Back in those days, maintaining a mansion wasn’t much different from running a gated and guarded community as we do. The mansion was so huge that it had a private basketball court, children playground, water fountains, badminton court, social hall and plenty of spaces for landscaping. The mansion was almost measured up to Michael Jackson’s wonderland and Elvis Presley’s Neverland. Running such a huge mansion required prudent accounting, which the wealthy old man had done quite well. The old man no doubt had mountain high of wealth but he kept prudent accounting very closed to his heart. The old man was into real estate all these while and he amassed his wealth through renting his 412 houses around his mansion. The old man was a very fair businessman and had been charging each tenant RM40 for the past few years and increased the rent by two fold only recently due to foreseeable inflation on the cost of property management. He also knew that his passing was around the corner and raising the rental could help his next generation maintaining the mansion and the property business without much financial strain.
One day, the old man was really sick lying on his bed catching his last breath. He called all his wives, sons and daughters to his bedside relaying his wills and wishes. Those days, will writing services were not available. He knew very well that his family had no experience in running business put aside running real estate business. He hoped through his very last few hours he could give a crash course to his family members on managing his real estate business………
1. Forecast your near term and long term revenues well.
If you have 412 houses and each month collecting RM 80 rental from each house, ideally you should see RM 32,960 coming in to your bank account every month. Most businessmen would like to be idealistic but the reality is harsh. Ideal cases hardly happened and you need to have some plan to fall back on. It is always a challenge for the inexperience to put up sensible forecast but no harm consulting Wiseman for advices. Conventional wisdom said it is very common to see 50% to 60% type of collection but it doesn’t harm to be a bit optimistic to push for 70%.
2. Prioritise your expenses. Differentiate between the necessities, needs and luxury. With the limited fixed amount of revenue, you can’t be demanding everything to fulfil short-term gratification. Know what people want the most. In the mid of economy crisis and crime rate on the rise, people are more concern about security. It’s wise to allocate affordable portion of monthly revenue for upgrading the security services. If a decent amount of money is necessitate for a good guard dog, instead of struggling to choose between a chi wa wa and a rottweiler, go for rottweiler because rottweiler is a good guard dog. Chi wa wa is only loud but harmless.
3. Landscaping services and those tiny nifty services are good to have provided funds are sufficient. It is good to settle down with the new security services and add on those additional services in the later stage if monthly revenue allowed.
4. Establish a social conducive environment for the tenants. Tenants are the paymaster and they need to be feel good at home. Organise some street parties, Chinese New Year, Hari Raya, Deepavali and Christmas celebration and these events cost money. Prudent accounting and good rental collection from 70% and above afforded us these luxuries. That explained why it is prohibitive to allocate monthly expenditure based on 90 to 95% type of rental collection.
5. Do not scale back the services that we have been providing. For instance, if the area has been guarded with 4 guards all the time, make it 4 guards all the time. The number can only increase but not decrease. The moment the tenants see us sub-standardizing our services, many negative speculations on our financial well-being will be circulating among the tenants. The speculations would not help in rental collection in the later stage. Tenants are in general not willing to pay for deteriorating services and environment.
6. Always remember, be prudent and be frugal. Do not always increase the rental just to cover for the fund mismanagement or misallocation. You can do it once or twice, the third and fourth tenants will ask you go fly kite.
The old man finished the last advices as he caught his last breadth. There’s nothing more he could do but hoping his advices would be well adhered by the next generation. It would be very sad for him to see the area was falling apart due to insufficient funding to upkeep the place. Tenants started to move our from the houses and the value of the property rock bottom.
Tue Jun 08, 2010 10:07 am by zero4.bd4165
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