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As far as I’m concerned, the worst thing that can happen to any investor during a rental property turnaround is to have the turnaround itself become a mismanaged financial disaster. That’s because the property’s original state of gross mismanagement and physical neglect becomes compounded when the “turnaround” becomes a “Harvard Business School case study in gross property mismanagement.” Over the years, I’ve observed many so-called “property turnarounds” that were conducted in such a willy-nilly fashion that they put the turnaround over-budget, behind-schedule and way-off course from the original turnaround plan! Most of these botched “turnarounds” were done by nationally known real estate investment trusts and corporate conglomerates that should have known better, but evidently had more money than onsite management know-how!

The Two Simultaneous Phases Of A Properly Planned Property Turnaround
A properly planned property turnaround consists of the following two phases that should be done simultaneously:

1. Management turnaround phase: During the management turnaround phase, which should start as soon as you take possession of the property, you must immediately implement an aggressive property management plan that’s focused on increasing the property’s net income by raising rental rates, reducing operating expenses and eliminating vacancies.
2. Property turnaround phase: At the same time the management turnaround phase is underway, you must begin the property turnaround phase and make cosmetic improvements to the property and grounds in order to maximize the property’s curb appeal and resale profit potential. The property turnaround phase is covered in great detail in chapter ten.

The Four Essential Elements Of A Quick And Profitable Property Turnaround

In order to avoid the mismanagement and confusion that seems to be the hallmark of many bungled property turnaround attempts, you must be able to do the following four things well, in order to have a quick and profitable property turnaround:

1. Plan: Develop a detailed turnaround plan.
2. Budget: Calculate a bottom-line turnaround budget.
3. Schedule: Schedule and maintain a quick turnaround timetable.
4. Coordinate: Coordinate a quick turnaround.
What Must Be Included In Your Detailed Turnaround Plan

Your property turnaround plan should be based on the information that was derived about the property’s physical condition, management woes and tenants from your due diligence, and must include the following four key points:

1. Cosmetic improvement plan for the property’s exterior, parking area, grounds and landscaping.
2. Detailed fix-up plan for the interior of each rental unit.
3. Marketing plan to attract moderate-income tenants willing to pay fair market rental rates.
4. Aggressive property management plan to select and retain good tenants, raise rental rates to the maximum amount, reduce operating costs to the minimum amount, and increase the net operating income.

How To Takeover The Management Of A Small, Mismanaged Rental Property

Taking over the management of a small, mismanaged residential rental property can be likened in many respects to taking over the coaching duties of an undisciplined basketball, baseball or football team that lacks leadership and fundamental skills. In both situations the “new guy” is going to be “tested” by some of the tenants or team members who’ll attempt to circumvent or rebuff the directives of the new manager or coach. During the management takeover phase of a property turnaround my demeanor is all business. I act in a fair but firm manner that conveys a real sense of urgency. By my actions, the existing tenants know that I’m not going to let them “play games” with me while I’m turning the property around. Here’s my six-step approach to a quick and effective takeover of the management of a small, mismanaged rental property:

Step #1: Hand deliver a change of ownership notification letter to each adult tenant along with a copy of the work schedule for the first week of the turnaround.
Step #2: Provide each adult tenant with a copy of your “house rules” that outlines exactly how they and their guests are expected to act while residing in your rental property.
Step #3: Initiate the collection of rental payments in arrears.
Step #4: Initiate eviction proceedings against tenants who can’t, or won’t bring their rental payments current.
Step #5: Initiate eviction proceedings against tenants who refuse to comply with all of the terms of their rental agreement and your house rules.
Step #6: Provide each adult tenant with a copy of the new rental rates for refurbished units along with the offer of a “$500 relocation fee” for tenants who aren’t willing to pay the new rates, and have rental agreements that don’t expire within the next three months.

Ten Sage Rules To Follow When Turning A Mismanaged Rental Property Around

In order to avoid sleeping disorders, Maalox addiction and other numerous maladies that have been known to afflict the owners of small, mismanaged rental property turnaround businesses, I have written the following ten sage rules to keep you safe and sane during a property turnaround:

Rule #1: Don’t work more than six days a week on the property.
Rule #2: Don’t take incoming telephone calls during the workday; have then answered by a machine.
Rule #3: Stay onsite during the workday and be readily available to your tenants, tradesmen and contractors.
Rule #4: Make certain that all equipment, building materials and vacant rental units are kept under lock and key.
Rule #5: Maintain a safe and clean work environment throughout the property.
Rule #6: Keep an accurate record of daily expenses in order to maintain your bottom-line budget.
Rule #7: Focus all of your attention and energy on getting the property turned around under budget and ahead of schedule.
Rule #8: Don’t let your tradesmen and contractors make their problems your problems. Hold everyone working on the property accountable for what they do or don’t do.
Rule #9: Don’t be afraid to pitch in and get your hands dirty if that’s what it takes to keep the turnaround going.
Rule #10: Always act like a reasonable, rational, intelligent, professional adult when dealing with your tenants and all of the people working on your property even when your emotions tell you to do otherwise.

Thomas J. Lucier is the President and CEO of Home Equities Corp, a privately held Florida Corporation established in 1995, that specializes in the purchase, fast-turnaround and resale of small residential rental properties in the Tampa Bay Area. Tom’s new 92 page special report, How To Find, Buy And Turnaround Small, Mismanaged Rental Properties For Maximum Profit, $29.95, is available for purchase at the e-Store.

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