Protecting Your Investment Property During Downturn

You may think that in this market, when a Vancouver landlord can rent almost anything, it’s an odd time to talk about preparing for a downturn. But a downturn will come. It always does.

Over the more than 30 years that I’ve been in the real estate industry, I’ve seen cycles come and go, as regular as clockwork. Remember 2008?

That’s when many landlords came to me for advice because they couldn’t rent up their buildings. It was a tenants’ market – vacancies were high and tenants could afford to be picky.

While unprepared landlords were scrambling to rent up their properties, landlords who had maintained their buildings to higher levels had fewer problems – their tenants were less likely to make a mass exodus when the market turned.

If I could tell the unprepared landlords one thing, it would be this, “Invest in your building in good times, so that you’re ready for the bad times.”

What do I mean by “invest”? I mean that, in addition to regular maintenance such as servicing your systems, caulking your windows, and cleaning your gutters, you should be making thoughtful, long-lasting upgrades that add value to your building, and make tenants appreciate what they’re paying for. Things like new tile around a tub, solid surface countertops, attractive landscaping, modern lighting, and up-to-date plumbing.

The key is to choose long-lasting upgrades. New tilework is durable and, if you have a messy tenant, can be cleaned back into like-new condition. Similarly, solid-surface countertops that are difficult to cut, burn, or break, are a long-lasting investment – they will look clean and modern for years to come. Carpets and paint should be replaced when they are worn, but don’t think of them as investments, they wear quickly and often.

You don’t have to make your upgrades all at once; pick one upgrade a year and chip away at it in a 7-year plan. Regularly ask yourself, “What’s the one thing I could do this year to make my building better?”

I know that right now, many landlords are taking all of their profits out of their building, but it’s a short-term gain. Landlords who haven’t invested in their building will suffer a double-whammy when the market turns: they’ll need to upgrade to attract tenants, and they’ll have less money to do it with due to an increased vacancy rate.

Always maintain your building as if it’s for sale – even if it’s not – and you will be better positioned to handle the inevitable market downturn when it comes.

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