Resolutions and New Years are as ubiquitous as Peanut Butter and Jelly. So, rather than buck the trend, we thought we’d go with the flow. As you enter this brand new year, here are 7 real estate resolutions for you to consider:
1. Set up (or clean up) a Budget and Bookkeeping System
Ironically, the person most likely to make this resolution is the least likely to need to – and vice versa. However, like it or not, having a budget and accurate books is critical to making good business decisions. Your budget is your game plan for revenue and expenses. It gives you something to manage your daily activities to and will alert you quickly when something is wrong. But more than that, your budget also empowers much of your tax and asset protection strategy. The why behind that comment is a much bigger discussion, but if you don’t understand it, you will after you meet with your tax and asset protection advisors.
Unlike a budget, which is just a plan, bookkeeping is the actual daily discipline of tracking your real world activities so they can be measured against your plan. Way before computers, “garbage in, garbage out” was already an unavoidable truth. If your books are sloppy, then your reports and resulting decisions will be sloppy too. So, like getting rid of the holiday “pudge”, it will take effort and discipline to get your books in order – and keep them there. Sorry, that’s just the way it is.
2. Design and Implement an Aggressive Tax Avoidance Plan
With good books, one of the easiest areas to improve profitability is to optimize tax deductions. This is one of the ways you are financially rewarded for keeping good books. Keep in mind that “avoidance” is NOT tax “evasion”. To avoid a tax liability is to not create it in the first place. That’s good. To evade a tax liability is to fail to pay once you legitimately owe. That’s bad. The good news is there are lots of provisions in the tax code to help you avoid tax liability, but you need to implement them before the tax year ends. As you’re going through the process of preparing your tax returns, don’t just whip through it to get it done (as tempting as that is!). Rather, take time to understand what you owe and why; then go to your tax advisor with the right question: “How can I avoid or reduce this tax liability?” (as opposed to the much poorer question, “How much do I owe?”). Keep the questions and answers in your Tax Strategy Journal. Then, implement the changes early in the new year, so when you’re preparing your tax returns next year, you’ll be getting the full benefit of the changes you make now.
3. Property Manager and Tenant Appreciation
Remember, as a real estate investor, your property managers are your “employees” and your tenants are your “customers”. Think like a business owner (because that’s what you are) and make sure you measure (bookkeeping again!) and reward the performance of your employees. This doesn’t necessarily mean you have to write big checks. You can add value to the relationship in other ways. Strong and sincere expressions of thanks go a long way. All business people love referrals, so you can reward great performance with your word of mouth advertising. Maybe you have a time share or vacation property that is going unused and you can reward a top performer with a weekend (or more) someplace special. For your best tenants, you might buy them a gift certificate for a local restaurant or movie theater. Be creative! The point is that this is a people business and people like to be appreciated.
4. Estate Plan Update (or Implementation)
Estate planning is spending time and money today to prepare for an event that is inevitable, but no one wants to deal with. It just isn’t fun. If it was, then you wouldn’t need resolve (as in a “resolution”) to handle it. Who makes a New Year’s resolution to eat more treats? We just eat them naturally because it’s fun and easy. Estate planning is not fun or easy (unless you’re weird), but organizing your estate plan is important because you can’t fix it once you’re gone. And if it isn’t done right, your loved ones can literally lose a fortune (yours). You might not think you have enough to worry about right now. But that means you should have a large life insurance policy to handle things if you pass away before your real estate riches kick in. If you don’t have such a policy, then add that to your resolution list. If you already do, then you’re certain to need an estate plan. See? There’s no escaping it. It’s like death.
5. Asset Protection Update (or Implementation)
Sadly, getting sued is almost as inevitable as dying. And the more you have, the more you have to lose. So proper insurance and entity structures are critical. Again, there isn’t space to get into all the details of a proper asset protection plan, but here are a few items to consider. First, asset protection doesn’t just protect what you have now, but also what you plan to accumulate later. Also, some insurance policies won’t pay if your property is in an entity, but you are the insured (and vice versa). We like to have an insurance attorney review our policies to be sure we are getting the protection we need. Of course, entity structuring will have an impact on your tax and estate strategies as well, so it’s wise to have all your risk mitigation advisors (insurance, asset protection, estate and tax) work together on your plan. It’s not cheap. Sorry. But if you start with a strong tax avoidance plan, you can probably pay for everything from your savings. 🙂
6. Explore a New Market
Whew! We need a break from all this death and taxes stuff. Who wants to be a real estate investor so you can buy more insurance and pay more legal bills? No one. But exploring strange new markets and boldly going where no man has gone before (theme from Star Trek begins to play…) – well, that’s much more enticing. In the (almost) wake of the mortgage meltdown, we’re emerging into a brave new real estate world. Resolve to get out of your bunker and go out and survey the post-apocalyptic landscape. We think you’ll find there’s a lot of opportunity out there in 2010.
7. Add to or Update Advisory Board
In case you haven’t noticed, there’s a lot to think about when you’re serious about being a real estate investor. You’re far more likely to procrastinate when you don’t know the short path to a quick answer. Having a complete and competent advisory board is very important. So make a shopping list and go stock up on big brains to put into your speed dial.
Failing to Plan is Planning to Fail
Each one of these topics could be a whole radio show (many of which are) or the focus of a Mentoring Club broadcast or live seminar. For now, we just want to help you focus on these 7 key items early in the New Year, so you can be sure to include them in your planning. This decade has the potential to be one of the best ever for real estate. What you do in this first year will be your foundation for the entire decade. Be sure to take this opportunity to build it right!
Don’t miss a show! Subscribe to the Free Podcast