The professional approach to asset maintenance is correct

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By Nir Bevagni

Property.

During the years of investing in dozens of properties in the United States and a number of different countries, we have found that one of the main reasons for the failure of sophisticated Israeli investors, including the failure of real estate companies to invest, is due to insufficient attention to building maintenance. Examples of an unmaintained structure could be a roof damaged during stormy weather or even cases of moisture and increased water penetration that flowed through the basement and through the foundations of the structure that developed over the years and created cumulative damage of tens of thousands of dollars. Such damages are common examples of a result whose main cause is a property owner who pays no attention to the importance of professional property maintenance. Therefore, this article is a must for any investor. In our estimation, this is probably one of the most important if not the most important issues of all for investors who own medium to long-term leased properties. In this article, we will detail the professional approach to asset maintenance in a process management concept, using the end-to-end method.

Holding a property requires maintenance

One of the most basic principles in holding a physical property for an extended period of time, is the matter of maintenance. That is, holding a property requires holding. You can buy a great property at a great price and find the result of a failure to invest after a medium-long term, due to a failure to think in advance about the appropriate answer to the following questions:

Is it worthwhile to purchase property or not, given the required maintenance intervention immediately and later? Is this an asset that suits you as an investor given the maintenance challenges? If you have the capabilities, is it still a maintenance challenge you want to manage? Is the investment worthwhile after CAPEX assessments in the maintenance plan? What are pro-active maintenance intervention points to consider in the property? What should be considered in the passive maintenance program and how to plan it properly? How to make an asset maintenance plan before you make a purchase decision? How to effectively implement the maintenance plan during the years of property repression?

In this article we will demonstrate the importance of all the above questions and we will address the common mistakes of investors in the context of maintenance. In addition, we will detail the possible courses of action for optimal maintenance management. In order to do this, we will divide the answer to the questions into two parts:

Know Your Investment Know yourself

Know the investment

Assuming you have performed a thorough due diligence examination of the structure (see here an article and a video lesson on this subject), you have all the findings about the physical defects.

At this stage, assessments are required based on the findings. For example, what are the findings that contribute to accelerated depreciation of the property? In this assessment, you can find, for example, that wear is caused by humidity and / or increased moisture in the basement. One of the common mistakes is to be satisfied with dyeing the basement DRY LOCK and treating it only at the same time as the moisture and moisture. Conversely, the proper course of action is to assess what are the root causes for this result. In other words, it is not enough to deal with the existing moisture and moisture, but rather to understand the root cause of their formation in the first place and to assess the proper solution to deal with the problem at the root. In the end, we will concentrate all the findings and thus build a response plan for the treatment of the asset that can be divided into immediate response activities for further monitoring and maintenance activities, or alternatively decide that there is no need for response.

The next step, will be to calculate what the cost is required to handle each and every section. Assuming you have done this job professionally, then you will have a renovation plan in place before the purchase for an immediate response after closing the purchase. In addition, you will also have a CAPEX plan with expected future investments in the property. Only in this way can a proper business plan be constructed to examine the viability of the investment at the numerical level. One of the common mistakes in this regard, is the purchase of a property "30% below the market price". Purchasing an asset of this type is the total investment after considering a professional renovation plan and preparing a proper CAPEX plan (future capital investments), and it also practically shows that the asset will be priced that way for some reason. The failure to understand this leads to erroneous investment decisions and unfortunately, in practice, these are failures that are not the domain of only novice investors, but also of experienced and entrepreneurial investors. Not only that, but also real estate marketing companies fail at this type of investment because they do not bother or are able to carry out these plans.

Know yourself

Assuming you performed the first part of the exam correctly, then you have reached the position of knowing the investment. Now you can make the right balance and make an informed investment decision about the viability of investing at the numerical level. Despite this, it is important to say that even if you have done it before, you have only gone half way. It is important that you understand yourself as an investor. Otherwise, for every investment you make successfully there is also a similar probability that you will fail the investment!

We can not cover this issue in this article, but it is important to know that at the most basic level, as an investor, you must have resources and resources beyond financial means, such as: knowledge, skills, contacts with professionals, time and energy for proper management.

In order to understand this better, we will illustrate the importance by example. Each year, in the spring season, we proactively perform maintenance of the assets we rejected for this period of the year. Maintenance is carried out through the implementation of renovation plans or maintenance plans. We do this and do not wait for the call from the tenant who is in the property or the report of the management company about a malfunction that has reached a serious level. Moreover, we are implementing deferred maintenance programs and capital investments because we understand that in the medium to long term this approach saves us from the maintenance costs that will come from passive maintenance only to respond only when there is a problem or, God forbid, a maintenance crisis.

This article began with a case of increased humidity and moisture discovered in the basement of the property before the acquisition, and yet we decided to purchase the property. To address this problem, we will take necessary immediate actions, such as handling gutters and draining water and snow away from the structure. In addition, we will deal with openings and slits adjacent to the building through which increased moisture penetration is possible. To illustrate this, you can see in the attached picture the openings that opened between the driveway and the driveway that require proactive treatment. This demonstrates the importance of an investor's proactive action in favor of preventive property maintenance and can explain the difference between investors who consistently succeed in investing in multiple assets or in the medium to long term.

Over the years, they were disappointed to discover that the main reason that proper maintenance - preventive - professional is not carried out is not related to the financial costs, similar to the example we noted which is a relatively inexpensive preventive maintenance. Therefore, the question arises why such important maintenance activities are not carried out? Over the years, and as part of the work of this site manager as the manager of the Tapuz Forum, we encountered many investors and many reasons we heard from property owners,

"I was not aware of the problem" "I was aware of the problem but I did not understand the need for this treatment" "I understood the need, but I did not understand the importance of the matter" "I understood that it was necessary later but I forgot about it" So I thought it was no longer important. " "I did not have people there to take care of it" \ "I did not find anyone to do it at a good price."

All of these answers reflect investor-level differences, such as: knowledge, skills, relationships with professionals, time and energy for proper management. Therefore, it is important that you know yourself as an investor. Otherwise, for every investment you make successfully, you have the same probability and also fail to invest!

There are only possible 3 modes of action to deal with this problem.

Do not invest in what you do not understand. Invest in yourself and learn to grow and develop the necessary resources and abilities. Use a professional that will close these gaps for you.

In conclusion,

We will end on a personal note. Investing in real estate is not complicated. This is an investment channel that is considered solid around the world and attracts investors at the household level everywhere. The great advantage of a real estate property in the eyes of many, stems from the fact that it is a physical property, and yet precisely because of this advantage and unlike virtual properties, a physical property is one that is important for its maintenance. Personally, we love real estate and see the physical structure as a great system! The desire and desire to understand the system in which you invest the best of your money and the commitment to maintain the value of your property will bring you to the right approach in purchasing and maintaining properties.

Good luck in investments!