter investors and potentially not allow you to be successful in the sale of the property.

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Next question. What is your best advice for increasing revenue? My best advice for increasing revenue as a whole, over the whole period of your portfolio, is to do it either strategically, meaning one after another, so that you have zero vacancy or to do it all at once. But you do have to pick a plan. When you acquire that asset. You’ve got to decide whether you want to take all your pain at once or whether you want to take it over time. If you are financially stable enough, to do it all at once, you’re going to find that you’re going to stabilize your building much, much quicker than if you had taken it over time. But not too many people are able to facilitate renovations on a property with no income coming in and simultaneously probably also making capital improvements or tending to deferred maintenance on a property. However, if you’re one of those investors, that does have some money set aside, the quicker you can get to turning over those units and getting into market rents, the quicker your building will stabilize. So that is always the best course of action unless you cannot financially make that happen. And if that’s the case, the other option that you have is to do it over time. My recommendation is first to have conversations with tenants. I assume if you’re trying to increase revenue, you probably have units that are not at market. But you’re also probably thinking about other pieces of the puzzle like laundry, storage, parking. Anything that you can do to increase revenue or add revenue to your building is always going to be a good thing. But the trick is, is that for it to ever really turn into dollars on a sale, you also have to be able to prove that income. So if you’re going to, for example, put in coin operated laundry, you’re going to want to make sure that you have an opportunity to record that income so that you can show it on a cash flow statement. Therefore, it will become part of an analysis for a future investor because you can prove it. If we’re talking about increasing rents to market, one of the strategies is to just first have a conversation with all the tenants and you could do it simultaneously. Or you can do one right after the other. And what you’re gonna do in that conversation is just say, look, the reality is is that this is a business, and you are living at a rent that is far below market. I’d love to keep you in the building, you’re a great tenant. However, I can’t afford to do so at the current rent that you’re paying. What I would like you to be paying is what market rent is and the number is X and give the opportunity to the tenant to maybe counteroffer you and then you can at that point, decide whether or not that makes financial sense for you. But you definitely want to push the envelope. I would in Pennsylvania, I would not just go with the standard 5% rent increase unless you’re already close to market. In that case, that would make sense. But if you are several $100 away from market rents, I would not try to do small incremental changes, I would try to make a big jump all at once. But you’re going to want to do it systematically. Because you’re not going to want to have a bunch of vacancies all at the same time. So that’s just something to consider.

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The episode will continue in just a moment.

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As an investor, we know it’s important to stay on top of market trends and real estate opportunities that add value to your portfolio. We also know that having a trusted source of reliable information to help you stay a step ahead of other investors is critical to your success. If you’re interested in having these types of resources, as well as access to me and my team, I invite you to join the Empire Investment Club. A free service that gives you an easier way to make sense of today’s and tomorrow’s real estate opportunities. As a member of the Empire Investment Club, you’ll get access to relevant resources and investment focused experiences such as live interactive webinars, market trend presentations, and investor socials designed to equip you with what you need to succeed. So whether you’re an active investor, passive investor, a combination of both or just starting out, the club is where you’ll get what you need to build a portfolio you love. To join, just head over to JenniferdeJesus.com, sign up, and we’ll see you in the club, where everyone’s on a journey to becoming a better investor.

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Next question, what are some tips to decrease expenses? There’s many things you could do to decrease expenses. But the first thing that you need to do in order to make a plan for decreasing expenses is to look at a cash flow statement for your property for the last six months to a year. And I want you to identify specifically what expenses are, A, things that can be turned over to a tenant, B, are unnecessary expenses, or C, things that you can cut down by just getting competitive bids. So types of things that you can turn over to tenants, utilities, water, trash, you know different types of things like that. Security Systems, internet. All of those types of things are generally expenses that a tenant may or may not see on a rental unit. As far as expenses that you can cut out, what you’re looking for is unnecessary expenses. For example, are you doing pest control on your building as a preventative maintenance measure? Have you ever had a pest control problem? You may want to not pay for that, unless you actually have a problem that you’re trying to correct. Many times buildings have pest control services, with no reason to actually have them. Because generally, if your tenants are keeping the units clean, and your building is well cared for, and you don’t allow things like holes in the foundation of the siting of the roof to become an attractive opportunity for rodents to get in, you likely are not going to have general pest control issues in your building. So I would look at cutting out stuff like that. Do you have internet that maybe you don’t need to have in your building? Are you paying for our ancillary services, like cable television and stuff like that? All of those things are probably things that you could consider cutting out in the very near future, at least upon lease renewal. And last but not least, regarding expenses, you want to make sure that you are always getting competitive services, and competitive bids. Every year, you should re-up your bids for your landscaping, your snow removal, your insurance policies and your garbage removal services, at a minimum. You may have other services on your building that you should consider doing that as well. But those are some of the most common things that you should be reviewing every single year, but also making sure that you are taking the time to get competitive bids so that you can make sure that you’re paying the least amount of money for those services.

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And last question is what are the most important factors when planning to exit a property. Some of the most important factors are, understanding your tax obligations. And whether or not exiting a property will increase your liability or your tax obligation. You will want to have a plan. You will want to make sure that you put yourself in a position to capitalize on the growth or the equity that’s in your property. So you never want to sell when the property is down or when you’re having extenuating circumstances that are preventing you from collecting income or rent that would be appropriate for the building. You always want to exit on a high note or with your building in the best possible scenario. So you want it to look the best, have the best rent, and be minimal on the expenses or deferred maintenance that would be obvious. And last but not least, you want to make sure that you have a specific plan of what you’re going to do with that money, and how you’re going to reinvest it. Unless you’re planning something different like retirement, and you’re getting out of the game altogether, you’re gonna want to make sure that you are putting a portion of that money toward a future investment and future growth. But if you take money out of your real estate investments, which generally should be making you money, and then you use it to do other things, like pay down debt, understand that you don’t have that flexibility of cash flow any longer. So you want to make sure that you have a plan to replace your cash flow with cash flow. And those are some of the most important factors when planning to exit a property.

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Thank you again for all the great questions. I hope you got a lot out of today’s episode and until next time, take care.

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For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com