Olafur Eliasson has a fabulous looking sculpture called Umschreibung that he built in Munich. It is, essentially, a staircase that leads to nowhere. To me they are mesmerizing, pleasing to look at, and thought provoking, but aside from artistic value I can think of no other value to attribute to them.
So you’re a landlord. You own rental properties. That in itself does have value but do you have a business plan to get the most out of your rental properties? Or have you inadvertently created your own stairs to nowhere?
Umschreibung can be translated into several different English words, some of which are ‘rewrite’ or ‘circumscription.’ The logic definition of circumscription is that situations will be as expected unless otherwise specified. For example, part of Newton’s first law states that an object will stay at rest until an outside force puts it in motion. Simply owning rental properties does not mean you are going to be making a profit. You have to create a plan to help put your business in motion and from there to help you get the most out of your investment.
How do you figure out a business plan? A good place to start is with these questions-
Where are you going to get your down-payment capital?
How much risk are you willing to take? If you aren’t willing to take big risks you will need to set smaller goals for yourself and give yourself more time to reach them.
What type of rentals do you want to own? This includes type of building like condos or apartments, type of demographic like university housing or Section 8, and type of value like high-end or more affordable.
How large do you want your business to be? Do you want to own a few units and be a landlord on the side or do you want this to become a large corporation?
How are you going to reach the size of business you want? List down the steps and give yourself a timeline to reach these goals.
Are you wanting to gain cash-flow from your properties or equity? This is important to consider because it can greatly change the way your business plan is set up. It will change how frequently you will want to buy and sell and the types of rentals you are willing to start with.
What stage of life are you in? This can help determine how much time you have to reach certain goals, what you’re willing to sacrifice, and how much of your own resources you have to work with.
How does owning properties fit in with other goals you have in your life? You will need to consider in what ways it will help you achieve other goals and in what ways it might hinder them and adjust your plans accordingly.
When looking at the Umschreibung sculpture, one lesson we could draw from it is that no matter how hard we work we might be going nowhere. Don’t let this be true of you. Create a business plan so that you can figure out the end destination from your time as a landlord.
Disclaimer - I am not a financial plan advisor. The information and ideas provided here have been compiled from talking with other landlords about their personal experiences.
